Zweig Group’s 2016 Financial Performance Survey of Architecture, Engineering, Planning and Environmental Consulting Firms, released on August 19, 2016, is a comprehensive study of industry firms with nearly 100 financial ratios, indicators, and statistics. The shocking results show A/E industry financial and economic improvement on a large scale.
Among some of the most interesting findings, pre-tax, pre-bonus profit on net service revenue was an average of 14.3 percent for the entire sample. This is a record-breaking financial indicator and among the highest Mark C. Zweig, Zweig Group founder & CEO, has seen in his 36 years in the industry.
The survey also reported an average pre-tax, pre-bonus return on owner’s equity of 55 percent. Compared to other industries in the U.S. economy, this shows a very high return, indicating a tremendous opportunity. “With these figures, we should be attracting a lot more attention from the investor community,” says Zweig.
Substantial differences were noted among firms working predominately in the private or public sector. Return on Equity (ROE) for firms doing most of their work in the private sector is only 20.7 percent; but 50.4 percent for firms doing most of their work in the public sector.
Very high profit firms (those with a three-year average profit of more than 15 percent on net service revenue NSR), have an average revenue of $161.7 thousand per employee whereas low profit firms (those with a three-year average profit of less than 4 percent on NSR) only generate $118 thousand per employee. These figures can be indicative of the presence of higher performing and more talented employees who firms are not afraid to charge a premium for.
Other financial metrics relating to staffing showed that overall staff turnover at fast growth firms (revenue growth of more than 20 percent over the past three years) is only 9.2 percent, in comparison to a figure of 11.7 percent at all firms. It’s clear that busy companies with more opportunities have happier people.
Low profit firms have 7.7 percent of their total staff working in accounting whereas high profit firms only have 4.4 percent. Overstaffing in accounting hurts profitability and high-profit firms may have figured out that it’s better to have less but higher performing individuals in these types of roles.
Not all the news in the survey was good. The average collection period in the A/E Industry is now up to 84 days, meaning on average it’s taking A/E Firms just under three-months to get paid for work. Last year, this same figure was only 68 days. “We’ll be paying for it later when we have more non-payments from clients as the longer an AR gets, the less likely the firm issuing it will ever get paid,” says Zweig.