National News: For Remodelers, Recovery Won’t Mean Business as Usual

You have got to read this article from the Nation’s Building News giving highlights from the recent Remodeling Show. 

According to the article…

• The latest findings of the Leading Indicator of Remodeling Activity, which was released late last month by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, spending on home improvements should begin rising early next year. Spending will, however, still have ample ground to recover, remaining 8.9% below its year-over-year level in the second quarter of 2010.
• Sixty percent of remodeling businesses never make a profit; 81% of them don’t track their profits by market and 64% don’t track profit by product. Most businesses don’t have a written business plan. Sixty-two percent of remodelers don’t track client retention and 64% don’t know their sales conversion rates. Consequently, roughly two-thirds of remodeling companies fail in their first five years,  roughly the same as the 60% failure rate experienced by small businesses overall. However, about 90% of remodelers perish before celebrating their 10th anniversary.
• Case Remodeling has found that after contracting an initial job, largely a smaller project coming in through its handyman division, 18% of its clients went on to a second job within 18 months. Of that 18%, 72% went on to a third project.

National News: Remodelers Action Needed!

NAHB Remodelers are urged to comment on a recent proposal by the U.S. Environmental Protection Agency that would add more requirements and costs — and subject the remodeling and renovation of an estimated 40 million additional homes — to the lead paint regulations that will go into effect in April 2010.

The proposed amendment is a direct result of EPA’s settlement with environmental advocates. Some of the proposed changes will drastically affect the rule and add further demands on remodelers.

The EPA’s lead paint rule is focused on homes built before 1978, which are more likely to contain lead. According to the U.S. Census Bureau, these homes account for 68% of the nation’s total housing stock.

The rule currently requires remodelers to certify their firms, have a trained and certified lead renovator on staff, educate home owners, contain and clean up dust, conduct a final dust wipe to confirm cleaning, and maintain records. The rule also allows an “opt-out” provision for homes without children under six and pregnant women as residents.

EPA is now proposing to remove the “opt-out” provision, which would drastically increase the number of homes impacted by the rule. If accepted, all pre-1978 homes would be subject to the rule, which is an estimated addition of 40 million homes.

Additional proposed changes to the rule include a requirement for remodelers to give the home owner a compliance checklist document to add to their home records for passing on to future owners. The checklist would describe the sections of the home renovated and details on rule compliance.

The window for comments to EPA on the proposed amendment to the rule is extremely short, yet is it is very important remodelers submit comments for the official record. NAHB is also submitting an official comment letter.

NAHB has created a member-only customizable letter to adapt and send to EPA by the comment deadline of November 27. The letter is accessible only to members and can be downloaded and tailored with comments and cost estimates.

The full proposed amendment was published in the Federal Register and can be downloaded in PDF format. Learn more about the current lead paint rule and how to prepare at  www.nahb.org/leadpaint.

Remodelers: Action Needed!

EPA estimates that compliance with the Lead: Renovation Repair & Painting Program increases the cost of each job by $35. Remodelers have expressed to NAHB the concern that $35 is well below the costs a firm will incur in working in pre-1978 homes. NAHB asks that you let EPA know the true costs of complying with the Lead Regulation.

Please send EPA a letter during the during the brief comment period, following the recent proposal to remove the opt-out provision and tell EPA how much it really costs to follow the regulation. Write and send your own letter or customize the member-only downloadable letter from the NAHB website with your story using the worksheet to estimate both the initial costs (certification, training, etc.) and the cost incurred for each job.

Questions? Contact remodel@nahb.org.

How to prepare your business for the flu season

This year’s flu season could potentially affect your business and employees. The H1N1 virus, also known as swine flu, has spread rapidly around the globe. One of the best ways to battle the flu season is by preparing your company now. Developing a game plan today will put you in a better position to keep operations running smoothly should the flu hit your workplace.

Here are six tips to prepare your business for flu season:

• Educate your employees: Inform workers about symptoms of the flu and how to prevent its spread to others. Post signs about good hygiene and put anti-bacterial soap or sanitizer in the office kitchen and bathrooms. Routinely wipe down computer keyboards, phones, door knobs, and light switches.
• Develop an absenteeism plan: How will you operate if there is significant absenteeism from sick workers, or those who stay home to care for ill family members? Determine, for example, who will assume the lead role if a manager becomes sick, or who will be responsible for payroll if your accountant is sent home.
• Alternative work arrangements: Train employees on how to telecommute from their home and set expectations for them if they have to work from home.
• Encourage vaccinations: Consider making flu shots available to your employees by brining in a service, or by subsidizing the cost for them to get them on their own.
• Keep sick workers home: Encourage sick workers to stay home without fear of losing their jobs. Workers who have flu-like symptoms (fever, chills, sweating) should stay home and not come to work until they’ve been fever-free for at least 24 hours. It may seem like an unbearable hardship for you, but you’ll have an even harder time if employees who contract the virus spread it to others.
• In case of an emergency: Have everyone’s mobile number handy to contact, or develop a phone tree to get the word out.For more information on the H1N1 virus, visit the Centers for Disease Control and Prevention.

