# Construction Financial Reports — Future

---

## Preface

### What this guide covers

This guide covers **forecasting** — forward-looking estimates of what is *about to* happen, built on top of the actuals from Guide 1. Where **Guide 1: Past & Present** organizes *historical* reports into three categories — Company level, Job level, and Service level — this guide covers the one layer that looks ahead: the **future (forecast) reports**.

| What you need | Where it lives |
| --- | --- |
| Historical reports — Company level, Job level, Service level | **Guide 1: Past & Present** |
| **Forecast reports** — backlog, forecasted income statement, 13-week cash flow, forecasted balance sheet | **Guide 2 (this guide)** |

### The golden rule of forecasting

> **You cannot credibly forecast until the actuals and WIP beneath you are trustworthy.** A forecast is only as good as the backlog, margin, and AR/AP timing it is built from — all of which come from Guide 1.

---

## Chapter 1 — Why Forecast, and in What Order

### 1.1 Forecasting sits on top of history

A forecast is not a guess pulled from the air. It is the *mechanical projection* of things you already measure: the backlog on your WIP, the margins on your jobs, and the timing of your receivables and payables. If those inputs are wrong, the forecast is wrong — confidently.

### 1.2 Build them in this order

```
1. WIP Backlog                  (when does remaining work convert to revenue?)
2. Forecasted Income Statement  (revenue, cost, and margin going forward)
3. Forecasted 13-Week Cash Flow (the near-term survival report)
4. Forecasted Balance Sheet     (derived from the three above)
```

Each report feeds the next. Skip ahead and you build on sand.

### 1.3 What feeds what

```
Guide 1 WIP / backlog     -> WIP Backlog -> Forecasted Income Statement
Guide 1 AR & AP Aging     -> Forecasted 13-Week Cash Flow
Forecasted IS + Cash Flow + AR/AP/retention assumptions -> Forecasted Balance Sheet
```

---

## Chapter 2 — WIP Backlog (The Seed)

### 2.1 What backlog is

```
Backlog = Revised Contract − JTD Revenue
```

It is the contract value not yet performed — the work that *will* become future revenue. Backlog is **not** cash and **not** receivable; it is promised future work.

### 2.2 From a number to a schedule

A single backlog figure is not yet a forecast. The WIP Backlog report **spreads** each job's backlog across its expected completion schedule:

```
Job | Remaining Backlog | Revenue by Month | Cost by Month | Gross Profit by Month
```

### 2.3 Worked example — spreading one job

Take job J-300 from Guide 1: backlog **532,000**, expected to finish over **4 months**, at its estimated gross margin of **28.6%** (320,000 ÷ 1,120,000).

```
Monthly revenue = 532,000 / 4            ≈ 133,000
Monthly cost    = 133,000 × (1 − 0.286)  ≈  95,000
Monthly GP      = 133,000 − 95,000       ≈  38,000
```

| Month | Revenue | Cost | Gross Profit |
| --- | ---: | ---: | ---: |
| M1 | 133,000 | 95,000 | 38,000 |
| M2 | 133,000 | 95,000 | 38,000 |
| M3 | 133,000 | 95,000 | 38,000 |
| M4 | 133,000 | 95,000 | 38,000 |
| **Total** | **532,000** | **380,000** | **152,000** |

Repeat for every job and sum the columns — that monthly revenue/cost/GP curve is the backbone of the forecasted income statement.

---

## Chapter 3 — Forecasted Income Statement

### 3.1 Inputs and outputs

```
Inputs:  current backlog (Chapter 2) · expected completion timing · gross margin
         · overhead budget · new-work (booking) assumptions
Outputs: Forecasted Revenue · Forecasted Cost · Forecasted Gross Profit
         · Forecasted Overhead · Forecasted Net Income
```

The forward P&L is mostly **backlog conversion** (work you already hold) plus a layer of **assumed new work** you expect to win. Keep the two visibly separate — backlog is far more reliable than bookings you haven't signed.

### 3.2 Worked example — a forecast quarter

Suppose summed backlog conversion plus expected new work produces:

```
Forecasted Revenue        = 1,200,000
Forecasted Cost (80%)     =   960,000
Forecasted Gross Profit   =   240,000
Forecasted Overhead/G&A   =   150,000
Forecasted Net Income     =    90,000
```

| Line | Amount |
| --- | ---: |
| Forecasted Revenue | 1,200,000 |
| Forecasted Cost | 960,000 |
| Forecasted Gross Profit | 240,000 |
| Forecasted Overhead / G&A | 150,000 |
| **Forecasted Net Income** | **90,000** |

### 3.3 Reading it

A forward gross margin of 20% with overhead at 12.5% of revenue leaves a 7.5% net. If the backlog's blended margin is fading (Guide 1, Chapter 4), this is where it shows up as a shrinking forward gross profit — long before it hits an actual income statement.

