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Study depicts “perfect storm” effect on A&E firms
Woburn, MA - September 23, 2009 - DiCicco, Gulman & Company LLP (DGC), a CPA and business consulting firm specializing in the architecture and engineering industry, today released its annual architectural study. The study includes financial and operational results and trends derived from thirty prominent architectural firms in the Greater Boston. From performance benchmarks to best practices, the DGC study strives to be the most definitive of its kind. It is the only comprehensive study of firms solely in the Greater Boston marketplace. The 2009 study also includes new and expanded content on best practices related to employment practices, professional liability and employee benefits.
“This year’s study illustrates how the economy has impacted A&E firms at very core levels,” said, David M. Sullivan, partner in charge of the Architecture and Engineering practice at DiCicco, Gulman & Company and author of the study. Up until the third quarter of 2008, most architectural firms were riding a wave of unprecedented success that began back in 2004. In a very short period of time, however, the business landscape changed dramatically. The results of the 2009 DGC Architectural Study, depicts a “perfect storm” effect on the industry which began in 2008 and has continued well into 2009.
Highlights of the 2009 Architectural Study include:
- Utilization rate decreased to 60.4%
The utilization rate indicates how busy your firm has been and is widely regarded as the most influential statistic on firm profitability. The 2008 average rate of 60.4% is well below the target rate of 64-66% typically needed to achieve sustainable levels of profitability.
- The direct labor billing multiple increased to 3.20
The direct labor billing multiple is a measurement of project profitability. The 2008 multiple is the highest in the history of the DGC study. This is one of the bright spots in the study, however 2009 trends indicate there is downward pressure on the billing multiplier due largely to more competition for less projects.
- The average firm billing rate increased to $105.81 per direct hour
The 2008 average billing rate increased a modest 2%, largely due to the increase in the direct labor billing multiple.
- The breakeven multiple increased to 3.01 and the overhead rate per direct hour increased to $64.13
These overhead statistics measure the indirect costs of a firm. Both of these statistics are the highest they have been in the history of the study. They are heavily influenced by a firm’s utilization rate. It is clear that many firms found themselves overstaffed in the later part of 2008, which had a negative impact on utilization, pushing the overhead statistics upward.
- Working capital levels were still strong at year end
The ratio of working capital to net fee increased from 17.7% in 2007 to 23.88% in 2008. Although some of this positive increase is due to a reduction in the average firm’s level of net fee income, it is a sign that many firms are well positioned to weather through this recession with adequate working capital to support their reduced business levels.
In addition to data and analysis, the 2009 Architectural Study offers recommendations based on DGC’s industry expertise and financial insight. To summarize, some of the 2009 recommendations in this year’s study include:
- Be vigilant collecting accounts receivable and performing cash flow forecasts
- Monitor financial trends very closely
- Adhere to staff reduction best practices
- Stay focused on business development
- Review succession plans
- Start tax planning early for 2009
- Keep a close watch over project profitability and project management
The 2009 study also includes highlights and commentary from the A&E Roundtable event hosted by DGC in June. Other articles, contributed by respected industry experts, provide a panoramic view of the industry:
- “Employment Law Recessionomics: Tough Choices, Tough Rules” by Chris Noble, Esq. and Jay Wickersham, FAIA, Esq. of Noble & Wickersham LLP,
- “Tips for Managing Professional Liability Risk” by Brett Gough of Ames & Gough,
- “Benefits: Balancing Cost, Value and the Impact of Change” by Scott Kirschner of The Bostonian Group.
To learn more about the 2009 Architectural Study, or to purchase a PDF of the 44-page publication, visit www.dgccpa.com.
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