Benchmarking Contractor Financial Statements Leads to a Wealth of Information

By Deepa Bhat, CPA, Audit Principal
ASL Construction Group

As we head into another busy tax season, I am mentally preparing myself to answer questions from my contractor clients on how they stack up within their industry and against their peers. Lucky for me, I have access to industry benchmarking data that makes my client conversations productive and informative. In addition, as a bonus, the benchmarking reports provide a deep insight into the Company’s present and, often, their future.

For example, in my most recent experience working with a plumbing contractor, it was comforting to note that the Company’s year-over-year growth was consistent with the forecasted growth of the industry, as was the annual wage increase to the Company’s employees. The outlook for the industry is positive and trending upwards, which was consistent with the Company’s backlog situation.

The information that was by far the most valuable, in my opinion, was the financial ratios of the Company in comparison to its peers in the $5-50M revenue range. The financial statements prepared by ASL definitely bore evidence that the Company was profitable, which was apparent to management despite the fact that year-end cash balances were low.

The interesting fact (which can be easily overlooked by focusing solely on the financial statements) was that the Company was reinvesting its profits back into itself in the form of capital improvements and, while it was more leveraged than its peers, its EBITDA to sales ratio was almost twice that of its peers! On all of the profitability ratios, the Company was beating industry standards and the higher leverage ratios were supported by the investment in property and equipment to further strengthen the business.

This benchmarking study certainly helped me better understand my client, their industry as well as add value to the engagement. If you’re curious to know how you compare to your peers, reach out to the ASL Construction Group and we’ll be happy to run a report and analyze it for you.