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 http://www.psmj.com/publishing/survey/.

Have a great week,

Frank

Why good leadership teams perform badly

I routinely work with weak CEOs whose firms make decent profits in spite of them and others who seem to work well with their leadership group and are always one paid invoice away from bankruptcy. Clearly, the strong leaders should be doing better - so what stops them?

I asked my friend and colleague Sandy Blaha - a master builder of high performance A/E firm leadership teams - what are the principal barriers to success? How does an otherwise good management team pull it together and start making real money?

Sandy explained to me about the four most common problems encountered by leadership teams:

1. Lack of Facilitation Skills Most A/E professionals lack the active listening skills required to provide an occasional summary of what the group has said or decided so far. A good facilitator mirrors the group and helps it pause to evaluate what it is doing. Mirroring what has been said or decided so far also helps a participant in a group decision “get off” a point that he or she is continually repeating. It also helps relieve escalating intensity within the discussion.
2. Flying Blind Don't meet about something without the information or research needed to come to a conclusion. Make sure someone in the group has the insight to raise a flag and say "let's find out more before we decide."
3. Reinventing the Wheel Don't make a decision then start all over again several months later on the same issue as if no decision had been made. Keep a notebook of your meeting notes handy so you can review and reinforce previous decisions.
4. Leaving Team Members Out of the Loop Convey key decisions to employees and avoid confusion regarding the direction and intent of a decision. And for goodness sake, don't allow each principal to tell a different story!

Listen, keep it focused, document, and communicate and see the improvement!

All the best,

Frank A. Stasiowski