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A study of consultancy and engineering firms with fewer than 50 staff has revealed that a small reduction in admin time can boost profits by 30%.
The study looked at over 150 areas of data from small companies and found that typical firm fee earners spent 74% of their time on fee earning work. If they could increase their billable time by just 10 minutes a day in place of admin work, the average company would generate 3% extra revenue and average profits would rise by 30% from their current level1.
Falling revenue saw small firms’ profit margins drop 1.1 percentage points and 17% of firms were loss making as revenues fall short of outgoings. However, relatively small changes to administration costs could yield significant improvements even for struggling firms. The combined effect of just 10 minutes per day extra project time and a 10% cut in admin2 would be to reduce losses by over 30% (for the 17% of lossmaking companies).
Alan Bramwell, chairman of ACE’s SME Forum said: “Small firms are making great strides to manage their costs and they are accepting smaller margins on the work they do. However, new efforts to streamline procurement processes and help from government to reduce the administrative cost of doing business would significantly improve their outlook.”
Companies that took part in the Association for Consultancy and Engineering’s Benchmarking Lite programme for small firms had a median fall in revenue over the year of 1.6%3. This was despite inflation reaching a peak of 5.2% in September 2011, which means a typical firm with revenues of £1.6 million might have suffered a real terms loss in income of more than £100,000.
Responding to the drop in profits, small firms have reduced the number of non-fee earning staff over the year. However, fee-earning staff remained steady and on average companies within the Benchmarking Lite study generated an average of £1.61 of revenue for every £1 of employee costs4 whereas for larger firms this figure was £1.47.
Small firms outperformed their larger peers on a number of efficiency areas. Absenteeism averaged 1.1%, significantly lower than the 1.6% for larger firms. Small firms also spent less time travelling than larger firms, thanks to greater focus on working locally.
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For media enquiries please contact Gavin Pearson (gpearson@acenet.co.uk) (020 7202 0255).
Notes to editors
1 Assuming there is no cost attached to replacing admin work with billable hours.
2 If measures were implemented that further reduced the amount of time required for administrative duties specifically by 10%, this would increase profits by 7%.
3 Net of subcontract costs
4 including salaries for Directors and Partners
Benchmarking Lite collected 150 items of data from 36 firms with fewer than 50 staff operating across the UK in the consultancy and engineering sector.
For non-fee earning staff, 14.9% left their company in 2011, compared to 12.7% joining – resulting in a net reduction in support staff of 2.1%.
Travel and other direct costs made up an average of 2.6% of small firm operating costs. This compared with 4.8% of costs at larger firms.
Following five years of successful benchmarking ACE in 2011 expanded this useful tool, offering it free to ACE members in the UK with a headcount of 50 or fewer.
ACE benchmarking is conducted in association with The Centre for Interfirm Comparison (CIFC) which has worked with ACE to design and operate the Benchmarking project for engineering and consultancy firms. Their significant experience and independence means that the ACE Benchmarking results are accurate and concise, providing an in depth analysis of companies performance.
For the full report please click here.
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