Which exposure is the percentage intended to describe?
Builder concentration needs a defined population. A revenue share describes work recorded during a period. A receivable share describes amounts outstanding at a date. A backlog share describes remaining work under a stated definition. Those quantities should be measured separately.
The distinction matters when a company serves several builders with different payment timing and project schedules. A customer can account for a modest share of annual revenue but a large share of current unpaid invoices. Another can dominate future contracted work while owing little today.
The valuation hub connects the definition with earnings and transaction review. This guide builds a builder-family concentration card, rather than applying a standard risk threshold. Working capital pegs addresses the separate treatment of assets and liabilities in the agreement.
Start with customer records and the decision at hand. You may need separate views of past revenue, near-term cash, and remaining contracted work. One percentage cannot answer all three questions.
How should customer identities and groups be established?
Keep the legal customer name, account ID, contract party, and project names. A brand may cover several entities. Map records before grouping amounts, and retain the invoice and agreement behind each one.
Keep evidence for a proposed builder group. It may show ownership, payment arrangements, shared buying decisions, or another relevant link. Explain why the records are combined. Keep the separate amounts and the actual parties to each contract beside the group total.
Similar names or a shared contact do not prove shared ownership or the same duty to pay. If the link is unconfirmed, say so. A group based on an unverified assumption can make the measured concentration look higher or lower than the records support.
The IRS's Publication 583 supports maintaining sales, receipts, and other business records. Those records populate the original calculation. The publication does not prescribe a concentration threshold or determine which customers belong in a builder family.
The following card is an original review tool:
| Card field | Evidence to preserve | Exposure it clarifies |
|---|---|---|
| Customer identity | Legal name, account ID, contract counterparty | Which entity owes or directs the work |
| Group basis | Documented relationship and analytical reason | Why separate records are combined |
| Revenue period | Included work and accounting basis | Historical dependence |
| Receivable snapshot | Invoices, credits, aging, payments | Current outstanding exposure |
| Defined backlog | Contracts, approved changes, remaining scope | Future committed work |
| Continuity questions | Relevant agreements and decision makers | What needs review in a sale |
| Reconciliation | Separate entities and combined totals | Whether the percentages can be reproduced |
How do three concentration measures differ in an example?
Assume a hypothetical documented builder group accounts for $300,000 of a company's $1,000,000 annual revenue. Its revenue concentration is thirty percent under the stated period and accounting basis.
At a selected date, assume the same group owes $120,000 of the company's $200,000 total receivables. Its receivable concentration is sixty percent. Separately, assume it represents $180,000 of $900,000 in defined contracted backlog. Its backlog concentration is twenty percent.
| Hypothetical population | Builder-group amount | Matching company total | Share |
|---|---|---|---|
| Annual revenue | $300,000 | $1,000,000 | 30% |
| Receivables at the stated date | $120,000 | $200,000 | 60% |
| Defined contracted backlog | $180,000 | $900,000 | 20% |
These percentages are not risk cutoffs or representative plumbing statistics. They demonstrate different denominators and measurement dates. The sixty percent receivable share does not prove that the balances are overdue, disputed, or uncollectible.
The buyer should check payment terms, invoice age, retainage, and money received on unpaid balances. Review the work, costs, and resources needed for the backlog separately. Combining those questions under one concentration label hides the difference between money still due and work still to be done.
If the total is zero or the records are unreliable, state that limit. Do not invent an ordinary percentage or use a different total just to produce one. A comparison needs a denominator backed by records. Keep unresolved amounts visible.
Which timing and accounting choices affect the result?
Use the same basis for the builder amount and company total. Mixing billed project amounts with recognized company revenue can create an invalid share. Identify how credits, progress billing, retainage, and other relevant amounts are treated in each population.
The IRS's Publication 538 explains tax accounting periods and methods. Tax timing can differ from another financial or operating view. Ask the accountant to reconcile the actual documents before comparing concentration across reports with different bases.
Show the dates clearly. Annual revenue covers a period. Unpaid balances and defined backlog often describe one date. A recent project bill can raise the receivable share for a time. That does not prove a lasting change in the builder's share of annual revenue.
Review group and category changes across periods. If accounts were merged, renamed, or reclassified, preserve the mapping. An apparent concentration trend may partly reflect reporting changes rather than a real shift in work or collections.
The quality of earnings guide provides the broader verification program. This definition's narrower task is to ensure each percentage has a compatible numerator, denominator, date, and identity basis.
What contract and relationship questions belong alongside the percentage?
Identify the actual agreements, approval processes, and customer decision makers. Review what work is committed, what remains optional, and which terms affect performance or payment. A history of repeat work is different from a signed commitment for future projects.
The SBA's buying an existing business guidance recommends examining contracts, cash flow, and professional assistance among other acquisition matters. It does not define a national builder-risk formula or prove that any customer relationship transfers automatically.
Have advisers review assignment, consent, termination, and relevant qualification questions using the actual transaction and agreements. Record the unresolved questions and responsible persons. Avoid turning a seller's long relationship into a promise of continued work after closing.
Review who estimates, coordinates, and maintains the builder relationship. If the owner performs those duties, the buyer needs an operating plan. The SDE definition separates an owner earnings convention from the cost of continuing necessary work.
Check collections as well. Compare promised terms with actual payments and record important disputes or credits. The percentage can show where to look next. It does not establish the amount or likelihood of a future loss. That question needs further facts about the specific balances and customer.
How should concentration enter a financing or cash review?
Keep supported exposure separate from a proposed financial treatment. A buyer might test delayed collections, project timing, or the cost of completing remaining work. Label those as scenarios unless actual evidence establishes the assumed event.
For relevant SBA-financed transactions, the current SOP 50 10 8.1 technical updates, effective October 1, 2026, include applicable cash proof and normalized earnings requirements. They do not prescribe the builder concentration threshold in this original card.
Ask the lender and accounting advisers how the company records support their analysis. A seller's concentration schedule is an input for review, rather than proof of financing eligibility or debt-service cash. Preserve differences between historical evidence and the proposed buyer's assumptions.
Use this sequence to complete the card:
- Define the revenue, receivable, and backlog questions separately.
- Map legal customer identities and document any group relationship.
- Reconcile amounts to matching company totals, periods, and bases.
- Review payment history, contracts, cost-to-finish, and operating relationships.
- State uncertain facts and label any delayed-payment or continuity scenarios.
- Reconcile proposed earnings, working capital, and cash treatments without duplicate deductions.
The lead-source concentration definition applies a related population discipline to demand channels, but customer exposure and marketing attribution remain different questions. Keep each measure attached to its own evidence.
How should sellers present it, and which common mistakes matter?
A seller should show separate revenue, receivable, and backlog shares, with grouping records beside them. Explain changes before using the schedule in a sale file. Keep unconfirmed relationships visible.
Common mistakes include mixing annual revenue with a receivable snapshot, combining similar customer names without proof, or treating a percentage as a predicted loss. Keep populations and dates clear. No universal cutoff or automatic price discount is established here.