Monday, June 4, 2007

Get your financial house in order

The 2007 PSMJ A/E Financial Performance Survey came back from the printer last week and I spent part of the weekend reviewing Dan Daniels' findings.

All in all, things are looking good for the A/E industry - growth, revenue, and profits are all up over last year - people are busier and utilization (chargeability) is higher - so it seems that people are working more efficiently.

Having said that, we're still shooting ourselves in our feet on basic business practices that we ought to have figured out a little better by now. To wit:

The current ratio -current assets divided by current liabilities - improved a little this year as some firms used profits to strengthen their balance sheets , but at 1.75 it is still woefully behind most other industries.

Accounts receivable and work-in-process measurements continue to reflect poor billing and collection techniques (67 and 22 days, respectively). Why are A/E firms so weak on converting work into cash? Do you think your auto mechanic would wait 22 days to bill you? Better yet, would she or he wait 67 days to to get paid?

And then there is the direct labor multiplier...granted, this year's median target multiplier has finally budged to 3.10 from 3.0 where it seemed to be stuck forever. If A/E firms are ever going to break the "profit-loss-profit-loss" cycle they need to start charging more for their services. Is there a better time to do this than now - when demand is high? If we are ever going to sustain profitability levels that are more independent of the business cycle, we've got to start charging more for our services.

Can't be bothered with the "accounting details"? Fine, but go find someone who can - they'll more than pay for themselves in improved financial performance for your firm.

If you are curious about the A/E Financial Performance Survey, download a free CEO Snapshot at

Have a great week,


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