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Similar to 2015 CHICAGO CONFERENCE PRESENTATION Final
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2015 CHICAGO CONFERENCE PRESENTATION Final
- 2. Advice for Achieving the Benefits of Benchmarking
- 3. Caryl Coronis, CPA CFO NBG Constructors carylc@nbgconstructors.com Steve Shipp, CPA Vice President of Finance HGC Construction Co. sshipp@hgcconstruction.com Fern Oram Director, Content Marketing & Communications CFMA foram@cfma.org Billy Stockton, CCIFP Controller Site Specific, LLC bs@sitespecificllc.com Jennifer Miloszewski, CPA Senior Manager Blue & Co., LLC jmiloszewski@blueandco.com Damien Strohmier, CPA Manager Blue & Co., LLC dstrohmier@blueandco.com
- 5. What’s our agenda? Signed, Just Waking up in Chicago
- 6. AGENDA We’ll be taking answers to these (and other!) burning Benchmarker questions: • What were the results from the 2014 Survey and how can I find them in the Benchmarker? • I am wondering where have all the workers gone? • I understand what Best in Class companies’ ratios look like, but my company isn’t quite there yet. What to do? • I’ve seen your results for many years from afar but felt like I couldn’t approach you. How can I fall in love with you and use you every day?
- 7. What were the results from the 2014 Survey and how can I find them in the Benchmarker? Signed, Needing Numbers Now in Nashville
- 9. 688 Respondents between May and August 2014 600 complete financial data submissions 35% Industrial & Nonresidential contractors 19% Heavy & Highway contractors 44% Specialty Trade contractors 2% Other Respondent Profile
- 10. Under $10 22% $10-25 23% $25 - 50 19% $50 - 100 17% $100-300 15% Over $300 4% Respondent Revenue in Millions ($)
- 12. Expected Sales Volume Decrease 2010 43% 2011 27% 2012 17% 2013 4% 2014 15% Expected Sales Volume Increase 2010 27% 2011 47% 2012 54% 2013 60% 2014 53% Sales Volume Expectations
- 13. 2013 2014 Challenge % Challenge % Healthcare insurance costs 25% Shortage of trained field help 39% Sources of future work 20% Sources of future work 24% Shortage of trained field help 19% Healthcare insurance costs 13% Material costs 19% Lack of qualified project managers 13% Lack of qualified project managers 17% Financial condition of federal, state or local government 11% Top Five Greatest Challenges
- 15. 2014 Financial Survey Results Gross Profit is below average for the past five years Gross Profit increased from 9.1% in 2013 to 9.4% in 2014 The five year average is 10.1% Net Income is below average for the past five years Net Income increased from 2.1% in 2013 to 2.5% in 2014 The five year average is 2.7%
- 16. 9.1% 12% 6.0% 15.3% 9.4% 11.1% 6.5% 14.2% 10.1% 11.5% 6.7% 15.5% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade %ofRevenue 2013 2014 5 Yr Avg Gross Profit as % of Revenue
- 17. 2.1% 3% 1.4% 3.1% 2.5% 3.7% 1.7% 3.2% 2.7% 4.3% 1.9% 2.7% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade %ofRevenue Net Income as % of Revenue 2013 2014 5 Yr Avg
- 19. Compare All Survey Respondents with the Best in Class Performers Using the Five Key Ratios: 1. Return on Assets 2. Return on Equity 3. Fixed Assets to Net Worth 4. Debt to Equity 5. Working Capital Turnover 2014 Survey Financial Results and Best in Class Performance
- 20. 5.0% 4.5% 4.4% 6.8% 17.6% 16.8% 14.4% 19.7% 6.2% 5.6% 5.5% 7.9% 17.3% 15.7% 13.1% 19.5% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade ReturnonAssets Return on Assets 2013-2014 2013 All 2013 BIC 2014 ALL 2014 BIC
- 21. 14.2% 10.9% 16.4% 37.5% 40.2% 27.5% 50.1% 14.1% 17.3% 11.1% 19.9% 18.5% 44.1% 29.8% 44.3% 45.4% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade ReturnonEquity Return on Equity 2013-2014 2013 All 2013 BIC 2014 ALL 2014 BIC
