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Knowing the Local Market Inside and Out a Matter of Survival
Surviving adverse economic conditions means knowing your business, your marketplace — and your competition — inside out, Leon Rogers, president of Construction Management Associates, LLC of Thayne, Wyo., told an audience at the International Builders’ Show in Orlando last month.
“Know your local market very well — its history, its trends, its uniqueness,” he said.
The same holds true for the competition.
“How many specs are your competitors, holding?” he asked. “How many lots? What is their financial staying power? What concessions are they offering? What price-cutting is going on? Monitor their advertising campaigns.”
Just as important is being thoroughly aware of your own financial position, Rogers, said.
“What is your current profitability, gross and net? What are your conservative sales projects, current contracts with qualified prospects and contracts with potential prospects? What is your current sales/traffic ratio? What is your fall-out ratio — cancellations/sales?”
Further, builders need to assess the status of their inventory and keep a close eye on the quantity and quality of their traffic.
It is also essential for builders to accurately quantify their expenses. Rogers said they need to know the cost of their fixed and variable overhead, their cost of construction, their overall current and long-term debt and the amount of cash they have on hand, and they need to be able to project their best-case and worst-case cash flow.
“What is your financial capacity measured in time? Do you have a one-, two-, three-month reserve or more? Or are you already cannibalizing your operation?”
Once builders are able to answer these questions, he said, they need to take the following steps to implement a survival plan:
- Remain positive with their employees and customers and avoid negative advertising.
- Stay in touch with their lender and be wary of innovative financing. “Appoint a person to stay in weekly contact with the lender for the final month of the sales contract to check the status of the loan,” Rogers said.
- Make sure customers are fully qualified before starting a new home. “Many upscale buyers are heavily impacted by stock market conditions,” he said. “Stay abreast of their financial condition. Make sure you communicate often and candidly with your customers about their credit.”
- Determine what expenses can be cut and then be aggressive in slicing the fat.
- Expand their advertising and keep it positive. “Look for co-op advertising with lenders, suppliers and trade partners. Monitor what’s working and what’s not."
- Examine land holdings and decide upon the best time to minimize exposure.
- Objectively evaluate company personnel. “This is the tough one,” Rogers said. “Your personnel are your greatest asset, but most often they are also your greatest monthly expense. Let those who are not as productive as they should be go. Save your ‘A players’ and make the tough decisions with the rest.”
- Re-evaluate relationships with suppliers. Monitor material prices and their trends more closely. “There are savings to be made,” Rogers said. “Negotiate new reduced prices with your suppliers. Ask them to look at ways to economize. Find areas where you and they can cut their prices.”
- Look for the best subcontractors. “There are some really good people out there who are hungry and anxious to work,” he said. “Negotiate a win-win with them. A little less of a going concern is a lot better than sitting there doing nothing.”
- Place a freeze on capital expenditures that don’t relate directly to your survival plan.
- Tighten schedules, shorten build-out times and eliminate waste.
- Stress integrity. Make sure all employees act with the highest degree of integrity and insist that they treat customers like royalty. “Communicate more frequently and candidly with your customers,” Rogers said. “Keep your promises.”
 NAHB Has Nearly 300 Resources to Help You Run Your Business More Profitably
Go to NAHB's Business Management Tools Web pages (available to members only) for instant access to nearly 300 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.
Resources are added weekly, so bookmark www.nahb.org/biztools to go directly to these vital business management resources.
Local and state home builders associations can link directly to www.nahb.org/biztools from their Web site and give their members instant access to these resources. It will make your HBA's Web site the place to go for the information and guidance that members need to succeed.
Build a Profitable Relationship
Creating positive partnerships with brokers can enhance business and boost sales. Builders can learn how to profit from alliances with brokers by taking the “Increased Profits Through Effective Builder-Broker Cooperation” course from The NAHB University of Housing.
The course shows how to use common interests to connect with brokers and how to choose compatible sales professionals.
Find out where upcoming courses are being held here, or call 800-368-5242 x8154 for more information.
 Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown
What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn.
To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here.
To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar.
For assistance, call the NAHB Member Service Center at 800-368-5242.
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