The 2009 state of your business construction industry survey results

A few issues ago, we ran the first part of this article on the state of the construction industry. This is the second half of that article. Given current economic conditions, it is imperative to effectively assess the degree to which your business is positioned to brave stormy weather. With this in mind, Grassi & Co., CPAs, in association with McGraw-Hill's New York Construction, conducted its 2009 survey on the state of the construction industry. Distributed to more than 1,000 construction firms in the New York metro area (with 158 respondents), the survey included 78 questions studying seven categories of data: (1) About your Company, (2) Your Work and your Contracts, (3) Self-Improvement/Training/Technology, (4) Your Business: Profits, Problems, and Capital Access, (5) Financial Tools and Controls, (6) Business Development, and (7) Your Future. After examining trends in the data, we concluded that there are four primary areas in which construction firms should be applying their time, energy, and resources: (1) construction and maintenance of a business plan, (2) construction and maintenance of a marketing plan, (3) diversification of market sectors, and (4) establishment and deployment of effective financial tools. The second part of this two-part article focuses on the serious need for establishment and deployment of effective financial tools and a strong marketing plan. Construction businesses today face significant financial challenges. Some are new, and some are ongoing. A significant amount of respondents indicated that overall profitability is difficult to maintain. Attracting skilled talent and labor remains a difficult endeavor, and diminishing cash flow, coupled with dwindling resources for equipment financing, has made efforts to maintain effective profitability an increasingly difficult proposition. The survey reported that 44% of respondents finance equipment primarily through cash flow (compared to 23% that finance primarily through long-term borrowing). Furthermore, one-third of respondents have indicated that they have found it increasingly difficult to secure credit and bonding. As discussed in the first part of this article, an increasing number of companies that would normally concentrate on private construction are seeking more opportunities in public work in recent months, making bonding capacity an increasingly prevalent concern. Financial tools and reporting are not as sophisticated as they should be. While 73% revealed that accounts payable and receivable aging reports are the two most regularly used financial management tools, only 27% use financial projections for financial planning purposes. As far as financial employees are concerned, 39% of companies surveyed have a CFO as their ranking financial officer, 21% have a controller and 26% have a bookkeeper. The construction industry has one of the highest median losses due to occupational fraud: $330,000 per year. Fraud control is crucial to maintaining a good business, and while slightly less than half indicated that they believe fraud occurs in their company, only 57% have fraud control plans in place. 46% are planning on implementing or strengthening fraud control plans, but a general increase in these plans across the board would be beneficial - not just for the individual companies, but for the industry as a whole. Overall, the generally lenient attitude towards financial tools and controls discourages many companies from focusing on overall long-term profitability, rather than just current cash flow, or other indicators of short-term business health. Better fraud control plans, employment of financial personnel, and implementation of financial controls and rubrics would be wise for the industry as a whole. The last major trend found is a general lack of strongly conceived and implemented marketing plans. Only 40% of respondents indicated that they have a marketing plan in place, and a mere 21% actually have an in-house marketing professional. In the first half of this article, we discussed the necessity for a strong overall business plan. Implementing a marketing plan that supports and supplements your business plan is crucial to developing new business opportunities and keeping your company relevant, especially in difficult economic conditions. By analyzing the results of the various areas we surveyed, we were able to come up with what we believe to be a strong four-part prescription for what ails the construction industry: (1) Consult with your advisors and create a defined business plan; (2) Work with your advisors and employ the best financial tools to help you effectively manage your business; (3) Assess your current marketing plan and use the necessary resources to further develop it; and (4) Assess the ability of your business to diversify into new market sectors. Following these steps can help your business not only survive, but thrive, regardless of the economic climate. Richard Gavin, CPA, CCIFP is a partner at Grassi & Co., CPAs, Lake Success, N.Y.