CBIZ & MHM Executive Education Series™
Benchmarking for Contractors
Presented by:
Anthony M. Hakes, CPA
Anthony R. Staglia...
2#CBIZMHMwebinar
 To view this webinar in full screen mode, click on view
options in the upper right hand corner.
 Click...
3#CBIZMHMwebinar
 This webinar is eligible
for CPE credit. To receive
credit, you will need to
answer periodic
participat...
4#CBIZMHMwebinar
The information in this Executive Education Series
course is a brief summary and may not include all
the ...
5#CBIZMHMwebinar
Today’s Presenters
Anthony M. Hakes, CPA, CCIFP
Shareholder, MHM
602.650.6225 | ahakes@cbiz.com
Tony is a...
6#CBIZMHMwebinar
Today’s Agenda
1
2
Overview and Background
Financial Benchmarking
Operational Benchmarking3
4 Questions
OVERVIEW AND BACKGROUND
8#CBIZMHMwebinar
What is Benchmarking?
Definition: “Benchmarking is the
continuous process of
measuring products,
services...
9#CBIZMHMwebinar
Embracing Benchmarking
 Wanting to improve your chances for success
 Analyzing your financial statement...
10#CBIZMHMwebinar
Performance Planning Process
 Responsibility of top management
 Understand your company’s purpose
 Th...
11#CBIZMHMwebinar
Principal Types of Benchmarking
Process benchmarking
Functional
Best practices
Self-comparison benchmark...
12#CBIZMHMwebinar
Self-comparison Benchmarking
 Benchmarking without action is just keeping
score
 People attempt to per...
13#CBIZMHMwebinar
Measuring Performance
 Use reliable financial data
 A system of accurate job cost data
 Timely and re...
14#CBIZMHMwebinar
Financial Ratios
 Liquidity Ratios
 Profitability Ratios
 Leverage and Performance Ratios
 Efficienc...
15#CBIZMHMwebinar
Liquidity Ratios
 Current Ratio
 Quick Ratio
 Days in Cash
 Working Capital Turnover
16#CBIZMHMwebinar
Profitability Ratios
 Return on Assets
 Return on Equity
 Return on Sales
 Gross Margin
 Times Inte...
17#CBIZMHMwebinar
Leverage and Performance Ratios
 Debt to Assets
 Debt to Equity
 Interest Bearing Debt to Equity
 An...
18#CBIZMHMwebinar
Leverage and Performance Ratios
 Revenue to Equity
 Overhead to Equity
 Job Profit Fade/Slippage
 Ba...
19#CBIZMHMwebinar
Efficiency Ratios
 Backlog to Working Capital
 Months in Backlog
 Asset Turnover
 Fixed Asset Ratio
...
20#CBIZMHMwebinar
Operating Performance Measures
 Other half of a comprehensive overall performance
measurement system
 ...
21#CBIZMHMwebinar
Key Operating Indicators
 Labor and equipment productivity
 Subcontractor performance
 Vendor and cus...
22#CBIZMHMwebinar
SIC NAICS____
 Industrial & 1541, 1542 236210, 236220
Nonresidential
 Heavy & Highway 1611, 1622, 2371...
23#CBIZMHMwebinar
Identify Data Sources
 RMA (Risk Management Associates, formally Robert
Morris Associates)
 www.rmahq....
24#CBIZMHMwebinar
Financial Benchmarking Resources
www.financialbenchmarker.com
25#CBIZMHMwebinar
Compare Against Best-in-Class
 Average vs. best-in-class
 Average is just average
 Best-in-class is a...
26#CBIZMHMwebinar
Identify Areas for Improvement
 Create a financial benchmark worksheet
 Financial ratio to be measured...
27#CBIZMHMwebinar
Analytical Review and Reasonableness
 Resources are available
 Puts company in best position to succee...
28#CBIZMHMwebinar
Potential Warning Indicators
 Cash to overbillings < 1 to 1
 Average age of receivables > 60 days
 Un...
29#CBIZMHMwebinar
Potential Warning Indicators (cont.)
 Overhead to equity > 1 to 1
 Annual revenue increase > 50%
 Job...
30#CBIZMHMwebinar
Potential Warning Indicators (cont.)
 Overhead increase % > Revenue increase %
 Accts. receivable from...
31#CBIZMHMwebinar
Questions?
32#CBIZMHMwebinar
 Join us for these courses:
 7/24: Second Quarter Accounting Update
 8/14: Revenue Recognition for th...
33#CBIZMHMwebinar
Connect with Us
linkedin.com/company/
mayer-hoffman-mccann-p.c.
