- Business-related travel. “I serve on the board of directors of both my local association and NAHB,” says Payne. “These are gifts I’m giving back to the industry, but they’re not necessary for business survival. If things got really bad, I’d probably cut back on traveling to some of the meetings.”
- Office supplies. Despite the proliferation of computers and back-office software, you’re always going to need things like pens, paper, file folders, paper clips, etc. But do you need to order so much at a time? Tie your spending to actual need. You may lose a volume discount by not buying items in bulk, but you’ll be spending less money on smaller packages.
- Subscriptions. It’s good to read a variety of business and industry publications to stay informed, but not if subscribing to them eats into your profits. “This is nickel-and-dime stuff, but the pennies really add up,” says Payne. Try reading some publications at the library or on the Web — provided there’s no online subscription fee.
- Phone lines. Do you really need six of them? Could you get by with two or three phone lines instead? Probably.
- Cell phones. “These tend to get wasted,” says Payne. “There’s no reason why people can’t make calls before they leave the office and after they return from the job site.” Cut cell phones out of your overhead and you’ll probably save a couple hundred dollars a month.
- Marketing expenses. If you run large ads, consider reducing the size or frequency with which they appear. Similarly, cut down on the frequency of mailbox stuffers or direct-mail pieces.
- Office space. If things get really bad and you’re thinking about getting rid of your office and working out of your garage or your bedroom, consider working out of one of your models instead. It’s a better way to separate your personal life from your business, and besides, you’re already maintaining the model and paying for its utilities.
After you’ve figuratively cut the fat out of your overhead, determine what your break-even dollar volume would be if you had fewer fixed costs. The difference between that and your current break-even dollar volume tells you the range of fixed costs you have to play with.
Get familiar with your overhead by examining it regularly. That’s what Payne does when he receives his income statement and balance sheet each month. It’s a lot smarter and easier to let your sales drive your fixed costs, not the other way around. Builders have more control over overhead than sales volume. Sales often depend on many factors beyond your control.
Payne’s “bucket theory” is another way of looking at it. “Every business is a bucket,” says the builder. “Whatever’s in the bucket, those are your assets. The spigot delivers your sales and the holes are your overhead. How many holes can you plug?”
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Business planning is the bedrock of a valuable, profitable company. "PRO Builder: Business Planning" offers step-by-step exercises and proven methods for establishing your company’s goals, developing strategies, setting priorities and evaluating results. It includes an electronic spreadsheet for developing the financial section of your business plan. To view or purchase this publication, click here, or call 800-223-2665 to order.
BuilderBooks.com also offers a variety of other publications about business management. To view or purchase these publications online, click here.
Want more information about effectively managing your business?
NAHB’s Business Management Department offers a variety of online resources to help you run your business better and more profitably. Click Business Management Tools for articles about human resources, financial management, sales, production, technology, customer service and other business-related topics. In addition, visit the NAHB Software Users Network Discussion Forum (SUN) to ask technology consultants and other builders what they think of various software packages and applications.
Subscribe to NAHB’s Business of Building e/Source
NAHB’s Business of Building e/Source is your monthly electronic guide to the hot issues and emerging trends in home building business management. You’ll find practical advice, tricks of the trade and sound business guidance — all delivered monthly, straight to your desktop, in a quick and easy-to-read format. Business of Building e/Source is available free to NAHB members and their employees. To subscribe, click here on the members only side of www.nahb.org.
University of Housing Offers Courses on Customer Service and Business Management
The NAHB University of Housing offers a course on business management designed to help builders improve their business and profitability. For a list of current offerings, click here.
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