Many builders and remodelers say that this recession is different, and it may well prove to be, but there is one similarity among recessions; there will be a recovery, which can mean opportunity if one is prepared to take advantage of it.
Some of the core problems will remain—lack of financing, poor buyer credit, excess inventory and sales of existing homes through foreclosure—and these will affect this industry for the foreseeable future.
To capitalize on the recovery, start by looking at what you have done as the recession got worse.
First, you streamlined your operations and the eliminated personnel. You evaluated your product and its costs. Some may have even diversified into associated businesses such as remodeling, commercial work, energy-efficient retrofits and weatherization.
It is important now to spend some time and evaluate what you did, its success, or lack of, and how to use that knowledge and experience to prepare for the future.
As businesses downsize they often look at automate some of their processes. Automation can have a long-lasting, positive impact if done correctly. If done incorrectly, automating procedures merely allow for the same mistake to be made faster and more frequently; often going unnoticed. Therefore, it is imperative that whatever is being automated be fully understood prior to implementation. A successful system is to delegate the routine and repetitive tasks, thus freeing individuals to do what they do best—solve problems, work with clients and provide exemplary service.
Three systems that are often overlooked but can have a profound effect are:
- Estimating—Often builders fail to recognize the best part of an estimating system is the job cost system. What benefit is an automated estimating system if it is not routinely checked against actual costs? Failure to check variances on each project will only allow the same mistakes to become part of every job moving forward. The estimate needs to mirror the job cost system and vice-versa. Then it needs to be checked at the close of each job for accuracy to the estimate.
- Purchase Orders—To many, this is unnecessary paperwork. A successful purchase order system goes beyond merely ordering materials and work. The purchase order validates the estimate. All materials and work should come directly from the estimate and extra materials or work orders should be flagged as a variance. Reviewing the variance purchase orders on a regular basis can illuminate errors in estimates and change orders. Purchase orders serve an additional purpose in that they can automate the record keeping. Those assigned from the estimate with the proper job cost code are assured that they will be accounted for properly. Someone else can match invoices to the proper purchase order and no longer will your valuable time be consumed cost coding invoices at the end of the month; you will only see the few that need your direct attention.
- Scheduling—Too often builders and remodelers fall into the trap of thinking if they just had one more job at one time, they can become more profitable. In reality, that causes inefficiency, lost time (profits), and poor customer relationships. The goal should be to do more jobs over a given period of time by increasing the speed, or velocity, of your projects. A well-thought-out schedule that is monitored consistently and has the buy-in of your team will increase that velocity, and in the process deliver increased profits and increased customer satisfaction.
Now is the time to look at each of these three systems and make sure that they are implemented for the maximum benefit. Deployment of each of these alone will increase your efficiency and deployed together will assure you that as work increases, it will be completed efficiently, profitably, and with increased customer satisfaction.
Your Business Practices
- Hiring—Deploying efficient systems will provide a certain level of security as the work load increases but at some point employees will need to be added also. Now is a great opportunity to find experienced key personnel. This is a once in a business cycle opportunity to find the best individual for your company. Many people have been laid off and are looking for work but your search should start with a careful evaluation of where you need help.
Ask yourself these questions:
- What do you do best?
- What do you dislike to do most?
- Where can you reap the most benefits of added personnel?
Remember that the goal is to increase efficiency first, and simply adding people may not serve that purpose. Careful, written job descriptions and responsibilities will help find the perfect fit. Understanding your systems and how your processes work will help define those jobs and responsibilities.
Product evaluation—When the market is good it seems that whatever we build or remodel is a success, but when the market tanks it’s quite the opposite. There are plenty of success stories from the last couple of years of builders and remodelers who found the right blend between their product and consumer satisfaction. Building what you know will sell, not what you think will sell. To know, you must identify what you do best, where the consumer demand is, and how you can satisfy that demand.
It stands to reason that what you do best will provide the most success. Knowing where you excel is critical to selling yourself. Market research, either through a consultant or your own study, will then illustrate how you can fit into what is selling. The goal is find your niche, and then exploit it.
Understand the selling price comfort level of your target consumer. Start with the target selling price, take out your desired margin, and you will be left with your costs to deliver that project. Too often builders start with the product cost, then add markup, only to find out that it is priced out of their target market. Then to move it they have to cut their margin, since the costs have become fixed.
Diversification—For many in the past few years, diversification meant doing anything to create cash flow. Now is the time to evaluate those moves also.
Ask these questions:
- As things improve and work becomes more plentiful will those diversified services provide the necessary profit?
- Are they now an integral part of your business or will they become a distraction as your core business improves?
- Do they drain from your core business?
The answers to those questions should help you decide where to keep your focus. Remember, the goal, as workflow improves, is to accomplish it more efficiently and at a greater profit. As things improve it will require additional focus to work efficiently, to maintain the streamlined systems, and to build customer satisfaction. That will require additional energy that should not be diluted by products or operations that do not support those goals.
Finally, take a moment to pat yourself on the back. You have survived a very tough economic period. Don’t dwell on the failures as anything other than learning experiences. Congratulations, you are almost there and with some business examination you can assure success as the building industry improves.
John Barrows is president of J. Barrows Inc., a company that has provided construction services, general contracting, construction management and consultation services for over 30 years. Barrows is a nationally recognized author and speaker on topics including green building, construction, production management, and business management. In addition to presenting his own seminars, he has worked with the NAHB to develop and teach some of their designation courses. He holds the designations of Certified Graduate Builder, Graduate Master Builder and Certified Green Professional.
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