CFMA Annual Conference Recap: Here’s What We Learned
Several members of KSM’s Construction Services Group recently attended the 2019 Construction Financial Management Association (CFMA) Annual Conference & Exhibition in Las Vegas. The conference provided a great opportunity to network with construction professionals from around the country to discuss current trends and best practices related to a wide variety of topics in the industry.
Presenters were positive about the state of the industry and the overall economy, and their educational sessions provided insight into some of the challenges and opportunities facing construction companies in this record-setting expansion period. Below are key takeaways that we found most relevant to our construction clients.
Best Practices in Equipment and Fleet Management
This session focused on the complex and difficult task of equipment and fleet management, from acquisition strategies to lease versus buy decisions to maintenance and disposal decisions.
- Purchase equipment that you are using every day and sell off equipment that is sitting idle. Idle or unused equipment is a poor use of resources and will inevitably incur additional maintenance costs as shop employees continue to tinker with these assets.
- Allocate equipment rates to accurately incorporate seasonality, idle time, insurance, property tax, and other related costs. Compile a P&L statement for each piece of equipment and perform regular in-depth equipment rate reviews.
- Update fuel allocations on at least a quarterly basis.
- Review policies regarding hoarding of equipment at job sites.
This session focused on the challenges and strategies involved in growing a company. Michael McLin, an industry expert with Maxim Consulting Group, emphasized strategic planning to take control of corporate growth.
- As a rule of thumb, every time annual revenues double, the corporate structure and organizational chart should be reevaluated.
- When revenues reach approximately $20 million in annual sales, the estimating and project management functions should be split.
- When annual sales hit $50 million, a full-time IT specialist should be employed.
- At $100 million in annual sales, a full-time human resources manager should be employed.
- For companies attempting to grow through acquisition, an investment should repay its initial capital outlay within a four- to five-year period.
Case Studies in Benefit Plan Risk Management
Led by Christian Moreno, an expert in benefits and health care plans, this session detailed a series of real-life and high-risk horror stories related to a construction company’s conversion to a self-funded health insurance plan.
- Many of the company’s problems resulted from vague, highly specific, or complex language included in the small print of the stop loss contract, which was complicated and difficult to understand.
- Self-funded insurance plans have risks. However, engaging an industry expert to review contracts and incorporate best practices will help avoid potential pitfalls and remove many of the unforeseen risks from the company’s financials.
- Despite these nightmare experiences, the CFO stated that the self-funded medical insurance program has paid off as a strategic decision and resulted in significant savings for the company to date.
Economic Update: Will the Good Times Last Forever?
Led by the exciting and energetic Anirban Basu, this session covered a variety of economic trends, indicators, and forecasts to watch for in the global, national, and regional economies.
- Our nation has now been in the longest period of economic expansion in its history, leading many to wonder when this record run will come to an end.
- According to Basu and many other economists, the duration of expansion has no predictive power over the timing of the next recession. In fact, Australia has experienced a period of economic expansion for over 28 consecutive years.
- However, some signs and indicators are present in the current market that, in the past, have preceded economic slowdowns. Some of these indicators include an inverted yield curve (when interest rates on short-term loans are higher than on long-term loans), natural unemployment level exceeding actual unemployment (which has historically been viewed as an indicator of a pending recession), and growth in the spread of income inequality.
- Companies need to continue to follow these indicators and forecasts so that they are in the best position to tighten up when the next recession arrives.
For more detailed information on any of the sessions above, please reach out to a member of our Construction Services Group.
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