@mhm_pc
youtube.com/
mayerhoffmanmccann
...
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EES Webinar: Benchmarking for the Construction Industry

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EES Webinar: Benchmarking for the Construction Industry

  1. 1. CBIZ & MHM Executive Education Series™ Benchmarking for Contractors Presented by: Anthony M. Hakes, CPA Anthony R. Stagliano, CPA July 22, 2014
  2. 2. 2#CBIZMHMwebinar  To view this webinar in full screen mode, click on view options in the upper right hand corner.  Click the Support tab for technical assistance.  If you have a question during the presentation, please use the Q&A feature at the bottom of your screen. Before We Get Started…
  3. 3. 3#CBIZMHMwebinar  This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webinar.  External participants will receive their CPE certificate via email immediately following the webinar. CPE Credit
  4. 4. 4#CBIZMHMwebinar The information in this Executive Education Series course is a brief summary and may not include all the details relevant to your situation. Please contact your service provider to further discuss the impact on your business. Disclaimer
  5. 5. 5#CBIZMHMwebinar Today’s Presenters Anthony M. Hakes, CPA, CCIFP Shareholder, MHM 602.650.6225 | ahakes@cbiz.com Tony is an MHM Shareholder and CBIZ director in the Phoenix office and leads their Construction Industry Services Group. Tony services a variety of client including general contractors, home builders and real estate developers. He has provided consultation to clients on various accounting and reporting issues including revenue recognition, joint ventures, leases, variable interest entities and evaluation of change orders and claims. Tony is also a designated Certified Construction Industry Professional (CCIFP). Anthony R. Stagliano, CPA, CCIFP Shareholder, MHM 610.862.2410 | tstagliano@cbiz.com Tony, based in our Philadelphia office, is the Managing Practice Leader of the Construction Industry Group and has over 35 years of experience exclusively with construction and real estate industry clients. He specializes in providing attest, tax and consulting services for contractors and is recognized nationally as a leading expert in construction industry financial management. He is active in several construction associations. Tony is a Certified Construction Industry Financial Professional (CCIFP).
  6. 6. 6#CBIZMHMwebinar Today’s Agenda 1 2 Overview and Background Financial Benchmarking Operational Benchmarking3 4 Questions
  7. 7. OVERVIEW AND BACKGROUND
  8. 8. 8#CBIZMHMwebinar What is Benchmarking? Definition: “Benchmarking is the continuous process of measuring products, services, and practices against the toughest competitors or those companies recognized as industry leaders.” David T. Kearnes, CEO, XEROX Corporation
  9. 9. 9#CBIZMHMwebinar Embracing Benchmarking  Wanting to improve your chances for success  Analyzing your financial statements looking for warning signs  Start with your balance sheet and income statement  Calculate important ratios  Compare results with peers in the construction industry  Be proactive in implementing improvement  Innovation the key component of top performing companies  Innovation requires commitment & paradigm shift
  10. 10. 10#CBIZMHMwebinar Performance Planning Process  Responsibility of top management  Understand your company’s purpose  The overriding goal equates to success for the company  Goal must be attainable and achievable  Goal must be formally forecasted and measured  Compare yourself to competitors
  11. 11. 11#CBIZMHMwebinar Principal Types of Benchmarking Process benchmarking Functional Best practices Self-comparison benchmarking Internal Baselines Performance benchmarking Competitive “Best-of-class”
  12. 12. 12#CBIZMHMwebinar Self-comparison Benchmarking  Benchmarking without action is just keeping score  People attempt to perform at higher levels if their performance is measured  How do we compare against ourselves (last year, last job, etc.):  Comparative financial statements  Closed job analysis  Historical ratio analysis  Unit of measure productivity assessments
  13. 13. 13#CBIZMHMwebinar Measuring Performance  Use reliable financial data  A system of accurate job cost data  Timely and readily available financial and job cost data
  14. 14. 14#CBIZMHMwebinar Financial Ratios  Liquidity Ratios  Profitability Ratios  Leverage and Performance Ratios  Efficiency Ratios
  15. 15. 15#CBIZMHMwebinar Liquidity Ratios  Current Ratio  Quick Ratio  Days in Cash  Working Capital Turnover
