2015 CHICAGO CONFERENCE PRESENTATION Final

Advice for Achieving the Benefits of Benchmarking

Caryl Coronis, CPACFONBG Constructorscarylc@nbgconstructors.com

Steve Shipp, CPAVice President of FinanceHGC Construction Co. sshipp@hgcconstruction.com

Fern OramDirector, Content Marketing & CommunicationsCFMAforam@cfma.org

Billy Stockton, CCIFPControllerSite Specific, LLCbs@sitespecificllc.com

Jennifer Miloszewski, CPASenior ManagerBlue & Co., LLCjmiloszewski@blueandco.com

Damien Strohmier, CPAManagerBlue & Co., LLCdstrohmier@blueandco.com

CPE Codetaxes

Learning Journal page 8

 What’s our agenda?Signed,Just Waking up in Chicago

 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?

 What were the results from the 2014 Survey and how can I find them in the Benchmarker?Signed,Needing Numbers Now in Nashville

688 Respondents between May and August 2014600 complete financial data submissions

35% Industrial & Nonresidential contractors

19% Heavy & Highway contractors

44% Specialty Trade contractors

2% Other

Respondent Profile

Under $10 22%

$10-2523%

$25 - 5019%

$50 - 10017%

$100-30015%

Over $3004%

Respondent Revenue in Mil-lions ($)

Northeast14% Southeast

11%

Midwest19%

Southwest9%

West10%

Far West37%

Respondent Headquarters Loca-tion

Expected Sales Volume Decrease2010 43%2011 27%2012 17%2013                    4%2014                  15%

Expected Sales Volume Increase2010 27%2011 47%2012 54%2013                  60%2014                  53%

Sales Volume Expectations

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

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%

All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

9%

12%

6%

15%

9.4%

11.1%

6.5%

14.2%

10.1%

11.5%

6.7%

15.5%

2013 2014 5 Yr Avg

% o

f Re

venu

e

Gross Profit as % of Revenue

All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2%

3%

1%

3%

2.5%

3.7%

1.7%

3.2%

2.7%

4.3%

1.9%

2.7%

Net Income as % of Revenue

2013 2014 5 Yr Avg

% o

f Re

venu

e

Compare All Survey Respondents with the Best in Class Performers Using the Five Key Ratios:1. Return on Assets2. Return on Equity3. Fixed Assets to Net Worth4. Debt to Equity5. Working Capital Turnover

2014 Survey Financial Results and Best in Class Performance

All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

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%

Return on Assets 2013-2014

2013 All 2013 BIC 2014 ALL 2014 BIC

Retu

rn o

n As

sets

All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

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%

Return on Equity 2013-2014

2013 All 2013 BIC 2014 ALL 2014 BIC

Retu

rn o

n Eq

uity

All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade0

10

20

30

40

50

60

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

Fixed Asset Ratio 2013-2014

2013 All 2013 BIC 2014 ALL 2014 BIC

Fixe

d As

set

Ratio

All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade0

0.5

1

1.5

2

2.5

3

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

Debt to Equity 2013-2014

2013 All 2013 BIC 2014 ALL 2014 BIC

Deb

t to

Equ

ity

All Companies Heavy & Highway Industrial & Nonresidential Specialty Trade0

2

4

6

8

10

12

14

16

9.6

8

13.6

7.1

10.3

9

15.2

8.29

7.3

13.3

7.9

9.7

5.5

14.6

8

Working Capital Turnover 2013-2014

2013 All 2013 BIC 2014 ALL 2014 BIC

Wor

king

Cap

ital T

urno

ver

Working Capital Turnover Return on Assets (%) Return on Equity (%) Debt to Equity Fixed Asset Ratio (%)

9.06.2

17.3

1.6

24.8

9.7

17.3

44.1

1.3

12.7

All Companies Best In Class

2014 Key Ratio Performance

I am wondering where have all the workers gone?Signed,Hot Topic Curious

Combatting the Shortage of Skilled Trade Workers

404 Responding Companies

Percent of CompaniesLosing Skilled Trade Workers

Yes43%

No57%

Percent of Companies Losing Skilled Trade Workersto the Following Areas

58.9%

13.3%

37.8%

59.4%

13.9%

3.9%

How Will a Shortage of Skilled TradeAffect Company in 2015?

