in January 2008
NSCA: Numbers Paint A Picture of Industry Health
By Chuck Wilson
Breaking down the latest stats.
Each year, the National Systems Contractors Association (NSCA) takes the financial pulse of the commercial electronic systems industry. Our recent Cost of Doing Business Survey was the eighth such report in a series.
Confidential surveys were mailed to industry professionals in July 2007. An independent research firm broke down the results into three primary categories: company background, balance sheet and summary information, and sales ratios.
For the purposes of this analysis, company background indicates the basics, such as size and location. This information provides a better comparison of this year’s respondents to those surveyed in the past. Summary information focuses on the bottom line: items such as inventory and assets. Finally, the report zeroes in on sales ratios to tease out ranges, costs and operating values. Following is a brief summary of the report’s contents.
The survey was split into the following categories to measure company size based on total sales in the previous fiscal year:
• $1 million or less
• $1.1-$2 million
• $2.1-$4 million
• $4.1-$10 million
• Greater than $10 million
The results show a large diversity of revenues. For example, one in 10 companies reported gross revenue less than $671,000. However, another one in 10 self-reported revenue of $20.1 million or more. The disparity between the two extremes is intriguing, but the overall picture and distribution is similar to previous years’ results.
One of the interesting findings involved just how companies make their money. Negotiated and direct sales continue to grow, with the highest level reported since the survey’s inception. Respondents said 62.8% of their revenue stems from negotiated/direct sales, while just 37.2% was due to competitive bid projects. The smallest companies reported the highest amount—72.4% of their total revenue came from negotiated/direct sales.
Companies report that AV technology accounted for the largest chunk of their business last year. Fire alarm, professional sound reinforcement and commercial sound came in at second, third and fourth most popular, respectively. Audiovisual presentation has remained in the Number One slot since 2003, and the trend analysis shows that this will continue to be the case in the future. Corporate (36.9%) and education (30.8%) vertical markets accounted for the largest slices of a company’s revenue.
Location, location, location, as Realtors have it, was another aspect of the study. The top three states represented in our survey include Georgia, Texas and California. Rounding out the top 10 are Illinois, Kansas, Louisiana, Minnesota, Missouri, New York and Virginia.
On a regional scale, 30.8% of the respondents hail from the North Central states, followed by South Central, South Atlantic, Northeast, Pacific and Mountain.
Length of Service
Length of service is a good indicator of revenue stream, so we asked our survey participants how long they’ve been in business. The median “establishment” date was 1983. However, the range included companies that opened their doors back in 1920, clear up to and including new businesses that began in 2007.
The largest companies, as predicted, have been in business the longest. In fact, companies making more than $4 million per year began operating during the 1970s; mid-range businesses were established in the 1980s; and the smallest companies began operating in the 1990s.
Results show that companies have larger staffs than in previous years. The range included five full-time employees, or full-time equivalents (FTEs), to 76.8 FTEs. However, the typical company employs 30 FTEs, the largest median result we found.
Financial ratios were split out by four values: overall, segmented, historical and financial. Balance sheet values by company size are outlined in the accompanying chart.
The report also detailed financial ratios by examining companies using the following descriptions: revenue per employee, day’s sales outstanding, inventory turnover, return on assets, return on equity, current ratios and debt to equity. The detailed graphs on these key points can be found on pages 28 to 30 of the report.
The final segment of the report examines sales ratios (sales, cost of sales, selling and administrative costs, and income before tax) as a percentage of total sales.
The combined data provides a unique glimpse into the financial health of the industry. Because a wide variety of companies took part in the survey, the results offer a broad perspective of the commercial electronic systems industry.
Copies of this report are available to NSCA corporate members. For more information about NSCA, or to join the association, call (800) 446-NSCA or visit www.nsca.org.
Chuck Wilson is the executive director of the National Systems Contractors Association (NSCA), a not-for-profit association representing the commercial electronic systems industry. For more information, go to www.nsca.org.