Three ratios before the income statement
An engineering firm sells hours through fixed fees, so the income statement is a lagging summary of decisions made in timesheets. The numbers that lead are the ratios below, and the point of Fractional CFO work is to put them in front of the principals every month, by person, by team and by project, trended against the firm's own history rather than a folk benchmark somebody heard at a conference.
| Metric | What it tells you | What moves it |
|---|---|---|
| Utilization | Share of available hours charged to projects | Staffing level, marketing load, admin creep |
| Realization | How much of the time's standard value was billed and collected | Scope creep, write-offs, fee discipline |
| Net multiplier | Net fee revenue earned per dollar of direct labour | Pricing, leverage of juniors to seniors |
| Unbilled WIP days | How long work waits before it is invoiced | Milestone definitions, billing cadence |
The pattern matters more than any single reading. High utilization with sagging realization means the firm is busy doing unpaid scope; a falling multiplier with steady utilization means pricing has not kept up with salaries. Each combination points at a different fix, which is exactly why one blended margin number hides more than it reveals.
Project margin at the phase level
Fixed-fee engineering earns or loses its margin one phase at a time, so we budget hours by phase at kickoff and report actuals against them while the phase is still open. The recurring findings are familiar to any principal: the proposal effort that was never priced, the revision cycle a client treats as included, the subconsultant coordinated for a 5% markup that consumes 15% of a project manager's month. Multi-year assignments get a fee-escalation check annually, because salaries move every year whether or not the fee schedule does. Change orders get drafted while the extra work is happening, since a scope letter written after demobilization is a donation.
We also report backlog, signed fees not yet earned, against current capacity. Backlog is the earliest warning an engineering firm gets of a hiring need or a thin quarter, months before either shows up in revenue.
Cash flow when revenue arrives in lumps
Milestone billing means an engineering firm can be profitable on paper and short of cash in the same quarter. Payroll runs every two weeks; the municipal client pays when the invoice clears its approval chain, and any Construction Act holdback arrives later still. We run a rolling 13-week cash forecast that maps billing milestones, HST remittances, instalments and payroll onto a calendar, so the crunch is visible in June rather than discovered in August.
The structural fix is usually financing sized to the work-in-progress cycle. This is where Walla Assaf's banking background earns its keep: a line of credit should be sized against unbilled WIP plus receivables, presented to the lender with the project-level schedules that justify it. We prepare that package through Business Financing Advisory, and where a lender wants accountant-prepared statements, a compilation or review engagement comes off the same ledger.
Professional liability as a managed cost
For a consulting firm, professional liability insurance is a top-five expense that behaves like a variable cost: premiums scale with fee volume and shift with the mix of disciplines and project types on the book. Renewal applications ask for revenue splits by discipline, claims history and largest-project data, and a firm that scrambles to assemble those numbers every year is negotiating from weakness. We keep the splits current in the management reporting, budget the premium against the fee forecast instead of last year's invoice, and remember the quiet add-on: Ontario applies 8% retail sales tax to most commercial insurance premiums, and it is not recoverable. Certificates of insurance for client contracts, and the tail-coverage question when a principal retires, sit in the same file, reviewed on the same annual clock.
What the engagement looks like
A defined monthly rhythm: the close lands, the metrics pack follows, and a working session with the principals turns it into decisions on hiring, pricing and which clients deserve more of the firm's capacity. Scope is quoted in writing after a free 15-minute discovery call, and it flexes with the season, heavier when a lender package or a partner buy-in model is on the table, lighter when the firm just needs the ratios watched. No hourly surprises, and no report that does not change a decision.
