Competitive AdvantageMore Like This

How Does Your Business Stack Up?

The construction industry tends to be dominated by privately held entities, so specific financial information such as leverage ratios or overhead often is not readily available. In the past, a lack of consistent automation to produce financials and other information made it more challenging for contractors to take a broader industry view of profit and loss in a meaningful way, or apply any reporting content to the unique structure of the organization. Additionally, only a few inconsistent industry-wide reporting mechanisms were in place to benchmark information.  With the continued increase of automation, and a variety of financial accounting programs that make compiling vast amounts of financial information easier, contractors now can access an array of statistics that make trending, forecasting and planning more accessible and accurate. While new reporting tools provide a clearer view of internal operations, there is still little comparative value. The contractor’s financial arm could compute the exact percentage of gross profits, but fall short of understanding how its results stack up against competitors.

Although many contractors anecdotally understand other firms’ financial results, they lack the information structure to compare their results to similar operations. Smart contractors understand having a yardstick to measure their results can provide either affirmation of a well-executed business plan or guidance on a course correction. The trick is finding a source of reliable information.

To help provide more context and tailored statistics, contractors are turning to outside sources, including their sureties, to understand how they stack up against the competition.

Many sureties realize their portfolios of contractor accounts can provide a rich vein of information. When a surety assesses and evaluates financial information across its accounts of similar size and type, this pool of accounts and data can be used as a benchmark for measuring relative performance. A contractor’s individual results can be run against a set of similar outcomes, making what were once flat statistics into relevant and actionable guideposts.

While most portfolios can provide a benchmark, contractors should seek a surety with a broad-based book of various-sized businesses across many diverse construction disciplines. Sureties with accounts in all 50 states and even international clients will serve to further broaden the sample.

Benchmarking can take several forms, from a basic asset and liability analysis to a more in-depth comparison of operating and net income. Depending on the extensiveness of the data, comparisons among job type, size and location are possible. All names or other descriptions are redacted so the contractor receiving the data only knows the other contractors in the pool are in the same industry, in the same territory and produce roughly an equal amount of revenue.

For contractors, the benefits of a benchmarking presentation can be enormous because these reports can be specifically tailored to highlight any combination of balance sheet or income statement results. A capable surety with a properly diversified pool of accounts should be able to produce a report that takes the contractor’s financial data from a broad overview down to very specific comparisons.

A surety well-versed in the numbers will be able to guide the contractor through the various ratios to highlight areas of positive achievement in relation to the group and other outcomes that may lag behind the group.

While affirmations of competitive advantages are beneficial, most contractors express greater interest in where their firms can improve. Instead of being downcast, the best managers use the information to ignite their quest for continuous improvement.

A benchmark presentation can be a provocative tool for both the contractor and the surety. For the surety, it’s adding value by providing data not available through the contractor’s normal channels. For the contractor, it may be the first comparison of results against a peer group. Regardless of whether it serves as an affirmation or a wake-up call, this type of valuable information can lead to a stronger understanding of how to continually raise the bar and achieve higher levels of success.

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