Energy Tax Credits

This is the easiest to understand explination of all the tax credits I have seen. Click on the picture below for the full size version. Then roll over this interactive poster to see the requirements and deadlines for remodeling-related energy improvements and equipment. The information comes from Remodeling magazine’s coverage of the stimulus package.

Market Your Business with Pumpkins

By Michael Stone, from the Mark up and Profit Blog

If you ever read the Peanuts comic strip, you’ll remember Charlie Brown and the Great Pumpkin. The Great Pumpkin appears on Halloween and does something (I can’t remember what).

Here is my take on pumpkins and your business. Many of us have small farms nearby selling pumpkins. How about offering the owner a lump sum for 100 – 150 – 200 pumpkins? You figure out what it’s worth and make an offer.

Then send a note to all former and future potential customers telling them they can take their kids or grandkids to the farm, using the coupon you are giving them, and get a free pumpkin. Maybe schedule it for one or two specific days only so you can be there to personally greet each family. In a few special situations, like military families where dad or mom are away serving our country, make sure everyone in the family gets a pumpkin even if you have to buy a few extra. (Don’t do that for business purposes – do it because it’s the right thing to do.)

When you send the note, thank each family for their past business and extend the assurance you will do a great job in the future. Ask if they know anyone who wants to do work on their home or building. Referrals are great things. One new job and you have paid for this whole program, and it’s fun as well.

Might be worth a try. Okay, it’s getting close to Halloween and you’ll have to really move to get it done before the holiday, but is there any special event in your area for Thanksgiving or Christmas? Maybe arrange for a discount on tickets to a show, or a tree lighting event, or for Christmas trees, or holiday candy somewhere, or a free ornament at a local bazaar, or . . . . get the idea?

NAHB STAR

What is nahb STAR?

It is a singing contest, for NAHB Members and immediate family members only, to determine who will sing the National Anthem at the Grand Opening Ceremonies at the 2010 International Builders’ Show® in Las Vegas, January 19, 2010.

How Do I Enter?

FIRST, carefully read the official Rules and Regulations of the nahb STAR contest to make sure you are eligible.

SECOND, make your video! This must be a solo a cappella performance of the Star Spangled Banner.

THIRD, by November 2nd you must submit:

Your signed nahb STAR Entry Form/Contest Release form via fax to 202-266-8193

Your nahb STAR video via email to nahbstar2010@gmail.com

Further instructions on submitting each are listed on the bottom of page two of the Entry Form/Release.

Be sure to check out the nahb STAR important schedule to see what happens after the first round of voting!

That’s it! When voting begins November 16th, you’ll want to be sure and let all your friends know to visit www.BuildersShow.com to vote for their favorite nahb STAR!

Who Do I Contact With Questions?

Please send any questions to nahbstar2010@gmail.com

What’s the New Normal?

By Judy Miller from www.remodeling.hw.net

Last week I asked 12 successful remodelers to define “the new normal” – what did they expect the economy to look like over the next 3 years. Here are some of the more salient comments:

• Sustainability – Both from the perspective of the company as well as the buildings. We want to build projects that last, that protect the environment. We want to build our companies in the same fashion.
• Smaller confines – We’ll work in smaller areas, see fewer large projects. No one will build McMansions over the next 3 years – at least no one in our target market.
• Smaller job size – Not only will we work in smaller areas, the job sizes will be tightly controlled.
• Diversification across job scopes – We’ll do many more different types of jobs than we’ve done in the past. We won’t be able to rely on just ”whole house renovations.”
• Greater education on value – Clients must be educated to understand why we charge what we do. The value in hiring our company has to become crystal clear, both for the clients as well as our employees.
• Flat consumer confidence – Until and unless the economy shows clear and strong signs of strength, consumer confidence will remain flat.
• Short attention span – Consumers are less patient, they come to us with an idea in their minds that they want to see built sooner rather than later.
• Generational differences –Younger clients want instant gratification. They’re not as interested in building a long-term relationship with us; loyalty is not a prime consideration for them.
• Increase in “production oriented” remodeling – Concepts such as ”1-week bath” and ”1-month kitchen” require standardized systems more typical of production builders rather than the customized remodeling that we’re used to doing.
• Energy efficiency – This will be a slow sell, but will build in importance over the next 3 to 5 years.
• Change in buying patterns – Greater reliance on social networking; online pricing will change the sales process.
• Activating un-used spaces instead of adding on – Room configurations will change and un-used or under-used spaces will be adapted to better use.

One respondent said “the American buying public has a very short attention span. Once we’ve relaxed into the ‘new normal,’ things will go back to where they were. Everybody wants luxury.” I’m sad to say it sounds like he might be right: I read recently that given $10,000 to spend, no strings attached, 62% of American consumers would choose to upgrade their countertops rather than increase their energy efficiency – even as winter approaches.

