Boston-area architectural firms have increased profitability, improved their utilization rate and boosted their working capital, according to the 2011 Architectural Study by DiCicco, Gulman & Company LLP (DGC), a CPA and business consulting firm specializing in the architecture and engineering industry.
Yet despite the positive trends, the study cautions that continued improvement is needed for firms to return to pre-recession health. DGC’s study predicts that consolidation will continue, not only for economic reasons, but because a growing number of firm principals are at or near retirement age.
"The good news is that, on average, firms saw 8.7 percent of their net fees drop to the bottom line, compared to last year, when the average firm realized a meager profit of just over 1 percent," said David Sullivan, the partner in charge of the architecture and engineering (A&E) group at DGC.
While some firms continue to operate at a loss, two-thirds of firms were profitable, compared with half of all firms in 2009, according to the study. Profits averaged $9.27 per direct labor hour, up from just 43 cents in 2009. Additionally, the average utilization of A&E firms for 2010 increased to 61.6 percent after dropping to 58.9 percent in 2009, the lowest chargeability rate on record. A utilization rate of at least 65 percent is considered healthy, according to DGC.
Other good news shows the average firm retained 29 percent of net fees for working capital, which is higher than the historical average. Working capital of 20 to 25 percent is typically necessary for a firm to finance its operations, the company claims. And average total hourly wage rates were stable in 2010 compared to 2009, with employees costing an average of $36.37 an hour in 2010 compared with $36.94 in 2009.
"Many firms are struggling to grow organically and it may take years before the industry fully recovers from project cancellations, unavailability of financing, high unemployment and fierce competition for few projects," Sullivan said about the increase in mergers and acquisitions.
With many principals at or near retirement age, he believes sales, mergers and changes in internal ownership will continue over the next three to five years.
