To be successful, builders and remodelers need a well-organized accounting system to accurately classify assets, liabilities, owners’ equity, revenues and expenses.
The NAHB Chart of Accounts — available free to members and developed by CPAs specifically for builders, developers and remodelers — provides a solid foundation for such an accounting system. The chart of accounts is particularly valuable to remodelers because it includes additional building industry-related charts and the “Basic Accounts for Remodelers” in its appendix.
Companies that use the NAHB Chart of Accounts — and keep it regularly and accurately updated — will have a more systematic and easier-to-understand method of recording their financial transactions, said Vince Butler, of Butler Brothers remodelers based in Clifton, Va., and a frequent instructor on business topics for NAHB Education.
Considering the differences between how home builders and remodelers record the money that comes into their company, companies just getting started in remodeling can find the chart of accounts particularly useful, said Emma Shinn, a Colorado CPA and principal of Shinn Consulting, which was instrumental in creating the NAHB Chart of Accounts.
“The cost element is probably the biggest difference,” said Shinn. “Remodeling jobs are much shorter in duration and done under contract. Usually, there is no spec remodeling. A customer is paying you.”
Home building is different. While builders might have a buyer or a contract, they don’t own the land or the house until closing.
“There are many things that can happen — the sale doesn’t close or the buyer is only giving you a small portion of the cost because they are getting a loan,” Shinn said. “Accounting-wise, the builder is creating an asset just like a manufacturer who is making widgets.”
The funds a home builder receives from a bank or lender come in the form of a loan. “It’s not revenue until a house closes,” Shinn said. “It is represented as a liability. The builder hasn’t earned it yet. It’s not a payment on the house, it’s a loan from an institution.”
With remodeling, “you are recognizing the revenues that you bring in when you receive the revenues and the cost when you incur the cost,” she said.
A Window for Banks
Some remodelers may roll their eyes at the minutia of putting money in the right cubbyhole. In many instances, Shinn said, “when a small business owner completes a financial transaction, they just record it wherever. They create an account or space and there is no rhyme or reason or structure.”
Such procedures can cause problems by making it difficult to account for the funds coming into the company or being dispensed by it. “The chart of accounts makes it easy to retrieve information in a format that is useable for the managers,” Shinn said. “If we lump them all together, it’s very difficult to figure out and analyze.”
That’s important not just to the tax accountant, the bank loan officer or the auditor, it’s also important to remodelers who want to grow their business.
“We even recommend that, if a remodeler is doing commercial or insurance restorations in addition to residential renovations, they use separate accounts for sales or revenue that they get from different kinds of jobs,” she said.
“It’s important for them to understand where their business is coming from. If they have a chart of accounts in that format, they can say, ‘Okay, this month, we did 50% of our business in residential, 20% in commercial, etc. Now, which one of these is giving us the better return? Where do we want to focus our time going forward?’” Shinn said.
The chart of accounts also enables builders and remodelers to be better prepared when they meet with bankers and lenders, which can lead to a smoother and more beneficial outcome.
“The chart of accounts shows the bank better organization on the company’s part and that it is more in control of what’s going on,” she said.
A Better Handle on Labor Costs
“The biggest thing that I stress when I’m teaching is that the chart of accounts gets everybody on the same page,” Butler said. “It’s the only way to make comparisons to benchmark or identify areas, to compare yourself to other companies.
"When people set financial goals or metrics, with the exception of sales revenue and net profit, everything in between tells you how we separate the beans into piles,” he said. “It makes a big difference whether you are successful in your business because these calculations help you determine your markups.”
“You are at a disadvantage if you aren’t charging accurately,” he said. “It makes a difference.”
Without a handle on costs, experienced custom builders can find it difficult to add remodeling to their portfolios, Butler said.
“The biggest problem for small custom builders considering remodeling is underestimating their labor costs,” he said, while noting that most custom builders use subcontractors and don’t pay employees on an hourly basis.
“They don’t understand how long it’s going to take and how much it’s going to cost so they underbid the job" and take it away from more experienced remodelers, Butler said.
“Then they get slammed and say that it’s the last remodeling job they’ll do because they have lost so much money,” Butler said. "They are setting themselves up for failure because they don’t know where the money goes.”
The number of fatal work-related injuries in private construction declined 10% from 2009 to 2010, according to the U.S. Bureau of Labor Statistics’ (BLS) Census of Fatal Occupational Injuries Summary, 2010 (CFOI).
Part of the BLS Occupational Safety and Health Statistics (OSHS), the summary provides a count of all fatal work injuries occurring in the U.S. during the calendar year.
While a growing focus on safety within the housing industry is one factor, the decline stems from many factors, according to safety experts at NAHB, including a significant slowdown in overall construction activity.
To accurately assess safety improvements over a period of time, employers should look at the overall construction fatality rate, which provides the number of fatalities per the number of hours employees worked.
