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Increase Profitability by Streamlining Your Operations

If you said having a steady supply of land, well that certainly helps — but that’s not the secret.

To make money in the industry, you have to have a company vision that employees understand and support. That means having:

• A unified set of goals
• One set of numbers to strive for
• A single mission

The key to achieving this vision is organizational efficiency.

During the 2005 International Builders’ Show, Bob Whitten, vice president of SMA Consulting, discussed strategies for improving profits by focusing and streamlining business operations. He said the first step in the process was to:

Develop Your Company’s Vision

Aligning your company’s work with a common vision is crucial for effective organizational time management. Doing so can result in a 10% time savings and gain in productivity.

If that doesn’t sound like much, multiply that 10% by the number of employees in your company. “The bottom line impact is immense,” Whitten said.

To develop and formalize your company’s vision, Whitten said, first write:

• A company mission statement — this is a concise description of your company’s purpose or role
• A philosophy or values statement — these are the principles that support that mission
• A business plan with strategies ― this is how you will accomplish that mission

Only about 20%-25% of your business plan should contain financials. The rest is your vision. “It’s what causes those numbers to be good, bad or mediocre,” Whitten said.

As a business owner, it’s your responsibility to communicate the company’s organizational vision to everyone in your company. In addition, you will have better buy-in if you ask for your employees’ input while developing each of the vision’s three components.

Set Benchmarks

Benchmarks are the basis for conducting business to meet your goals. “Your decisions are only as good as the information you receive,” Whitten said. “You can track starts, but unless you know how your cycle time is, you never can predict closings.”

Useful benchmarks include:

• Profitability (gross and net)
• Sales, starts and closings
• Cycle time (in days)
• Job cost variance percentage
• Customer satisfaction ratio
• Customer referral ratio (customers who would recommend you to someone else)
• Advertising budget and traffic per unit ratio

Setting company benchmarks requires coordination among departments, so make sure each department in your company has:

• A department description
• A budget
• Benchmarks of success
• A separate section within the company’s business plan
• A reporting system to provide feedback

Here’s how you can use benchmarks and management by objective to work towards your company’s vision:

• Develop quantitative performance measurements.
• Compare your actual results to the benchmarks. (This should be reflected in the business plan.)
• Concentrate on exceptions to the objectives when reviewing those results and developing an improvement action plan.
• Produce reports that indicate whether or not the action plan is working.
• If the action plan isn’t working, revise it. You may also need to revise the business plan’s goals and objectives.

Document Your Processes and Procedures

“Documented procedures are a roadmap for doing more,” Whitten said. In addition to boosting productivity, written production procedures will help you maintain quality control and can help you make more money on each house.

According to Whitten, implementing a written purchase order system with job cost variance control is the key to cost control and profitability.

Record your back- and front-office processes and procedures, too. Because work done in the office is closely tied to work done on your job sites (and vice versa), it’s vital to maintain the same level of quality control throughout your operations. This helps support your organizational vision.

You can take your written procedures and flowcharts and develop them into separate manuals for home owners and the various departments within your company. These manuals then become training tools for your staff.

Home owner manuals do double duty as customer service tools that can save your company lots of time and effort. “Home owners ask the majority of the questions your company receives,” Whitten said. “Tell them you’ll still hold their hand and will respond to their questions, but the home owner manual will answer 75% of their questions.”

Hire Smart

As a business owner, you already know that you can’t swing a hammer, sell homes and handle customer service — and do everything well. That’s why you hire skilled employees who support your company’s vision and will work towards its goals.

Hiring smart helps minimize turnover. It also increases productivity, which enhances organizational efficiencies and increases employee satisfaction.

Whitten is a proponent of using behavioral job models— which measure the personality traits of an ideal candidate — to get a good fit between a candidate and a job.

“You usually don’t want someone with an accountant’s personality to be a salesperson,” he said. “Likewise, someone with an outgoing personality may not function well in your accounting department.”

Checking job candidates’ references and credit histories costs a few hundred dollars maximum but is invaluable for bringing the right people aboard. Unfortunately, many contractors don’t take the time to do this and instead rely on word-of-mouth from the person who referred a job candidate to them.

“If you’re going to offer someone $50,000 to be a superintendent and you don’t check his driving and credit record, you don’t know who you’re hiring,” said Whitten. Don’t take that risk in your business.

Useful Resources

The following resources can help you increase your organization’s efficiency, productivity, and profits:

• The "Pro Builder Business Plan Guide" features an electronic spreadsheet and step-by-step exercises that walk you through the process of developing a business plan. Call 800-223-2665 or go to BuilderBooks.com to order.
• Need a purchase order form? The “Form Builder: Contracts” CD contains more than 70 documents to help you manage your business. Call 800-223-2665 or go to BuilderBooks.com to order.
• “Business Basics for Builders” contains details on developing cost control systems, plus how-to’s on estimating, managing change orders and other business essentials. Call 800-223-2665 or go to BuilderBooks.com to order.
• “Job Descriptions for the Home Building Industry, Third Edition,” contains 40 job descriptions, interview questions and other hiring tools. Call 800-223-2665 or go to  BuilderBooks.com to order.

NAHB Has More Than 170 Resources to Help You Run Your Business More Profitably

Go to NAHB's Business Management Tools Web pages for instant access to more than 170 timesaving, moneymaking and cost-cutting business resources to help you run your business more profitably. Get guidance on accounting and financial management, business strategy, computers and information technology, customer service, human resources and more. 

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