A full backlog does not always mean healthy cash flow

RCS Influencer Rich Carroll says forecasting is key to managing cashflow.

One of the most dangerous assumptions a roofing contractor can make is that a full backlog automatically means the company is financially healthy. A strong backlog is certainly encouraging, but backlog represents future revenue, not cash in the bank.

Throughout my years in the roofing industry, I have seen profitable companies struggle to meet payroll, pay suppliers and cover overhead simply because the timing of their cash did not match the timing of their expenses.

Roofing contractors often spend a significant amount of money before receiving payment. Materials may need to be purchased, labor must be paid weekly, equipment must be mobilized and subcontractors may require payment before the contractor collects from the customer. Meanwhile, invoices may not be paid for 30, 60 or even 90 days. Retainage can delay a portion of the money even longer.

The result is a cash-flow gap. The company may be profitable on paper and have months of work under contract, yet still find itself relying on a line of credit to fund daily operations.

Contractors must also remember that overhead continues regardless of when projects start or customers pay. Office salaries, vehicle payments, insurance, rent, software and other fixed expenses do not wait for receivables to come in.

Managing this requires more than reviewing the income statement once a month. Roofing companies should maintain a rolling 13-week cash-flow forecast that identifies expected collections, payroll, material purchases, taxes and overhead. This allows leadership to see potential shortages early enough to take action.

Production scheduling must also be coordinated with financial planning. Starting several material-heavy projects at the same time can place tremendous pressure on cash. Before releasing a job into production, contractors should consider:

• When materials must be purchased.
• When payroll and subcontractor costs will occur.
• When the first invoice can be submitted.
• How long the customer typically takes to pay.
• Whether retainage will be withheld.

Billing should happen promptly and someone must be accountable for following up on unpaid invoices. Change orders should be approved and billed as the work occurs, not saved until the end of the project. Contractors should also negotiate deposits, stored-material billing and favorable supplier terms whenever possible.

Backlog tells you how much work is ahead. Cash-flow forecasting tells you whether the company can afford to perform that work. Strong roofing companies monitor both. The goal is not simply to stay busy; it is to convert that activity into consistent cash, sustainable profit and long-term financial strength