That measure shows longer-term improvement from the period of 2006 to 2010, with construction fatalities dropping from 10.8 per 100,000 hours worked to 9.5.
Despite the improvement, however, construction still has one of the highest rates of fatal injuries of any industry, suggesting that educating workers on safety issues needs to remain a key priority for builders.
Home builders can take proactive steps to improve safety on their job sites. Before an OSHA inspector ever sets foot on the job site, builders should:
- Review their safety program
- Understand any national and local emphasis programs
- Develop procedures for an OSHA visit and train their employees in those procedures
- Have records (300 Logs, training records, etc.) readily available and up-to-date
- Make sure their workers are properly trained on the safety requirements of the job site
Another assessment tool from OSHS — the Survey of Occupational Injuries and Illnesses (SOII) — presents frequency counts and incidence rates by industry. That data will be published later this month.
The second monthly release of the NAHB/First American Improving Markets Index (IMI) on Oct. 5 showed that 23 individual housing markets were “improving,” nearly double the 12 markets on the list in September.
The index identifies metropolitan areas that have shown improvement for at least six months in housing permits, employment and housing prices.
Both the number and geographic diversity of improving housing markets expanded this month, with Iowa, Illinois and South Carolina all newly represented by one entry or more on the list," said NAHB Chairman Bob Nielsen.
"This is further evidence that, despite the tough conditions that persist in many cities, pockets of improvement are emerging in local housing markets across the country," he said.
"While Pittsburgh and New Orleans remain the two largest improving markets, the October IMI is heavily weighted by smaller cities in which energy and agriculture are the primary economic drivers and where the effects of the recession have been less pronounced," said NAHB Chief Economist David Crowe.
"In particular, Texas stands out for its seven entries on the improving markets list."
Bangor, Maine, was the only area to drop off of the improving markets list in October, due to a decline in local building permits.
The IMI is designed to track housing markets throughout the country that are showing signs of improving economic health.
The index measures three sets of independent monthly data to get a mark on the top improving Metropolitan Statistical Areas.
The following metros were listed in October:
The three indicators that are analyzed are employment growth from the Bureau of Labor Statistics, house price appreciation from Freddie Mac and single-family housing permit growth from the U.S. Census Bureau.
Small businesses and tax-exempt organizations that primarily employ 25 or fewer workers with an average income of $50,000 or less may be able to claim the small business health care tax credit.
To be eligible for the credit, employers must pay at least half of the premiums for the health care insurance of their employees under a “qualifying arrangement.”
In Special Edition Tax Tip 2011-06, which was issued by the Internal Revenue Service on Sept. 30, the agency lays out several ways in which eligible small businesses can still use the credit for tax year 2010.
For instance, small businesses that have already filed for that year but later determine that they are eligible for the credit can file an amended 2010 tax return.
Small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.
For tax years 2010 to 2013, the maximum credit for eligible small business employers is 35% of the premiums paid.
For eligible tax-exempt employers, the maximum is 25% of the premiums.
Beginning in 2014, the maximum tax credit will go up to 50% of premiums paid by eligible small business employers and 35% for tax-exempt organizations.
Additional information on the eligibility requirements and calculating the credit can be found on the Small Business Health Care Tax Credit for Small Employers page at IRS.gov.
For further information, email Rob Dietz at NAHB, or call him at 800-368-5242 x8285.
With the Census Bureau estimating that the 60+ population will grow to 73 million by the end of the decade and NAHB predicting that the aging-in-place remodeling market will be between $20 billion and $25 billion, panelists of the recent webinar, “Build Profit and Possibilities With Home Health Technology,” discussed how builders and remodelers can get traction in the market through the application of universal design principles and assistive home health care technologies.
“As builders, we are all looking for an edge or a way to differentiate ourselves from the competition,” said Tony Crasi of The Crasi Company, a design/build firm based in Cuyahoga Falls, Ohio.
Rather than cut profits to stay competitive as a builder, Crasi diversified into the aging-in place market, particularly since an overwhelming majority of seniors — as much as 89% according to some surveys — indicated they want to remain in their homes as they age.
“What we are trying to do is meet the challenging needs facing people as they grow older and applying building principles such as accessible design, good planning and the assistive technologies associated with in home health and wellness,” he said
Crasi admitted that he ventured in the market of home and assistive technologies “kicking and screaming” because he was unfamiliar with the technologies. “Now, I’m using the technology to gain an edge on the market and stay in business.”
Crasi recommended that builders and remodelers work with electronic systems contractors (ESCs), who will help them address the market’s needs. “An experienced ESC will, no doubt, showcase where the opportunities are. ESCs are like any other expert contractor, but a one-on-one partnership is key.”