- 22. 23.4 53.9 13.1 23.8 10.7 37.4 8.3 13.4 24.8 53.9 13.9 24.1 12.7 40.8 8.1 12.7 0 10 20 30 40 50 60 All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade FixedAssetRatio Fixed Asset Ratio 2013-2014 2013 All 2013 BIC 2014 ALL 2014 BIC
- 23. 1.5 1 2.2 1.11.1 0.9 2.1 0.9 1.6 1.1 2.5 1.31.3 0.7 2.1 1.2 0 0.5 1 1.5 2 2.5 3 All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade DebttoEquity Debt to Equity 2013-2014 2013 All 2013 BIC 2014 ALL 2014 BIC
- 24. 9.6 8 13.6 7.1 10.3 9 15.2 8.2 9 7.3 13.3 7.9 9.7 5.5 14.6 8 0 2 4 6 8 10 12 14 16 All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade WorkingCapitalTurnover Working Capital Turnover 2013-2014 2013 All 2013 BIC 2014 ALL 2014 BIC
- 25. 9.0 6.2 17.3 1.6 24.8 9.7 17.3 44.1 1.3 12.7 Working Capital Turnover Return on Assets (%) Return on Equity (%) Debt to Equity Fixed Asset Ratio (%) All Companies Best In Class 2014 Key Ratio Performance
- 26. I am wondering where have all the workers gone? Signed, Hot Topic Curious
- 27. Combatting the Shortage of Skilled Trade Workers 404 Responding Companies
- 28. Percent of Companies Losing Skilled Trade Workers Yes 43% No 57%
- 29. Percent of Companies Losing Skilled Trade Workers to the Following Areas 58.9% 13.3% 37.8% 59.4% 13.9% 3.9% 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0
- 30. How Will a Shortage of Skilled Trade Affect Company in 2015? 81.4% 37.9% 32.8% 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 More difficult to recruit Will effect bidding Increase overtime budget
- 31. Steps Taken to Address the Shortage of Skilled Trade Workers 38.8% 39.4% 21.2% 25.3% Partner with skilled trade programs On-the-job-training program Educational reimbursement Referral bonuses 0 5 10 15 20 25 30 35 40 45
- 32. Percent of Companies Using the Following Types of Outreach in Recruiting Skilled Trade Workers 40.8% 32.5% 50.3% 33.7% 32% 62.1% 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0
- 33. Most Successful Recruiting or Retention Tool Used by Companies 45.5% 4.9% 18.3% 6.3% Above market compensation/benefit package Employee ownership Work/life balance Limited overnight travel 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0
- 34. What Is the One Perception Companies Would Change about the Industry’s Image to Improve the Worker Shortage Situation? 18.7% 49.5% Income & retirement Not valued or respected 0.0 10.0 20.0 30.0 40.0 50.0 60.0
- 35. HOT TOPIC 2015 THE EMPLOYER/EMPLOYEE VALUE PROPOSITION Meeting Cultural Needs Managing Compensation Expectations Career Development Retention Tools
- 36. I understand what Best in Class companies’ ratios look like, but my company isn’t quite there yet. What to do? Signed, Striving for Success
- 37. Sureties and Bankers Focus on Ability and resources to perform the work Earnings Liquidity and leverage Impacting the Ratios
- 38. Ability and Resources to Perform the Work Capacity Personnel Equipment Months in backlog Impacting the Ratios
- 39. Earnings Net Income Must make money to be successful EBITDA Lending on the ability to create cash flow Gross Profit Gain Fade History Impacting the Ratios
- 40. Liquidity and Leverage Common ratios Use the above as targets to gauge internal Key Performance Indicators. Impacting the Ratios Optimal Range Working Capital Turns 8 – 12 times Debt to Equity <3:1 Net Worth Turns 6-8 times
- 41. Is There a Quick Fix? No and Maybe… Forecast operation for negotiating? Utilize business partners with industry experience Benchmark yourself against others within and outside your line of business Understand how you are being measured and communicate with your business partners Short-Term Solution
- 42. Equipment Utilization Do you have too much equipment? Underutilization impacts profitability, less liquidity and lower working capital Capital budget or reactionary? BUT, I need excess equipment for: Downtime for maintenance or repairs Taking on bigger contracts Long-Term Fixes
