Managing Backlog for Construction Firms and Contractors
Having a healthy project backlog can indicate a healthy financial status. Having projects on the horizon is amazing, but if not managed properly, having more work can be worse than having little work. A backlog can create challenges for which you must prepare in advance. You must ensure that you’re focused on more than what’s to come but on keeping your current clients satisfied and that your company is bringing in profits.
What is Backlog?
Construction or Contractor Backlog is the number of projects or their value that your firm has in the pipeline but has yet to begin. These are those future projects that you still need to start but for which you have received contracts or won bids. We look at the backlog in terms of time and cash.
When we talk time, we are talking about how much into the future you have worked projects into the schedule. When we talk about cash, we discuss those projects’ profitability.
Why Backlog is Important
A healthy volume of backlog indicates that your company is financially stable and has more guaranteed work to come. When you have projects in the pipeline, you’re less likely to get nervous and start bidding at lower margins to get the job. It also allows you to be more discerning when taking on new projects, ensuring that each one will be profitable. Having a good backlog also helps with sureties often required on large projects.
Achieving Optimal Backlog Balance
Backlog is necessary for all businesses, but balance is essential. If your backlog is too massive and you’re putting off prospective clients for ten months, securing new contracts can be difficult. A lengthy backlog can be problematic.
Clients may not feel that you’ll be able to meet their deadlines or that you cannot keep up with the demand and manage it efficiently. To ensure your business runs smoothly, you must consider three critical metrics: annual revenue, gross profit percentage, and the monthly return on resources. Analyzing these metrics will ensure your company has a balanced backlog ready for whatever lies ahead.
What Happens if a Construction Company Has a Long Backlog?
If having no backlog is not ideal, one might assume that having a long backlog is better. That is not necessarily so. Having a backlog means the company has work in front of them, which is good. It may also signify that the company has won jobs by underbidding the competition. Having a long series of jobs with marginal profits also puts the business on shaky financial ground. Even too long of a backlog with healthy profits can become a problem if the company takes on more than it can handle.
Having a long backlog can have other serious problems as well. A long backlog can stress the company’s schedule and resources, resulting in mistakes or working with subcontractors that may not be qualified enough.
Building an excessively long or unprofitable backlog can also damage the company’s professional reputation. If a client has to wait to start their project too long, they may question the company’s ability to manage projects effectively and hold deadlines.
Managing Project Backlog
While most construction firms know how long projects take, most do not have the clearest picture of what that looks like when measured against profitability. A bookkeeper specializing in managing construction companies’ backlogs uses industry-specific software to accurately track and measure the backlog. This provides the highly detailed information construction business owners need to make critical financial decisions.
Get a Clear, Accurate Picture of Your Backlog
To manage your backlog, use construction-specific project management software to understand what is currently happening and upcoming deadlines clearly. Taking your project from a dream to reality requires more than having an idea in the back of your head. Step up with construction-specific accounting and management software for managing, tracking, and controlling all aspects of what’s going on: that’ll help you maintain a much clearer picture of where things currently stand and give you insight into upcoming deadlines so nothing gets left behind!
It’s also important that your financials are in order, and that’s where Devine Consulting comes in. We ensure you’re always prepared with up-to-date information to make the right decisions.
Communicate With Your Clients
You should always communicate with your clients. But when setting up projects, talking about the project timeline too early can raise doubts in a customer’s mind. Show them that you are well-prepared and experienced by emphasizing the process and getting every detail documented.
Timeline specifics should be addressed only when they feel confident you understand the process. Doing so will quickly solidify trust and build a partnership that sets everyone on track for success!
Make the Right Staffing Decisions for Your Backlog
Even in times of abundance or hardship, it’s essential to manage your resources strategically. If business is booming and finances are healthy, consider building your team with extra hands on deck.
However, if you’re facing financial instability – hiring savvy sales personnel may be the best approach instead of downscaling manpower. If you’re using subcontractors, remember that they will be available for you if you have ample work for them. If suddenly you’re cutting back, their loyalty may wane.
Consider the Economy When Managing Backlog
Knowing your market is essential for predicting and maintaining a healthy backlog. Stay current with the Associated Builders and Contractors Construction Backlog Indicator and pay close attention to sudden shifts in its data, as they could be signs of an upcoming bust or boom. And keep an eye on your finances to ensure profitability.
A company’s financial health is linked to its ability to win and secure new contracts. A more considerable backlog in dollars signals promising potential. It indicates that the economy at large – as represented by the business’s relationships with clients – is doing well and has a steady flow of work on the horizon.
Taking on too many projects quickly could lead to an unmanageable backlog and put unnecessary pressure on resources. Ensure that you understand the level of backlog good for your firm.
Be Realistic About What You Can Manage
Having a healthy backlog is positive, but the construction industry’s competitive and often cash-strapped environment means you must consider your workload carefully. More work may strain resources beyond their limits. Play it safe to ensure successful projects and healthy finances! But if you’re aiming to scale, go for it. Just be systematic about your business growth.
Protect Your Profits
Healthy cash flow is the key to successful project transitions and continued growth. Without it, you risk stalling your prospects altogether! Your accountant and financial controller will help you protect your profits.
These professionals also ensure that you’re saving money where you can, help you set realistic budgets, make suggestions to help you increase revenue, accurately track your finances, and offer advice on managing your backlog.
To build a healthy backlog, make sure you’re taking these steps:
Keep an Eye on the Market
Success in construction bidding requires staying ahead of the curve. To ensure you secure bids on projects with high demand, track regional and sector-specific backlogs – this will give valuable insight into thriving markets within your reach!
Taking the risk to diversify your construction services could steamroll into more success for your company. Expanding offerings and tapping into different markets may call for additional investments in new talent or equipment, but it also comes with great potential rewards!
Maintain Your Relationships
Frequent communication is essential to maintain successful relationships with decision-makers and vital partners. Ensure you stay connected to your general contractors, subcontractors, consultants, architects & engineers, and developers.
Know and Promote Your USP
Your unique selling proposition is what your business does best and what sets you apart. Make sure you know your USP and promote it, whether it’s customer service, unique talents, techniques, or personal touch.
Get Your Bids in First
Winning more bids is achievable with a simple first step – submit an offer early. Establish yourself as the benchmark by ensuring your proposal comes ahead of others and gaining access to upcoming projects through regular outreach within professional networks or capitalizing on online construction bidding marketplaces.
Thrive With Devine Consulting and a Healthy Backlog
In a competitive marketplace, it can be tempting to chase every project out there – but for contractors and construction firms looking for lasting success, the smarter move is to focus energy on projects with solid opportunities and potential returns. This ensures your team stays productive while giving you the best chance to win in an increasingly cutthroat landscape.
Be aware of what you can feasibly deliver. Aim for projects within your scope, and don’t get lured into bidding too low – this could lead to losses that may not always be recoverable! And we’re here to provide valuable insight to ensure success by taking advantage of your financial data and key metrics like backlog tracking.
To discuss how Devine Consulting can keep you on the right track and provide the financial insights and data you need to manage your backlog, schedule your complimentary consult today!