CFMA’s 2005
Construction Industry
Annual Financial
Survey Results

The Construction Financial Management Association (CFMA) is pleased to announce that the results of CFMA’s 2005 Construction Industry Annual Financial Survey are complete and will be available in November. The report analyzes factors contributing to company performance and industry trends, reports detailed financial data, examines critical issues facing contractors today and serves as a financial benchmark for construction companies of all sizes, regions and types.

Optimistic Outlook for Fiscal Year 2005

Survey respondents reported similar financial performance in FY 2004 and FY 2003, but were optimistic about FY 2005 and beyond.

The large majority of respondents expect increases in sales and backlog in FY 2005. Most respondents (63%) expected sales volume to improve. The anticipated margin of increase varied significantly, but, the typical projected increase in volume was 11% and the expected increase in backlog was 21%—both healthy increases for the year.

Despite optimism among respondents, a number of factors continue to concern contractors, including the cost of insurance, a lack of trained field help and the uncertainty of future work.

The attention given to rising costs is justified. In spite of the more buoyant economy in FY 2004, performance in the construction industry remained flat. Operating margins, ROA¹, and ROE¹ were almost identical to last year’s figures.

To succeed in difficult operating environments, contractors often rely on the experience and expertise of their staff. This year’s Hot Topic examined employee compensation, incentives and bonuses—factors that contribute to employee retention.

Compensation and Employee Retention Practices

Respondents asserted that competency, or employee performance, is the number one determinate of compensation (60%). However, the most common cause of turnover among participating contractors was the tendency of employees to pursue better opportunities elsewhere (55%), which indicates an inconsistency in the purpose and outcome of compensation practices.

This suggests that current compensation packages might not be as competitive as perceived, or that “opportunity” extends beyond compensation. In any event, most contractors would benefit from examining (or establishing) their compensation strategy and philosophy.

More information on employee incentives and bonuses are in the Hot Topic section of the 2005 Financial Survey report and “CFMA’s Financial Survey Hot Topic: Employee Incentives & Bonuses” in the September/October 2005 issue of CFMA Building Profits.

Fiscal Year 2004 in Review

FY 2004 was another year of moderately disappointing news, brightened by continued optimism that performance will improve. Contract costs were up somewhat; consequently, profits decreased.

The average gross margin fell from 8.1% to 7.9%, and the average net margin decreased slightly from 1.71% to 1.67%. The slight decrease in net margin had a minor influence on respondents’ composite Return on Assets (ROA) and Return on Equity (ROE), which declined to 5.2% and 16.9% from 5.3% and 17.0% respectively.

Liquidity was consistent, but efficiency increased as days in accounts receivable were virtually unchanged and days in accounts payable increased. Operating leverage increased slightly in 2004. Debt to Equity rose from 2.2% in FY 2003 to 2.3%. Revenue to Equity increased slightly and asset turnover remained constant.

In a more positive sign, backlog increased compared to FY 2003, not only in dollar-volume but also in terms of backlog to equity. However, the increase in backlog did not keep pace with the increase in revenue. Subsequently, months of backlog decreased slightly.

The composite balance sheet for all companies responding to the survey had, on average, total assets of $33.1million, total net worth of $10.1million and total revenue of $96.0 million.

A Portal of Possibilities: Energizing Your Company Website

Is your company Website nothing more than storage for press releases, company projects and contact information? If so, you might be missing out on a tremendous, readily accessible collaborative resource to drive your business future. Picture your project managers using a project-specific site to locate documents, change order logs, drawings, photos, etc with security access for use by members of the project team. Or managing electronic time cards, paychecks and pay stubs. Imagine providing real-time service and billing history to your customers online.

With a Web portal, all of these things—and more—are possible. Brad Mathews, vice president of Dexter + Chaney, explains: “Many companies find it difficult to make effective use of their Website because of the technical expertise and expense required to create and frequently update website content. That’s not true anymore—there are affordable tools with the necessary security controls to manage specific content by individual user.”

Dexter + Chaney's Forefront® Construction Management Software, for instance, incorporates a Web Portal that includes all of the above capabilities—and more. Through it, construction companies can provide employees and customers access to critical data and functions in Forefront—including payroll/timecard and customer service—from any computer with an Internet connection. From payroll processing to managing customer generated service requests, Dexter + Chaney’s Web Portal provides a personalized, always-available source for obtaining important information and accessing business applications.

The Web Portal is designed to be an integral part of your day-to-day business, a key component of your accounting, service management, and project management software. Data entered via the portal immediately updates the main office software. Likewise, data entered at the main office is displayed in real-time on the portal. Take your company website beyond the current simplistic capabilities. For more information about the Web Portal or other Dexter + Chaney products, visit www.dexterchaney.com.

Embracing New Opportunities

Dean O’Brien

Whether building a small tenant office space or a one-million sq ft intermodal center, FCL Builders Inc. understands that success requires a unique set of skills, particularly from a construction financial manager (CFM). In many firms, the CFM’s role expands well beyond the financial aspects of the company. He or she must understand and be involved in a range of activities from risk management to project management and the critical role of information technology. “The CFM is called upon to predict the future, to understand how outside factors can impact a project,” explains Dean O’Brien, vice president of finance at FCL Builders Inc. “The better we embrace the diverse and ever-changing aspects of our industry, the greater our success.”

O’Brien relies on organizations like the Construction Financial Management Association (CFMA) to stay connected with the industry, explore new technologies and help FCL Builders maintain its standing in the Engineering News-Record Top 400 Contractors listing. The Illinois-based design-build construction company specializes in new offices, distribution centers and warehouses, manufacturing facilities, food-processing plants, air-freight centers, retail establishments, medical facilities, specialty buildings and infrastructure/business park projects. Founded in 1976, FCL Builders has successfully completed more that 631 projects totaling more than 55 million sq ft and valued at $1.5 billion. For more information, visit www.fclbuilders.com.