Each year the Construction Financial Management Association (CFMA) conducts a survey of construction companies and construction industry professionals, results of which help develop a comprehensive database and benchmarking tool enabling contractors to compare their businesses to those of peers in the industry.

The 2001 Construction Industry Annual Financial Survey was sent to more than 5,000 contractors, subcontractors, and engineering firms, with 729 firms responding. We encourage you to participate in future surveys. Participation helps create more thorough and accurate data, which can be a powerful management tool for your business.

While the survey results highlight some key issues facing business owners, the general profile of respondents is also illuminating. The majority of participants (54 percent), for example, were S corporations, and this particular business structure continues to grow in popularity. Among contractors and subcontractors, the most effective business structure (S corporation, C corporation, LLC, etc.) may change as the business grows and matures. Entity structure can also have tax ramifications for the business.

Over the past five years, 19 percent of survey respondents reported a transfer of majority ownership, often direct sales or transfers to other family members. Obviously, succession and estate planning continue to be major issues among many closely held construction firms.

How’s Business?
Despite the recession, it’s encouraging that many firms continue to grow their revenue base. For example, average revenue in 2001 was reported at $87.3 million, 3.7 percent higher than the prior year. Approximately 47 percent of respondents reported that their backlog of work had increased over the prior year, and more than half the respondents optimistically reported that they expect this year’s contract volume to increase. Average assets also increased 7.4 percent over the prior year. But two important profitability measures declined. Average gross profits-to-revenue percentage as well as net income-to-revenue decreased during 2001 as compared to the prior year.

What Troubles You?
Labor issues seem to be of concern to all construction firms, even more than most businesses. The shortage of trained help was cited by 43 percent of respondents as the number one challenge facing construction firms over the next five years, far outpacing the second most cited issue –– the source of future work.

The other top challenges identified by respondents include the shortage of trained project managers, health care insurance costs, and workers’ compensation insurance costs. Despite the current state of the economy, qualified labor continues to be the major concern.

A host of additional information is available to help you measure how your company is doing in comparison to your peers and the industry in general. Balance sheet ratios, information on accounting methodologies and practices, cash management and finance, and taxation are just some of the areas covered.

Selected Key Financial Ratios
(Composite ratios for all types of construction companies)

	2001 Survey	2000 Survey
Current ratio (current assets/current liabilities)	1.3	1.3
Return on equity (net income/stockholders’ equity)	17.3%	20%
	2.4	2.4
Average backlog to working capital [Backlog/(current assets — current liabilities)]	13.9	14.3
Underbillings to equity[(Unbilled work + cost in excess)/total net worth]	21.7%	20.1%
Fixed asset ratio(Net fixed assets/total net worth)	40.5%	39.9%

Source: CFMA’s 2001 Construction Industry Annual Financial Survey