Ric Johnson of Right at Home Technologies, an ESC based in Waynesfield, Ohio, who provides home automation, energy management, entertainment, security and health and wellness services, said assistive technologies — such as remote monitoring, cognitive exercises for brain stimulation, prescription and medicine reminders — can help residents stay in their homes much longer.
“Meet with all parties involved — the mother, father, son, caregivers, medical staff and others — so that both builder and the ESC can create a comprehensive plan together and build based on the customer’s specific needs,” Johnson said.
“Go over their medical needs,” he said. “Talk about their exercise habits, if it’s applicable. You want to create spaces and install technology that adds value to the routine in their daily lives and make it easier.”
Crasi said that builders, remodelers and ESCs should discuss more than the home owner’s needs when discussing options with families and caregivers.
“Talk about lifestyle and hobbies — and be sensitive to the individuals involved during the interview process,” he said. “It’s very important to be sensitive to the older person when meeting with a group. It’s easy to forget that, regardless of where their level of comprehension lies, they need to be included and welcomed into the discussion.”
Comprehensive discussions are needed, Crasi said, because “we are not medical professionals. If there are some issues that are beyond our scope of knowledge, we need to be made aware.”
He cited the possibility of the need for more suitable flooring for a client who uses a walker or shuffles when he walks. “These types of details need to be established,” Crasi said.
“Everything should remain familiar and comfortable for the couple or owner and the home,” Crasi said.
Building and Remodeling Opportunities
Johnson said clients generally have two possibilities — the can downsize by building a new home, or they can remodel their existing home so it better meets their needs as they age.
He said he worked with a builder using universal resign concepts “such as a no-step entry, everything on one level, wider entry ways and more lighting.”
With such a home, Johnson said, “there is no need to modify the house as owner ages. It can be prepared in advance.”
He said the technology infrastructure can be pre-wired in the home and, when the need arises, the home owner can add appropriate technologies, such as “a telephone system that works independently without a handset so, in an emergency situation, there is no need for the home owner to try to get to the phone or find it.”
The second option, remodeling the home for aging-in-place, Johnson said, enables home owners to “keep their memories of living in their house as they age, but they maintain their health as well.”
Options for the home owner, he said, can include opening up the home for more natural light options, having all the necessities on the main level and leaving the second level for guests. Home automation systems can be added that control the lighting as well as smart HVAC systems that send information on the temperature.
Another option that can provide elderly home owners or their adult children peace of mind is security systems. They not only monitor for intrusion, they can also be a safeguard against wandering.
Remodeling a home for aging-in-place and including assistive technology helps the home owners on several levels, Crasi said.
Both panelists also said adult children can also remodel their home with aging-in-place features to accommodate an elderly parent moving in with them. They said such a renovation or addition would pay for itself quickly through one of three scenarios, or all three — the aging parent could pay for the renovation; the cost of the remodel or addition would be less than nursing home care; and the remodeled home would increase in value.
The panelists also pointed out that assistive technology features can be installed at manageable cost. Crasi and Johnson said they worked together on an affordable home project and provided lighting control, HVAC and security for roughly $1500.
“In the aging-in-place market where there is a great deal of technology associated with care, the builder creates a custom living space, and the ECS provides solutions to aging-in-place realities,” Johnson explained.
Webinar Replay Available
With more than three-quarters of all business transactions involving some form of networking, the webinar, “Taking the Strange Out of Meeting Strangers,” will teach participants the basics of networking and how to make it fun and productive, not stressful.
Presented by Professional Women in Building, the webinar will be held from 2:00-3:00 p.m. ET on Wednesday, Dec. 7.
This webinar will teach participants how to develop their 30-second elevator pitch — a short summary that quickly defines their product, services or company — break into the crowd and focus on quality, not quantity.
Participants will learn how to:
- Become comfortable in networking situations
- Make networking enjoyable and productive
- Identify contacts that are meaningful for you and your business
Participants can earn one hour of continuing education credit toward their designations.
The fee is $19.95 for Professional Women in Building members, $24.95 for NAHB members and $44.95 for non-members.
For more information, email Carmel Nayman at NAHB, or call her at 800-368-5242 x8410.
View the entire Oct. 17 issue of Nations Building News.
Subscribe to the Free Eye on Housing Blog
For in-depth analysis of the latest housing statistics and research from the federal government, NAHB and other sources, Eye on the Economy readers are encouraged to visit Eye on Housing at http://eyeonhousing.wordpress.com/. You can also subscribe to the blog’s free RSS feed, which will automatically alert them to every new posting.
Entries for the 2011 NAHB Custom Home Builder of the Year Award honoring home builders who are masters at transforming client wish lists into one-of-a-kind custom homes are due by Friday, Nov. 11, and can be submitted online.
Sponsored by the Propane Education and Research Council, the award recognizes custom builders who create exceptional and innovative custom homes, as well as demonstrate effective leadership and dedication within the industry and their local community.
