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Liquidity, Good Business Practices Are Keys to Survival
 Liquidity and good business practices are the only true solutions to surviving the current downturn, according to a panel of industry and financial experts participating in the Aug. 21 webinar, “Coping With Financial Distress,” by Constellation HomeBuilder Systems and NAHB’s Business Management & Information Technology Committee.
“Cash is king” and will create a buffer to help builders through the tough market, said Ron Robichaud, of Robichaud Financial Services in Laconia, N.H. “We’ve seen builders who have run through all their cash reserves and exhausted all their assets. Creating liquidity is the key to survival.”
Builders can spend their cash to boost their businesses if they have it, added bankruptcy attorney Harley Riedel, of Stichter, Riedel, Blain and Prosser, P.A. of Tampa, Fla., “but only if it solves your problem.”
“I know some builders who have been pulling money out of their savings accounts to stay alive,” said builder Randy Noel. “At some point you look at it and say, ‘Where do I stop bleeding and where do I get off this train?’”
Bring in Professionals to Take a Good, Hard Look at Your Business
Commercial and mortgage banking expert Tom Flowers, who has worked at Bank of America and U.S. Bank, said builders should conduct a “realistic, hard-nosed assessment” of where they are in their marketplace. This could require bringing in outside legal, accounting and other business professionals, he said.
“You cannot know everything you need to know about how to run your business yourself,” said Flowers.
Outside professionals will see things that the typical builder might not see because he didn’t have to deal with that adversity when times were good, Flowers said. “This may be a good time to find some additional help.”
Follow their advice, Flowers added, while noting that builders need to be aware of any unintended consequences that can occur if they make capricious moves with their capital. Outside professionals should be able to warn them, he said.
Flowers said that in these difficult times builders must ask themselves some very basic — and difficult — questions: Can I survive? Do I want to survive? What’s the best course for me in the short run? For the rest of my life?
“If you know you’re going to have difficulties, be aware of them,” Flowers said. “Recognize what those issues are going to be and make plans and take steps early to deal with them.”
Protect Business and Personal Assets
Riedel discussed several ways builders can protect their business and personal assets if they are facing financial distress and potential bankruptcy:
- Keep Business Banking and Business Negotiating Separate: Riedel recommended that builders not bank with the same institutions where they are about to negotiate contracts and loans. If those banks are owed money, he said, they can issue stop payments, bounce checks and take the balance on the builder’s accounts. The banks can also take the builder’s personal account, Riedel said.
- An Automatic Stay Could Preserve Cash: In a bankruptcy proceeding, an automatic stay gives the debtor protection from his creditors, subject to the oversight of the bankruptcy judge, and brings all of the debtor's assets and creditors into bankruptcy court, where the rights of all concerned can be balanced. This procedure can help builders preserve cash and increase liquidity, Riedel said.
- Don’t Jeopardize Personal Assets: Riedel recommended that builders determine what assets are exempt from being taken in a bankruptcy proceeding and only “dip into them” if they are 100% protected. Under federal law, retirement benefits are exempt and in many states, homesteads, jointly-owned property, annuities and insurance proceeds are exempt. But builders need to understand the bankruptcy laws in their states before they use these types of assets to bolster their business, he said.
 Keep Communication With Banks Open
Restructuring expert Troy Taylor, of Algon Group in Atlanta, urged builders to continue communicating with their banks and lenders, even though these discussions can be unpleasant.
If builders are at the point where they think they are even remotely approaching a serious problem, they should “sit down with the bank and communicate,” he said. If need be, builders should bring along their legal and business teams to help in the discussions, he added.
“This is an unpleasant time for everybody,” Taylor said. “Builders are going to lose a lot of money and banks are going to lose a ton of money,” he said.
“Sitting down with your bankers and telling them you‘re not going to be able to pay them is not going to be a great conversation, which is one of the reasons why having a third party there will help a little bit to take some of the bullets,” Flowers said.
“The truth is, this is not pleasant stuff, and there is no way it’s going to be done without salt in the wounds,” he added.
Webinar Discussion Available Free
The 90-minute webinar is available free to NAHB members. To view it, click on “Coping with Financial Distress.”
 NAHB Has Nearly 300 Resources to Help You Run Your Business More Profitably
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 Improve Business Operations With ‘Cost of Doing Business Study’
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To view or order the “Cost of Doing Business Study” online, click here, or call 800-223-2665.
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