Is Your Contracting Business Relying Too Much on Backlogs for Reliable Work?

Scheduling work far out in advance is a good way of protecting your cash flow. But what happens when the flow of new projects dries up? The pandemic has changed the demand for construction significantly, although some areas are affected more than others. If you’ve been relying on a backlog to ensure that you always have something to do next, now might be the time to change your tactics. Here are a few things to think about as you plan.

How Have Backlogs Protected Construction?
The construction industry often has a slow season, although this depends on the area and the specialty. Contracting business owners have long had to plan for slow times and expanded their business offerings so that they can keep paying their bills until they get busy again. The thing is, construction hasn’t had much of a slow season for several years. This is how the industry kept growing, even as other industries were starting to notice slowing in 2018 and 2019. Having a large backlog of future projects translates into a more reliable income. That makes it easier for you to hire regular employees and provide a better guarantee of paying them consistently.

How Are Backlogs Measured in the Construction Industry?
In the construction industry, backlogs are measured by a certain number of months. If you have a backlog of 8 months, this means that you have 8 months’ worth of projects already in the pipeline. Over the past year, backlogs for the industry have dropped by about 0.5-1.5 months a handful of times. If you were tracking along with much of the industry, that might mean that you have not added as many new projects to replace current ones. Over time, if backlogs completely run out, that means companies may lose a significant amount of potential income.

How Significant Have California’s Backlogs Been in Recent Years?
Of course, backlogs are region-specific as well as related to the specialty. Anyone who lives in California should be well aware that the state has had a significant backlog of housing and commercial projects that could extend out for several years. The changing economy can throw this into flux. If land prices remain high and investors remain wary, it’s likely that new construction starts will drop. If prices go down or if the economy rebounds strongly, investors may feel more comfortable about funding construction projects.

What Does a Loss in Backlogs Indicate for the Coming Years?
In the middle of a crisis, it is difficult to predict what will happen in the next five years. After all, in 2010, it wouldn’t have been unusual to claim that California would never have the same kind of construction momentum that it had in 2005 or 2006. Yet the industry rebounded and moved even faster. In the short term, it is likely that the loss of backlogs means that you may need to take fewer risks with your cash flow, or find other ways to protect your income.

What Can Contracting Businesses Do to Protect Future Income?
It might seem logical to extend projects to increase your backlog, if only to protect cash flow. But in this case, efficiency is more likely to win the day. Think about the ways that you waste time or money unnecessarily right now, and cut back. Focus on maintaining cash flow and being realistic about your estimates. Avoid bidding below your costs on projects, as this may only drive a race to the bottom with companies competing against each other to earn less. Instead, focus on providing a value relevant to the current economic climate.

Building a backlog of projects can help to protect your income, but you can’t always count on it. To start building a contracting business you can count on for the rest of your career, visit CSLS today!


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About CSLS

Contractors State License Service (CSLS) is the largest school in California devoted to the Construction professional. For over 23 years, CSLS has helped its students pass the exam to become licensed contractors in the State of California, licensing more students than any other school. From our main offices in Southern California, CSLS operates over 25 locations with full-service support and classrooms. We have grown to this extent by providing quality, professional services. In comparison, this provides 7 times the number of convenient locations than the second largest contractor school. Contractors State License Services is one of the only contractor schools in the state that is run by educators, not lawyers or people mostly interested in the bonding and insurance business. Contractors State License Services formerly operated under the oversight of the State of California's Bureau for Private Post Secondary and Vocational Education. As of January 1 2010, the new Bureau for Private Postsecondary Education (BPPE) came into existence replacing the BPPVE. CSLS now operates under the provisions of the California Private Postsecondary Education Act of 2009 (CPPEA), Article 4 Section 94874(f). Our Mission is simple; We can help you pass your California Contractors License Exam. Celebrating our 25th year, CSLS has helped over 120,000 students pass the California contractor licensing exam to become licensed contractors in the State of California. Additionally, we offer complete home study and online contractor’s license programs to help you pass your California contractors license exam. CSLS offers licensing classes for all types of contractor licenses, including General Engineering Contractor, General Building Contractor, Specialty Contractor, Insulation and Acoustical Contractor, Framing and Rough Carpentry Contractor, Cabinet, Millwork and Finish Carpentry Contractor, Concrete Contractor, Drywall Contractor, Electrical Contractor, Elevator Contractor, Landscaping Contractor, Warm-Air Heating, Ventilating and Air-Conditioning Contractor, and many others. For a complete list of contractor licenses, visit and tuned for more informative posts.