2013--Are you Ready?Adam Hornyak
February 6, 2013 — 1,707 views
It feels like an eternity since housing forecasts last looked promising, but we are finally seeing significant changes. 2013 will mark the first nationwide homebuilding uptick in several years, with nearly one million projected new starts. Inventory levels and mortgage rates are at historic lows, creating a greater demand than supply and culminating into long awaited increases in sales prices.
Prior to the bursting of the metaphorical bubble, many builders were carefree in how their money was spent. Overstaffing, questionable land deals, and frivolous expenditures were the norm. Of course that changed once it became painfully evident that a bleak future was quickly nearing.
It didn't take clairvoyance to foresee that the industry was poised for a tremendous downfall, yet few took proactive measures to help weather the storm. Those that survived did so with shells of the past; succumbing to reductions in closings, subcontractor bases, and most importantly, staff. Appropriate planning for a recession is logical, but what about a nearing surge? With a light at the end of the tunnel, it's never too soon to begin thinking about how your company can maximize the benefits of the first industry upswing in years. It's the perfect time to ask yourself the following questions:
Question One: Who are we, and who do we want to be?
Before you can proceed in preparing your business for the upcoming year(s), you must take an honest look at where you presently stand and where you realistically see yourself in the future. Closings are not going to reach zenith levels overnight, so a slow growth approach is extremely pragmatic in today's current environment.
Spending the time now to develop reasonable growth timelines and goals will save considerable money and headaches down the road. Look back to the core competencies that made you successful in the first place and seek out the path that not only works for your business today, but is scalable to the growth you want to achieve.
Question Two: Who do we have, and who do we need?
Staffing requirements dissipated in the mid-2000's as "More with Less" became a resonating war cry. Employees were suddenly relegated to doing much more than they had initially signed up for and those that were let go were up against stiff competition for very few jobs. Hiring freezes became the rule, and many people who devoted their careers to homebuilding were thrust into taking jobs in new fields.
With people being forced out of the industry, where do you start? Finding experienced, knowledgeable people will prove to be a tremendous struggle over the course of the upcoming year, however identifying what positions you need to fill will not. What did your organizational chart look like prior to the recession compared to today? What department(s) will face the most turmoil with an increase in starts, sales, and/or closings? Where has position absorption succeeded and can it continue to work with projected growth?
If you fail to find the right employee for a position, don't be scared to look outside of your general area for talent. Several years ago, I aided in the search of a sales manager for a residential homebuilder in Richmond, VA. They advertised for the position in the local paper and various websites, yet weren't receiving the applicants they had hoped for. By advertising in Washington D.C., Baltimore, Philadelphia, and Pittsburgh, they were able to find several qualified candidates who were agreeable to relocation. Solid employees are not a dime a dozen, and venturing beyond the local fringe can prove to be very advantageous to growing your company with the right team in place.
Question Three: Are we executing correctly?
When change comes about (especially from a staffing standpoint) procedures typically step aside to allow efficiency through. Unfortunately, the word 'efficiency' is in the eye of the beholder.
Let's take an example from a builder I once worked with in California. Their purchasing staff was cut in half in 2006, yet production had only slowed down by 20%. Three people were now handling 80% of the work that six people managed in the past. Corners were cut, and mistakes were inevitably made. As a purchase order-only company, any invoice received by the back office without builder-generated paperwork had to be researched. Instead of looking into each one individually and getting to the bottom of the issues, the staff created manual purchase orders for the sake of misconceived expediency. In the end, our team identified more than $70,000 worth of double payments that could have easily been avoided if company policy had been observed.
Home building is a process-driven business. As in the example above, deviating from a calculated game plan can wreak havoc on the bottom line. Having said that, it is always possible that new practices can work better than what was previously employed, so evaluate your processes and find the most efficient methods that do not compromise the end result.
Question Four: Are we ready?
One of the most misunderstood and underutilized tools that a builder has in their possession is operating software. Countless dollars are wasted each and every year on licensing and maintenance fees for programs that aren't being used to even a modicum of their full potential. Did your company take advantage of the slowdown to capitalize on the functionality of your software systems? Sadly, many builders did not use the time to get their arms around an incredibly important cog in their machine.
Working in the homebuilding consulting field, I tended to see the worst of the worse. Nobody called upon my services when their system was neat and tidy, and I've actually heard builders say that they were not taking on new projects because the back of the house was a mess. Typically the messes stemmed from poor maintenance, lack of training, and/or unmotivated staff. No matter the case, it had to be fixed.
ERP systems, albeit often complicated, are meant to streamline your business. Too many builders monitor their costs through offline programs or worse yet, binders full of loose, undated paperwork. If you intend to grow your company, every efficiency available to you must be taken into account, and your software is a pivotal key. If your system is accurate and the data is clean, scalability becomes a bona fide reality. If your system isn't accurate, you are leaving profit on the table.
Ultimately, we've all managed to ride out the recession, and with the proper planning, staffing, execution, and attention to detail, the future can look brighter than you think.
Adam Hornyak is the Director of Purchasing for Hawthorne Partners in Pittsburgh, PA. Prior to Hawthorne, Adam owned ANH Consulting, a homebuilding consulting firm. Adam can be reached at [email protected]