- 43. Increase Net Worth 45% is going to taxes What should we retain in the business? Company’s strategic plan over the next 5 years o New division? o Top line growth? o Expanding into a new region? Long-Term Fixes
- 44. Improve Liquidity Integrate project management into billing and collections Front load schedule of values and timely billing Negotiate retainage down One way to make a strong financial work for you! Make more money! Long-Term Fixes
- 45. Bottom to Top Approach for Lasting Impact Goals for your first level of management 1 – 2 key items they need to report on and deliver Design a performance management system that delivers a consistent message and culture Greatest and most immediate impact to operation Unique dashboards for different levels of management Impacting the Ratios
- 46. Our outside accountants are preparing our financial statements. They said that we have to show comparisons to similar businesses of the same type and size. HELP! Signed, Accounting in Albuquerque
- 49. My company is envious of other companies’ profits. How can I reassure everyone that our profits measure up? Signed, Wishful Thinking in Walla Walla
- 51. My company would love to compare favorably with Best in Class companies. How do we do that? Signed, Comparing in Cleveland
- 53. We are trying to get an SBA loan but there are so many questions! How can we prove that our plans for the loan are justified? Signed, Praying in Providence
- 55. We use a construction specific ERP accounting system. Our company spends a lot of money on it too! How we can use our software more effectively? Signed, Bean Counting in Boston
- 59. Leverage the Existing Capabilities of the Software Implement Best in Class Processes Created Additional Consulting Work
- 60. I’ve seen your results for many years from afar but felt like I couldn’t approach you. How can I fall in love with you and use you every day? Signed, Rhode Island Romeo
- 61. www.financialbenchmarker.com CFMA’S CONSTRUCTION FINANCIAL BENCHMARKER Benchmarking That’s Online, on Demand, and on Point!
- 65. Peer Group Comparison Report
- 72. All Financial Survey Online Questionnaire Participants will receive: TWO FREE Peer Group Comparison Reports My Company Performance Report--available only to Financial Survey Online Questionnaire Participants!
- 73. My Company Performance Report
- 74. COME VISIT US! Booth 122
- 75. CPE Code taxes
- 77. I want to sing your praises to everyone back at my company! Do you have a theme song? Signed, Southwest Songbird
Editor's Notes
- AGC survey of June 2014, 63% facing shortage
- AGC survey of June 2014, 63% facing shortage
- LOSING TO COMPETITORS OR RETIREMENT WAS THE SAME FOR ALL COMPANY SIZES. HOWEVER, IN THE WEST REGION, LOSING MORE TO OTHER INDUSTRIES. AVERAGE AGE OF OUR WORKERS IS NEARING 50 IN OUR COMPANY fmi survey has 30% baby boomers leaving
- 27 % GOING TO SUB MORE OUT. YOU WOULD HAVE TO BE CAREFULL THAT YOU AND OTHER CONTRACTORS ARE NOT OVERLOADING THE SUBS. AGC SURVEY HAD 70% SAYING BIDDING WAS EFFECTED.
- OBVIOUS THE BEST ANWSER IS TO START AT GROUND LEVEL. REACH THE WORKERS WHILE STILL IN SCHOOL AND START , SERIOUS LIFE LONG TRAINING AS SOON AS YOU GET THEM. NOT TRAINING TO JUST GET JOB DONE.
- BEST RECRUITING TOOL, CURRENT EMPLOYEES. VERY SURPISING THAT PRINT MEDIA WAS 40%. WHEN YOU THINK THAT YOUNGER WORKERS WOULD BE SOCIAL MEDIA
- PAYING GOOD SALARY AND BENEFITS IS ALWAYS A WINNER. IS IT A SURPRISE THAT WORKERS DON'T WANT TO OWN THE BUSINESS
- THE WORLD DOSEN'T VALUE THOSE SKILLED WITH THEIR HANDS, UNLESS SPORTS. SKILLED WORKERS CAN PROVIDE WELL FOR A FAMILY. UNSKILLED, JUST LIKE FAST FOOD, SHOUULD BE TEMPORAY, YOU SHOULD WANT TO GET BETTER fmi survey has 40% saying industry has poor reputation ENR article of May 2014, industry has bad image Construction has a reputation for being a dirty, dangerous, cyclical, low-tech, dead-end, low paying job.
