Four Metrics Your Construction Company Should Start Tracking Today

2/22/2024 - By Stacie Gaffrey, CPA

Key performance indicators (KPIs) are used to evaluate the success of an organization or a particular activity in which it engages. They supply a quantifiable way to track and assess progress toward strategic goals. The choice of KPIs is crucial, as it helps organizations focus on the most important aspects of their performance.

Construction companies should consider tracking the following KPIs to measure how effectively business objectives are being reached:

1. Liquidity

Banks will be looking for high liquidity measures and the company’s ability to meet obligations as they come due. Contractors should pay particular attention to operating cash flow results and general liquidity conditions. Companies that focus on driving in more profits AND finding ways to reinvest the additional cash flows in the business will fare better in the long run with the ability to meet obligations as they come due.

2. Leverage (Borrowing)

As interest rates continue to rise, banks will be looking closely at companies' financial leverages and borrowing. Contractors will want to review interest rates to ensure the company is paying the least amount in interest. Companies should focus on keeping debt low and equity high for a better financial position.

3. Profits and Profit Margin

Construction companies should continue working to improve net profitability. Management should be pushing the company within the relevant range, which is the normal range of volume or activity where fixed costs will not change as the volume or activity changes. Long-term growth is fueled by solid profits, which come from increasing sales and monitoring expenses.

4. Sales

Sales trends are usually the simplest measure of how sales are growing and whether the sales are satisfactory for the company. Construction companies want to continue growing sales by expanding their current customer base by maintaining ongoing relationships while adding new ones. Management should also focus on increasing sales generated by assets and benchmarking against industry standards. Overall, construction companies' focus should remain on managing profitability, not sales.

We understand how important monitoring and analyzing your KPIs are. We can assist you with setting benchmarks against current industry standards to give your business a holistic view of its financial position.

If you have any questions, reach out to our Construction team!

About the Author | Stacie Gaffrey, CPA

Stacie is an audit senior in the Audit & Assurance Services Department of Saltmarsh, Cleaveland & Gund. Her areas of expertise include providing audit and assurance services for a variety of clients. Before joining Saltmarsh, Stacie worked in accounting for local firms in the Tampa, Florida area. Connect with her on LinkedIn here!