CFMA’s Financial Benchmarker: Does Your Business Measure Up?

A product created in 1989 and in service every year since 2013, the Construction Financial Management Association’s (CFMA) Financial Benchmarker allows construction organizations and their CPA firms to compare financial performance to the rest of the industry. CFMA takes pride in the fact that response counts in the Benchmarker have grown steadily over the past ten years, with this year’s past survey containing information from over 1,200 organizations.

A Look into the Sample

The compiled data, which includes more than 200 distinct data points and ratios, is categorized by region, revenue, company type, and “Best in Class” organizations.  Company types are broken down into industrial and non-residential, heavy/highway, and specialty trades, all of which are then sub-categorized by revenue, region, and Best in Class. Specialty trade companies are further segmented across 22 NAICS codes.

Approximately half of the respondents are part of the specialty trade field, mainly composed of subcontractors. About a third of the respondents are industrial and nonresidential, while heavy/highway contractors make up about a quarter of the respondents. The remaining respondents are made up of residential contractors.

Each region of the United States is well represented in the Survey with nearly even distribution.  Most respondents are in the $10-100 million revenue size, with a drastic drop off from companies over $300M in annual revenue.

Using the Data

Benchmarking your organization’s financial performance off peers in the industry can uncover strengths or weaknesses within your organization and can even detect irregularities or instances of fraud in certain circumstances. Similar to analytical procedures performed by your accountants during an annual audit or review, following up on inconsistent figures can be the first step in developing a financial improvement plan for your organization.

Construction organizations must be cognizant of the user’s role when using the Benchmarker data. Typically, the type of user falls into two categories: internal users and external users.

Internal Users

Construction organizations can use the data to take a deeper look into their operations. This allows their internal team to look for opportunities to improve underperforming segments of their business. Roles like Controllers and CFOs can use this information to communicate with their operations team on areas they are performing well in compared to their peers. The Benchmarker can also provide these roles the data they need to identify areas of improvement, which would allow the conversation on how to find a solution.

Roles like Owners and CEOs should consider their organization’s visions over the next year, three years, or even five years. This helps to clarify the most important key performance indicators (KPIs) to focus on to achieve their goals. Other roles like COOs and Project Managers can similarly use the Benchmarker data, but often at a smaller scale. These roles use it to set goals for gross profit by job on an annual basis as compared to their peers while also providing insight into the breakdown of costs for companies in a similar region, industry, or company type.

External Users

For external users, such as CPAs, the information from the Benchmarker helps to assist clients and provide a “valued added” service. The Benchmarker data aids CPAs by uncovering any possible issues within the operations of an organization as well.

Surety groups, lenders, and brokers can use benchmarking data to price out potential bonds, loans, and policies based on KPIs and data that represent risk profiles during their assessment process. With the current height of mergers and acquisition activity, Private Equity firms can also use the Benchmarker data to gauge organization performance, forecast the value of the acquisition, and see the potential return on investment. Potential acquirers may also use the Benchmarker to compare an organization’s financial performance to any recently acquired companies in the industry.

2022’s Notable Takeaway

Increased labor costs are a hot topic today due to the volatile job market and record-high inflation. However, the results of the Benchmarker show that direct labor and related expenses as a percentage of total revenue have remained consistent or even decreased from 2020 to 2021.

‍These results raise the question: how is direct labor as a percentage of total revenue decreasing while direct labor costs are increasing? If your organization’s total revenue is increasing at a faster margin than direct labor, then it is quite possible for this percentage to decrease. Many companies in late 2020 into 2021 had large revenue jumps, not only due to inflation but also because of an increase in activity.

Looking back at expectations from last year’s Benchmarker results, there was an assumption that costs would continue to increase, but we did not see that in this year’s results. This observation can serve to ease the mind of Chief Operating Decision Makers; even though direct labor costs are increasing, if revenues are increasing at a similar or greater pace, then your organization can still be profitable.

‍The CFMA’s Financial Benchmarker is a valuable tool for construction organizations and CPA firms alike and is available for purchase at cfma.org/benchmarker. Allowing these organizations and key players to compare financial performance to the rest of the industry provides an understanding of areas of improvement or opportunity. Even a relatively basic analysis of the Benchmarker data can result in significant insights into your organization.

‍Do you need help understanding how your business measures up to industry benchmarks? Contact Steve Freinberg for a free consultation.