Candidates can apply themselves or be nominated by a colleague or their HBA executive officer or president.
The winner will be honored at a luncheon on Feb. 10 at the Custom Building Center during the 2012 NAHB International Builders’ Show. The winner also will be featured in national trade magazines and NAHB publications.
Custom home builders, who make a living providing custom and one-of-a-kind homes for their clients, can enjoy a customized experience of their own at the 2012 NAHB International Builders’ Show (IBS) in Orlando on Feb. 8-11 when they visit Custom Building Central between classes, tours and walking the show’s more than 400,000 square feet of exhibit space.
Sponsored by the Custom Home Building Committee, builders at the Custom Building Central lounge area — which will be located in room W309 of the Orange County Convention Center — can meet to share knowledge, swap ideas with like-minded professionals or relax and unwind during the show. They’ll also be able to participate in events and education designed to provide the tools, knowledge and resources to assist them with their business.
During breakfasts, luncheons and other events held at Custom Builder Central throughout the show, IBS attendees can meet with experts, discuss the issues that custom builders face and learn effective strategies that address changing trends in custom home industry.
The custom building hub and events are available to all registered Builders’ Show attendees interested in the custom home building market.
Custom builder events will also include the 2012 Custom Home Tour — a short trip off-site showcasing examples of custom and niche building in the Orlando area. In addition, the winner of NAHB’s 2011 Custom Home Builder of the Year Award will be named.
Some of the events and discussions planned at Custom Builder Central include:
Wednesday, Feb. 8
- “Social Media and the Custom Home Builder”
- “Design Trends and Solutions for Custom Builders, Large and Small Floor Plans”
- The Excellence Awards Luncheon — presented by Residential Design+Build magazine
- Custom Builders Mix and Mingle Happy Hour
Thursday, Feb. 9
- Custom Home Tour — offsite tour showcasing custom and niche homes in Orlando
- “Strategic Thinking for the New Reality Series”
- Design Application Workshop — Creating & Designing Product Using a Team Approach
- “Rediscovering the Art of Creating Value”
Friday, Feb. 10
- “Top 10 Technology Trends”
- “Collaborative Approach to Incorporating Technology into the 2012 New American Home”
- NAHB Custom Home Builder of the Year Award Luncheon
Saturday, Feb. 11
- “You Survived: Custom Builders Preparing for the Future”
- “What Your Electrician Doesn’t Know — Partnering With an Electronic Systems Contractor”
For a full list of education and events held at Custom Building Central, visit www.buildersshow.com/custombuilding.
For more information, email Marcia Childs at NAHB, or call her at 800-368-5242 x8388.
Register for Spokesperson Training Sessions at the 2012 NAHB International Builders’ Show
NAHB members and home builders association staff can register online for the NAHB Spokesperson Training seminars at the 2012 NAHB International Builders’ Show in Orlando on Feb. 8-11.
The seminars can help NAHB leaders be more persuasive and effective in media interviews and while giving speeches and making presentations.
Three training seminars will be offered at IBS:
- Interview Skills — Tuesday, Feb. 7
- Interview Skills — Wednesday, Feb. 8
- Presentation Skills — Thursday, Feb. 9
- “Accounting & Financial Management for Residential Construction,”
Available through NAHB BuilderBooks, “Accounting & Financial Management for Residential Construction” is a solid resource for builders, remodelers, developers and contractors that provides detailed information on how an accounting system operates and the basic principles for processing financial data.
The publication explains the key measurements that residential construction professionals should track; the integration of job cost accounting with estimating, purchasing and scheduling; and more.
To view or purchase this publication online, click here, or call 800-223-2665.
Owens Corning’s EcoTouch Insulation Certified by USDA
Owens Corning on Oct. 5 announced that its award-winning EcoTouch Insulation is the first fiberglass insulation to be certified by the U.S. Department of Agriculture as a bio-based product.
In August, it was ranked among the top five best new products of 2011 by Professional Builder and Professional Remodeler magazines.
For more information about Owens Corning, visit: www.owenscorning.com.
2011 Events and Education Calendar
Take a look at the upcoming events, sessions, and meetings taking place over the next few months.
Nov. 16: In the webinar, “Adjusting to the ‘New Normal’ — Strategies and Best Practices From 50+ Builders,” attendees will learn how leading 50+ builders are adjusting to the changing landscape and preparing their companies for success as panelists candidly share how they plan to serve the coming wave of boomer buyers.
Dec. 2: Applications are available for the 2011 NAHB/Builders Mutual Insurance Company Safety Award For Excellence (SAFE), which recognizes home builders and contractors who have developed and implemented high-quality, work-site safety programs. Submit your application by Dec. 2.
Feb. 8-11: Register for the 2012 International Builders Show!