A sneak peek of the 2016 Financial Performance Survey

Aug 29, 2016

Screen Shot 2016-08-24 at 11.23.54 AMZweig Group’s 2016 Financial Performance Survey of Architecture, Engineering, and Environmental Consulting Firms, gives firm leaders a clear view into industry trends and financial metrics that can help firms effectively manage their resources. The best way to do this is with a strong understanding of their firms’ financial position and accounting activities. According to survey results, since 2010, firms’ pre-tax, pre-bonus profit as a percentage of gross revenue has risen each year. This year, firms’ pre-tax, pre-bonus profit rose from 9.1% to 9.9% of gross revenue. As a percent of net service revenue (NSR), pre-tax, pre-bonus profit rose from 10.7% to 12.8%. Firms are profitable! 2015 was a great growth year for firms, providing ample opportunity for leaders to invest in their firms. The efficiency of firms’ labor continues to improve. Net service revenue per employee reached a 10-year high and has continued the convincing upward trend. In 2015 NSR/FTE was $133,605. This year that number reached $137,113. With improvements in technology and staffing software, firms are continuing to find ways to make more money with the staff they have. This trend is real! If your firm’s revenue per employee is not moving in an upward trend, you need to take a good look at your operations. Overhead rates decreased this year with a median of 165.5%. As expected, high profit firms led the way with reduced overhead rates around 140% over the last three years. Another way to look at overhead is a metric called the breakeven multiplier. It indicates how much money the firm has to generate per dollar of direct labor to cover their overhead costs. We found that fast growth firms have a lower multiplier (2.55), indicating they are more efficient at generating revenue than other growth categories. Lower interest rates across the US have provided opportunities for investment and firms seem to be taking advantage of the low-cost capital. Interest bearing debt to EBITDA rates have increased since 2013 and continued to rise this year with a median rate of 0.4. This is a notable increase because EBITDA margin on NSR also grew again this year with a median margin of 14.3%. Backlogs remained relatively consistent with a median of 6.5 months. Very high profit and fast growth firms have more work in their back pocket than the other profit and growth categories, showing that they are continuing to push their marketing efforts and are winning jobs. Both very high profit and fast growth firms had a median backlog of 8.7 months. An interesting stat that we have been watching is the cost of group insurance plans. Counter to the national trends of increasing overall healthcare costs, we have found that firms’ median group healthcare costs as a percentage of total costs are slightly decreasing year over year. We have found that many firms are moving to lower cost, high-deductible plans and many are utilizing health reimbursement arrangements and health savings accounts to reduce their out-of-pocket exposure to rising costs. Bonuses as a percentage of total costs rose significantly. Since 2012-2015 these costs ranged from 3.0% – 4.8%. The 2016 survey found that firms spent a median of 8.0% of their total costs on bonuses. This did not come as a surprise to researchers as pre-tax, pre-bonus profits per employee skyrocketed to $19,671. The 2016 Financial Performance Survey shows how firms performed on nearly 100 indicators. Each measure is described in detail so you can better understand the implications of being excessively high or low on any one measure. Firms can use this to target internal initiatives, investment opportunities and improvement efforts to match their best performing peers, or simply to determine if their metrics are moving in the right direction. FPSurveyCover-2016Always remember that to be average is acceptable, but not optimal. To quote the great John Wooden, “Success comes from knowing that you did your best to become the best that you are capable of becoming.” Use this year’s Financial Performance Survey to identify opportunities, set goals and develop the action plans to meet those goals.

About Zweig Group

Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.