Backlog is the dollar value of signed contracts a firm has not yet performed, the work already sold but not yet billed. For an architecture, engineering, or surveying firm, backlog is the clearest forward-looking evidence that revenue will continue after the owner leaves, which makes it one of the first numbers buyers and lenders ask for in a sale.
How backlog is measured
Backlog is contract value under signed agreements and notices to proceed, minus what has already been billed. Buyers usually translate it into months of revenue coverage: a firm billing $4,000,000 a year with $3,000,000 of contracted backlog is carrying about nine months of work. Six to twelve months of coverage is a healthy position for most A/E firms heading into a sale.
How backlog affects price and financing
Banks underwrite acquisition loans on historical cash flow, but backlog answers the underwriter's next question: will that cash flow continue under new ownership? Strong, documented backlog supports a confident DSCR story and helps a firm command the top of its EBITDA multiple range. Thin backlog, or backlog dominated by one client, invites price reductions and tougher structure.
Cleaning up backlog before a sale
Two fixes pay for themselves many times over. First, get the work papered: handshake arrangements and verbal extensions that everyone honors do not count until they are signed contracts, master service agreements, or task orders. Second, spread the client relationships behind the backlog to the key employees who may become the buyers. Work that is contracted, documented, and managed by people who are staying is backlog a lender will believe in.