---

## Chapter 4 — Forecasted 13-Week Cash Flow

### 4.1 Why 13 weeks

One quarter, week by week, is short enough to schedule real collections and payments yet long enough to see a squeeze coming. This is the report that tells you whether you can make payroll — profit on the income statement does not.

### 4.2 Inputs and outputs

```
Inputs:  AR collection schedule · AP payment schedule · payroll · tax
         · debt service · manual adjustments
Outputs: Beginning Cash · Cash In · Cash Out · Net Cash Flow · Ending Cash
         · MINIMUM CASH WEEK
```

The collection and payment timing come straight from Guide 1's AR and AP aging — which is why the aging reports matter so much.

### 4.3 Worked example — four representative weeks

```
Beginning cash (Week 1) = 250,000
```

| Week | Begin | Cash In | Cash Out | Net | End |
| --- | ---: | ---: | ---: | ---: | ---: |
| 1 | 250,000 | 180,000 | 210,000 | −30,000 | 220,000 |
| 2 | 220,000 | 120,000 | 240,000 | −120,000 | 100,000 |
| 3 | 100,000 | 160,000 | 250,000 | −90,000 | 10,000 |
| 4 | 10,000 | 300,000 | 180,000 | +120,000 | 130,000 |

Week 3 ends at **10,000** — the **minimum cash week**. Even though the quarter ends healthy at 130,000, the company nearly runs dry in week 3. That is the entire point of the report: the *trough*, not the endpoint, is what can kill you.

### 4.4 Acting on it

When a trough appears, you have levers: accelerate a collection (Guide 1 AR aging), defer a non-critical AP (Guide 1 AP aging, respecting vendor criticality), draw on a line of credit, or delay a discretionary payment. The 13-week view is what lets you act *before* week 3, not during it.

---

## Chapter 5 — Forecasted Balance Sheet

### 5.1 A derived report

The forecasted balance sheet is not estimated directly — it *falls out* of the other forecasts:

```
Forecasted Income Statement   (net income -> equity)
+ Forecasted 13-Week Cash Flow (ending cash -> cash)
+ AR / AP / retention assumptions
+ debt / capex assumptions
= Forecasted Balance Sheet
```

### 5.2 How the pieces land

```
Net income (Ch 3)        -> increases Retained Earnings / Equity
Ending cash (Ch 4)       -> Cash
AR/AP/retention timing    -> the working-capital accounts
Debt draws / repayments   -> Debt
Capex                     -> Equipment / fixed assets
```

Because it depends on all three earlier forecasts, it is built **last** — and it must still satisfy `Assets = Liabilities + Equity`, which makes it a useful consistency check on the whole forecast set.

---

## Chapter 6 — Putting It Together: The Forecasting Cycle

### 6.1 The loop

```
Actuals & WIP (Guide 1)
   -> Backlog (Ch 2)
   -> Forecasted Income Statement (Ch 3)
   -> Forecasted 13-Week Cash Flow (Ch 4)
   -> Forecasted Balance Sheet (Ch 5)
   -> next period's actuals -> compare to forecast -> refine assumptions
```

Forecasting is not a one-time exercise; it is a cycle. Each period you compare what happened to what you projected, and you tune the assumptions — completion timing, margins, collection speed — that drove the miss.

### 6.2 The three questions a good forecast answers

```
1. How much revenue and profit is coming, and from where (backlog vs. new work)?
2. Can we fund it — what is the tightest cash week, and how do we cover it?
3. Does the projected balance sheet stay healthy and internally consistent?
```

---

## Appendix A — Future Reports at a Glance

| Report | Built from | Key output |
| --- | --- | --- |
| WIP Backlog | Revised contract − JTD revenue, spread over schedule | Revenue/cost/GP by month |
| Forecasted Income Statement | Backlog conversion + new-work + overhead | Forecasted net income |
| Forecasted 13-Week Cash Flow | AR & AP timing, payroll, tax, debt | Minimum cash week |
| Forecasted Balance Sheet | The three reports above + working-capital assumptions | A consistent projected balance sheet |

---

## Appendix B — Forecasting Glossary

| Term | Meaning |
| --- | --- |
| Backlog | `Revised Contract − JTD Revenue`; promised future work |
| Backlog conversion | Spreading backlog into revenue/cost/GP over time |
| New-work assumption | Expected future bookings not yet signed |
| Forward margin | Projected gross margin on forecasted revenue |
| 13-Week Cash Flow | Week-by-week projected liquidity, one quarter out |
| Minimum Cash Week | The tightest projected cash balance in the horizon |
| Liquidity lever | An action (accelerate AR, defer AP, draw credit) to fix a trough |
| Derived report | A report computed from other reports (the forecasted balance sheet) |
| Forecasting cycle | Forecast → actuals → reconcile → refine assumptions |

---

*End of Guide 2. For the actuals these forecasts are built on, see **Guide 1: Past & Present Reports**. For unabridged detail, see the companion reference `reports-by-category.en.md`.*