- First, let’s focus on what are sureties and bankers really look at. Four C’s: character (reputation, accounting controls), Continuity (plan for completing the work, continuity in mgmt), capital (net worth, c/f, etc.), and Capacity (how much work a contractor can perform profitably) We will focus on capital and capacity.
- Sureties want to know how much work a contractor can perform profitably. Balance in the amount of equipment: If equipment is not contributing sufficiently, then sell it to generate income and cash flow. Months in backlog (backlog/(sales/12)) is a measure of efficiency: Gives an indication of what future revenues look like based on the work you have secured as of a certain date. This information tells lenders and sureties how far out the contractor can reasonably project, and also may be used by sureties when considering bonding a particular project - - ie: are there other projects to support a particular project if the project under consideration has any cash flow risks, etc. Backlog is typically calculated from the contracts in progress schedule, and is equal to the total contract revenues, less revenues earned to date. Since the months in backlog ratio is based on the past 12 months of sales, it could be skewed when there are inconsistent revenues over that period of time.
- Self-explanatory…… Re: gain/fade: sureties and lenders also will look separately at the GP on completed contracts vs. the GP on contracts in process in order to get a feel for what portion of the GP reported on the FS is actual (completed contracts) vs. estimated (contracts in progress). Brings up another consideration - - the contracts schedules that are usually supplementary schedules to your financial statements. Sureties and many lenders examine these VERY closely, and compare fluctuations in GP estimates from period to period (gain/fade analysis). This gives them an idea as to how reliable your estimated GP (contracts in progress) is. A potential underwriting pitfall.
- Working Capital is a quick snapshot to show a Company's ability to pay its current obligations. Working capital is one of the most looked-at KPI's by bonding agents and lenders, since it is often the starting point for sureties in determining bonding capacity and for lenders in determining credit, although they will likely have some underwriting adjustments they make, so what they calculate may not always be directly from your financial statements. For example, they will likely exclude any related party notes receivable (ie: employee advances, receivables from an officer, etc.) and receivables over 60 days, and they sometimes adjust inventory balances. A VERY general rule of thumb is that a starting point for aggregate bonding capacity is to divide WC by 5% to 10% - - 5% if other favorable qualitative factors (relationship with bonding company; type/length/geography of project; etc.); 10% if qualitative factors not-so-positive. There is not a target WC that is applicable to all contractors, so that is why we look at WC turnover (Sales/WC), as also presented as a key ratio in from the Benchmarker survey). Probably the second most important KPI (1st is WC), the debt-to-equity ratio shows how much non-equity capital a contractor has used to finance its operations and the purchase of assets. A high debt-to-equity ratio may be indicative of using debt to finance losses, or excessive (as defined by sureties or lenders!) distributions to owners. Some debt is not bad - and may be necessary in some situations depending on the terms of a contract, whether you are a subcontractor, etc. - but lenders and sureties want to ensure that it is funding (profitable) operational cash flow. Net worth ratio: sales/equity – how much revenue is generated relative to the dollars invested. Using KPI’s: Ensure they are updated timely. Inherently, they are based on historic data, but you want to be able to generate your KPI’s regularly and on a timely basis, and compare to the BIC ranges. Also is worthwhile to track trends in your KPI’s, which may assist in budgeting and forecasting activities. Identify, and then reduce and eliminate, the common underwriting deductions that are on your balance sheet, ie: excess inventory, related-party receivables/advances, aged AR. And…..as Damien will discuss further (Jennifer to summarize as appropriate since Damien discusses in more detail): Make sure they are communicated to the appropriate parties who play a role in their trajectory, and ensure there is understanding. For example, if your PM’s play a role in billing and/or following up with their customers on late payment, ensure that they understand the impact on WC – why it is critical to the organization and how their activities impact the KPI. Consider incorporating them into company-wide objectives, and performance objectives for relevant employees.
- Here we are talking about ratios, but you can’t take percentages to the bank.
- Here we are talking about ratios, but you can’t take percentages to the bank.
- Here we are talking about ratios, but you can’t take percentages to the bank.
- Ask most of the subcontractors around the room. They work hard to build a strong financial but it seems to do nothing for them when bidding. Prequalification is great, but how was the guy who just left our company able to bid on the same project we are? If you get beat down on price, get your money in return.