Home Builders

Home Builders Face Shrinking Profits and Tighter Cash Flow
By Amy Hunter The construction of new homes is a tough business. Builders of new homes face high expenses, a low profit margin and a shrinking market for their product. To develop a healthy business, residential home builders need to use business skills as much as construction skills.

During tight economic times, new home builders, in particular, custom home builders, find clients drying up, homes selling slower, and banks less willing to lend money. To ensure the health of their business, residential home builders should take proactive steps:

1. Manage your cash flow.
2. Develop an emergency fund.
3. Constantly evaluate your relationship with your suppliers.

Develop a winning bid

The goal of all residential home builders when bidding on a project is to get the job. An effective bid should start with your analysis of the building plans. Decide what the home should sell for, and then work backwards. Break each part of the home building process down. Determine how much you should spend on the foundation, kitchen and other components to reach the final price. Be sure to factor in your profit. Bidding in this way makes it easy to set aside some money for a high impact but low cost upgrade, such as crown molding in the living areas. It is often a small touch like this that will make the sell for you.
Try:  Finding out what homes in the area are selling for. You can get some idea by visiting Multiple Listing Service, or MLS listing sites, but you can get a more accurate price by visiting your courthouse to see the recorded sales. Many communities allow online access to these records, contact the local county clerk's office to see if yours does.

Use technology to and track expenses

There are a variety of programs available that allow the custom home builder to manage building projects efficiently.
Try:  Buildlinks is a web based tool that has a real time calendar, integrated email and documented storage, an online tool that allows home builders and owners to view and manage change orders and option packages as well as many other features. Ezhomebuild is a software program that permits cutting and pasting from spreadsheets, has the ability for the contractor to import price databases and generate reports. It also integrates with a variety of software, including Quickbooks and MS Outlook. The construction of new homes is a numbers game, and to remain profitable you must keep an eye on expenses.

Be the ideal home builder

New home builders often look upon their work as a way to pay the bills, but to stay in business during lean times word of mouth is everything. This may be the only home your client ever builds, and they will remember everything that went right, and everything that went wrong. Particularly in the case of custom home builders, the customer expects personal service, timely response to questions, and, above all, to feel that they got their money's worth.
Try:  Starting with a basic checklist and customizing it to fit your business. The final step in new home construction is to walk through the home with your buyer and complete the checklist. This is also the time to ask some exit questions to assess their satisfaction with your performance. If they feel negative, it may be too late to change their mind, but use the criticism constructively.

• Start each bid from scratch. Do not depend on numbers or quantities from previous bids to come up with your numbers.
• Include more than price in your bid package. An attractively presented package, with photographs of your previous work, common upgrades and even a handwritten cover letter will make you stand out.
• The market share for custom home builders is tight , by projecting a professional image and managing the business side of your company effectively, you will be ahead of much of your competition.