More difficult to recruit

Will effect bidding

Increase overtime budget

0.010.020.030.040.050.060.070.080.090.0

81.4%

37.9%32.8%

Steps Taken to Address the Shortage of Skilled Trade Workers

Partner with skilled trade program

s

On-the-job-training program

Educational reimbursement

Referral bonuses

051015202530354045

38.8% 39.4%

21.2%25.3%

Percent of Companies Using the Following Types of Outreach in Recruiting Skilled Trade Workers

Print media

Job fairs

Local union hall

Recruiters/Employem

ent Agencies

Social media

Employee referrals

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

40.8%32.5%

50.3%

33.7% 32%

62.1%

Most Successful Recruiting or Retention Tool Used by Companies

Above market compen-sation/benefit package

Employee ownership Work/life balance Limited overnight travel0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

45.5%

4.9%

18.3%

6.3%

What Is the One Perception Companies Would Change about the Industry’s Image to Improve the Worker Shortage Situation?

Income & retirement Not valued or respected0.0

10.0

20.0

30.0

40.0

50.0

60.0

18.7%

49.5%

HOT TOPIC 2015THE EMPLOYER/EMPLOYEE

VALUE PROPOSITION

Meeting Cultural NeedsManaging Compensation

ExpectationsCareer Development

Retention Tools

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 

Sureties and Bankers Focus onAbility and resources to perform the workEarningsLiquidity and leverage

Impacting the Ratios

Ability and Resources to Perform the WorkCapacity

PersonnelEquipment

Months in backlog

Impacting the Ratios

EarningsNet Income

Must make money to be successfulEBITDA

Lending on the ability to create cash flowGross Profit Gain Fade History

Impacting the Ratios

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

Is There a Quick Fix? No and Maybe…

Forecast operation for negotiating?Utilize business partners with industry

experienceBenchmark yourself against others within and

outside your line of businessUnderstand how you are being measured and

communicate with your business partners

Short-Term Solution

Equipment UtilizationDo 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 repairsTaking on bigger contracts

Long-Term Fixes

Increase Net Worth45% is going to taxesWhat should we retain in the business?

Company’s strategic plan over the next 5 yearso New division? o Top line growth? o Expanding into a new region?

Long-Term Fixes

Improve LiquidityIntegrate project management into billing and

collectionsFront load schedule of values and timely

billingNegotiate retainage down

One way to make a strong financial work for you!Make more money!

Long-Term Fixes

Bottom to Top Approach for Lasting ImpactGoals for your first level of management

1 – 2 key items they need to report on and deliverDesign a performance management system that

delivers a consistent message and cultureGreatest and most immediate impact to

operationUnique dashboards for different levels of

management

Impacting the Ratios

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

My company is envious of other companies’ profits. How can I reassure everyone that our profits measure up?Signed,Wishful Thinking in Walla Walla

My company would love to compare favorably with Best in Class companies. How do we do that?Signed,Comparing in Cleveland

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

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

Leverage the Existing Capabilities of the Software

Implement Best in Class Processes Created Additional Consulting Work

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

www.financialbenchmarker.com

CFMA’S CONSTRUCTION FINANCIAL BENCHMARKER

Benchmarking That’s Online, on Demand, and on Point!

Benchmarker Reports

Peer Group Comparison Report

Performance Graphs

Company Report Card

Customized Comparison Report

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!

My Company Performance Report

COME VISIT US!Booth 122

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Learning Journal page 8

I want to sing your praises to everyone back at my company! Do you have a theme song?Signed,Southwest Songbird