Revving Up for a New Year

Article Image: 

People feel invigorated after the holidays. Stock portfolios don't look as bad (even when they are), business prospects look upbeat (even when they're not), and customers from hell are given a new lease on life (even when they shouldn't get one). The start of a new year is the perfect time for all company owners, including luxury home builders, to make adjustments to be implemented in the year to come.

Taking stock of your company involves reviewing strategy and philosophy. How have you reached the point at which you are now? How will you take your company to the next level? Which procedures and policies require overhaul, and which parts of your company should stand pat?

When you rev up for the new year, start by reviewing company policies, procedures and players across the following areas.

Marketing: If most of your jobs come from one or more architects, consider shoring up your sources. What happens to your business should one of your referring architects stop calling or, worse, cease working? The fewer your sources, regardless of their devotion to you and your work, the greater the chance your referral network will experience an unexpected jolt.

If you develop property and build on your own tracts, review the work done by your Realtor team. Speak to colleagues at the local builders association; are the homes they’re building in your price range selling at a rate more brisk than yours? If so, why? Is your Realtor doing all she can to increase site traffic? If not, this might be the time for an in-depth evaluation of your sales team. Remember, this is about money; emotion takes a back seat.

Do you have the right marketing materials so that prospects walk away from your first meeting with the sense they're dealing with a builder who has class and integrity? You should have brochures and testimonials demonstrating your character, skill and managerial ability. High-end home buyers will entrust that type of person to build their life's dream. In addition to ensuring that referral and sales teams are in place, it might be worthwhile to hire a publicist or public relations firm. That type of firm, working within a budget, can enhance your firm's image in the community and lead to higher-quality referrals.

Production systems: If you have all the systems in place to construct a luxury home, you're on the right path. But do you have the right staff, subcontractors and suppliers to carry out the mission? Are they all pulling in the same direction?

All employees and subcontracted staff should understand your company's mission and be part of an efficient effort to construct high-quality shelter for your customers. Rather than waiting for a situation and then reacting, vet your staff now to determine who should stay on the team and who should be traded or released. If you have an excellent carpenter who shouldn't be in the lead position but is receiving lead carpenter's pay, consider whether someone who meets your criteria for the job should become the lead. It’s a tough decision but the type an entrepreneur has to make to maintain or increase company profitability.

The same sort of evaluation should be conducted with each subcontractor and material supplier. While profit ratios count in every business, are there subs or material suppliers whose low bids no longer justify their retention? Have they been uncooperative in scheduling? Less than a team player at the job site? If so, look for new partners before your new projects begin.

Finally, review your production systems. Are there steps that somehow never go as planned? Do you have personnel who have never been trained in your systems and could use "face-to-face" time to improve productivity? Remember, every time something falls through a crack, your profit dollars fall with it.

The financial team: If you're going to ponder what the future has to offer, then ponder whether your team of financial advisers is best suited for future needs.

If accounting and payroll services are done in-house, should they be? Is it possible to receive the same or improved services by outsourcing these tasks? Might outsourcing mean reduced costs for the same services?

If you retain an accounting firm for company use, is that firm merely completing quarterly and annual tax forms, or is it providing counsel? Are you being advised how taxable profits can be saved or deferred? Does the firm have a member who is savvy about the construction industry, or are you receiving generic accounting advice?

Is your banker knowledgeable about the building industry? Is he willing and able to go to the mat for you when you have cash-flow shortfalls? Does he understand the nuances of home construction? Is he presenting your best side to the community by getting you involved with other banking customers or by helping to place you on a bank advisory committee? Is he making introductions to people of influence who might be able to further your company?

In brief, are you aligned with financial professionals with whom you're comfortable and who can help elevate your company one more notch? And if they haven't helped you move onward by this time, will/can they do so in the future?

Employees: Are you running a company or just working at your job? Have you taken the time to learn what motivates your employees? (Money, by the way, is typically not the answer.) Have you included your employees in your big-picture outlook for your company? Have you exposed them to the products and seminars that are conveniently available at trade shows and builders association functions?

The beginning of a new year is a great time to include everyone in company planning and better assess the needs of the people who help put money in your pocket. Even though they know they're not, make them feel like partners. Respect their input, try to enhance their career and personal goals, and meet their needs as individuals. Just saying you care and handing out bonus checks won’t do it for most workers. There’s a big difference, for example, between merely contributing to an employee pension plan and hiring a financial planner to explain retirement planning to your employees in person.

Some companies formalize planning into retreats. A note of caution: Taking your employees on a company retreat or even setting aside a block of time at the office takes a lot of planning on your part for it to succeed. If you want to try it, also be warned that you could open cans of worms better left closed. Employee disputes and disappointments can come to the forefront when you ask, "Does anyone else have anything to say?"

Diversification versus expansion: If your business is in high gear, is this the year to expand? Much like when you personally invest in the stock market, diversification is necessary to reduce risk and volatility in the business marketplace. If all your eggs ride on the luxury home building market, this should be the year to explore expanded horizons.

Most builders first look to diversify within the building industry because i's the field they know best. Logical areas for luxury home builders to explore: speculative home building, small subdivisions, remodeling, residential rentals, multifamily, commercial construction and commercial rentals. Because builders have a construction team in place, they might assume that the transition to another mode of construction is relatively simple. But beware: The difference, for example, between residential and commercial construction is more than just differences in nomenclature.

Builders might want to explore avenues of investment outside the building industry. Profits that have been removed from the company might be invested in stocks or bonds. 529 Plans can be started to fund college educations. Pension plans can be expanded to set aside more tax-deferred income. A second/vacation home might be worth exploring in a market where that asset can appreciate.

If all else fails and your business is really running smoothly and has generated profits over time, consider expansion. While expansion for some companies might entail increasing production from four to five homes per year, expansion for others might involve opening a satellite office in a second city, or building two subdivisions at a time instead of one, or developing land for future sale or use. The possibilities are endless. Plan accordingly.

Owner satisfaction: The U.S. Army commercial advises potential recruits to be "all that you can be," and the same applies to any business owner. Are you satisfied with your work and your compensation? At this point in your life, is this the right place at the right time for you?

By the very nature of what they do, builders can transfer their skill sets across a range of options and opportunities. While some builders make a great living building affordable housing for low-income earners in urban settings, others contract with not-for-profit groups and act as their agent for construction. Some thoroughly enjoy building one-of-a-kind housing for people with great means, while others achieve satisfaction by educating customers about building green and saving the environment.

Endnote: Thinking ahead should include an exit strategy. How many years do you want to do what you're doing? Do you have a plan for retirement? Do you have a plan to fund retirement? (How much value are you placing on a custom home building company that might not have appreciated land assets to sell?) When all is said and done, you should have something to show for all the hard work and risk taking.

Having a solid foundation in one's company presents endless possibilities. Unsure of which way to go? Join and participate in a builders organization in which you can meet like-minded colleagues who share their expertise. Civic organizations can be great for networking, but few conversations beat an exchange of ideas with one's peers.

Stan Ehrlich can be reached at sfehrlich@rcn.com [1].