  16. 16. 16#CBIZMHMwebinar Profitability Ratios  Return on Assets  Return on Equity  Return on Sales  Gross Margin  Times Interest Earned  Gross Profit in Backlog
  17. 17. 17#CBIZMHMwebinar Leverage and Performance Ratios  Debt to Assets  Debt to Equity  Interest Bearing Debt to Equity  Annual Principal Debt Service  Annual Revenue Increase  Cash to Overbillings  Underbillings to Equity  Revenue to Working Capital
  18. 18. 18#CBIZMHMwebinar Leverage and Performance Ratios  Revenue to Equity  Overhead to Equity  Job Profit Fade/Slippage  Backlog to Equity  Months in backlog  General and Administrative Expenses to Revenue  Equity to General and Administrative Expenses
  19. 19. 19#CBIZMHMwebinar Efficiency Ratios  Backlog to Working Capital  Months in Backlog  Asset Turnover  Fixed Asset Ratio  Days in Accounts Receivable  Average Age of Receivables  Days in Inventory  Days in Accounts Payable  Average Age of Payables  Operating Cycle
  20. 20. 20#CBIZMHMwebinar Operating Performance Measures  Other half of a comprehensive overall performance measurement system  Consists of operating performance measures  Looks at operating statistics  Flows from financial performance measures  Provides a more detailed analysis of specific areas
  21. 21. 21#CBIZMHMwebinar Key Operating Indicators  Labor and equipment productivity  Subcontractor performance  Vendor and customer quality  Financial and job cost reporting performance  Jobs completed ahead of schedule or with minimal punch list items  Cost of processing certain types of transactions  Cost of performing contracts on certain sized jobs  Productivity of project managers and crews
  22. 22. 22#CBIZMHMwebinar SIC NAICS____  Industrial & 1541, 1542 236210, 236220 Nonresidential  Heavy & Highway 1611, 1622, 237110 to 237990 1623, 1629  Specialty Trades 1711-1799 238110 to 238990 Website: www.naics.com Contractor Classifications
  23. 23. 23#CBIZMHMwebinar Identify Data Sources  RMA (Risk Management Associates, formally Robert Morris Associates)  www.rmahq.org  PAS (Personnel Administrative Services) www.pas1.com  FMI (for customized benchmarking) www.fminet.com  Trade Associations  Industry Focus Groups  Sureties  CFMA www.financialbenchmarker.com
  24. 24. 24#CBIZMHMwebinar Financial Benchmarking Resources www.financialbenchmarker.com
  25. 25. 25#CBIZMHMwebinar Compare Against Best-in-Class  Average vs. best-in-class  Average is just average  Best-in-class is a goal worth achieving  Top 25 percent of most profitable firms  Set strategic goals
  26. 26. 26#CBIZMHMwebinar Identify Areas for Improvement  Create a financial benchmark worksheet  Financial ratio to be measured  Formula  Best-in-class/benchmark ratio results  Your company’s ratio results  Comments/action plan
  27. 27. 27#CBIZMHMwebinar Analytical Review and Reasonableness  Resources are available  Puts company in best position to succeed  Should be part of year end engagement  Great opportunity to impress credit grantors
  28. 28. 28#CBIZMHMwebinar Potential Warning Indicators  Cash to overbillings < 1 to 1  Average age of receivables > 60 days  Underbillings to equity > 20 %  Fixed assets to equity > 1 to 1  Average age of payables > 45 days  Debt to equity > 3 to 1  Revenue to working capital > 20 to 1  Interest bearing debt to equity > 80 %  Annual principal debt service > depreciation
  29. 29. 29#CBIZMHMwebinar Potential Warning Indicators (cont.)  Overhead to equity > 1 to 1  Annual revenue increase > 50%  Job profit fade/slippage > 10%  No cash  No interest income  Current ratio deterioration  Losses for 2 or more consecutive years  Backlog to trailing 12 months revenue  Largest job > 150% of previous largest job
  30. 30. 30#CBIZMHMwebinar Potential Warning Indicators (cont.)  Overhead increase % > Revenue increase %  Accts. receivable from officers or related parties  Real estate development activities  Purchase of restaurant and/or golf course
  31. 31. 31#CBIZMHMwebinar Questions?
  32. 32. 32#CBIZMHMwebinar  Join us for these courses:  7/24: Second Quarter Accounting Update  8/14: Revenue Recognition for the Construction Industry  8/26: Revenue Recognition for the Construction Industry If You Enjoyed This Webinar…
  33. 33. 33#CBIZMHMwebinar Connect with Us linkedin.com/company/ mayer-hoffman-mccann-p.c. @mhm_pc youtube.com/ mayerhoffmanmccann slideshare.net/mhmpc linkedin.com/company/ cbiz-mhm-llc @cbizmhm youtube.com/user/ BizTipsVideos slideshare.net/CBIZInc MHM CBIZ
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