That’s not what I’m betting on though.  I think the new normal looks like this:

• Less access to credit means fewer high-end jobs and less money spent on unnecessary upgrades.
• Fewer clients (and less money) in the high-end target market mean smaller market share in dollars.
• Therefore, many remodelers who relied on that target demographic will have to find other ways to meet their targeted sales volume.
• Therefore, smaller job size, greater job scope diversity, more emphasis on necessities rather than luxuries.
• More home-owner involvement in some parts of the project, such as painting.

In sum, I see a sea change coming that will appear as a tsunami to those who aren’t prepared. Now is a great time to move to higher ground – however you define that within your company – and continue to sharpen your saw by ensuring that the following systems produce predictable, desired results:

• Marketing throws off good leads in your target market, even after re-defining that market;
• Sales effectively sells those leads at a pre-planned gross margin;
  Production profitably produces on-time and on-budget – no slippage;
• Administration maintains smooth and timely communication throughout various departments;
• Finance protects cash flow, produces complete and accurate reports in timely fashion and projects future results well.
• Leadership and ownership equally value customer and employee satisfaction – holding the team accountable to agreed-upon goals and maintaining clear vision of where the company is heading.

Last, but certainly not least, one respondent emphasized that everyone, owners and employees alike, want to be involved in something bigger than themselves – they want to build a cathedral, not just lay stone, hang trusses, install cabinets, or process accounts payable.

Build a vision for the ”new normal” for your company that moves the company forward, meets a real need in your community, and provides a sense of great accomplishment – then the new normal will be just right for you!

Home Improvement Shows – Make Them Work

From The Markup and Profit Blog

I have talked with contractors across this country left to right, top to bottom. Those that do home shows right always get good leads. Those that don’t claim it is a waste of money.

Doing it right means having an open booth so folks can walk right up and ask questions. It means a big screen monitor showing before and after pictures of your completed jobs. It means candy for the kids and maybe mom and dad. It means not sitting down or eating in the booth. You have to always be available and approachable. Do I need to say you should never use your cell phone in your booth? And we noticed yesterday that at least one in every four booths was empty. I know it was Sunday afternoon, a few hours before “quitting time”, but people were still buying tickets for the show and still looking for help. If you’re going to spend your money on a booth, always have someone there to talk to.

We have an outline of how to plan and work a show booth that we give to our coaching clients. Those that use it get at least one lead and hour and often more than that. Something to consider.

Do remodeling trade associations lead to business success?

From www.housingzone.com

In this year’s survey, 70 percent of companies with revenues above $1 million were members of NAHB, NARI and/or NKBA, compared to 44 percent of those with revenues under $1 million. Last year we found that the average revenues for an association member was $1.4 million, while non-members had revenues of $725,000.

So here’s the question: Does association membership lead to success or does success/growth lead companies to join associations? Or (and this is my hunch) are smart remodelers that are good businessmen and women, the people who are most likely to grow their businesses, just naturally drawn to the business benefits of association?

Tips on Managing Cash Flow During a Down Economy

By Alan Hanbury, CGR, CAPS, CGP, From ReNews by the NAHB Remodelers

Cash flow maximization is important in any economy, but it’s crucial now more than ever.

There are a number of simple ways to increase the flow of cash through your business and most don’t include a visit to your local banker. Most people confuse cash with profits and this is the start of a very slippery slope. In a down economy, cash becomes much more important than profit. Let’s look at some options for increasing your cash flow.

Adjust Contract Payment Schedules
The simplest thing that you can do is to pay closer attention to the details of your contract payment schedules (assuming you have jobs in progress). Try to get larger deposits. Even 20% on additions would be fair game, 50% or more on kitchens, or 70% on a window job. Many people only ask for 10% down or don’t try to stay ahead of the client the whole job, which is a mistake in any market and can be death in a bad market. Try to tie the payment in with any special orders, plan the next trigger for payment, and schedule in advance to stay ahead of project costs.

Use Specific Terms for Payments Due
Contract terms should be written using the terms: “when delivered” or “when ready for”, not “after installed”, or “completed,” etc., which leaves you open to discussion and sometimes arguments with clients about the completeness of some small portion of the project or a perceived defect.

The term used for your final payment should be “substantial completion,” which is loosely defined as suitable for the intended use. If the client is using the kitchen and hasn’t paid for it, they would be in violation of the contract because they are using it for its intended purpose. Hold back three times the value they place on any missing or broken items. Be sure to set a specific date for warranty coverage to start. And be sure to use the term “substantial completion,” not “fully complete.”

Preparing your client payment schedule for larger payments earlier in the schedule helps to get the last payment down to 5% or 10% for smaller jobs, then a payment for substantial completion. Any more flexibility gives the client too much leverage and they may run out of cash. If they do, you don’t want to be way ahead of their payments near the completion of the project. Some clients will argue this point, but it protects your business and cash flow. We rarely back down on our payments schedules and only change them 5-10%.

Take Advantage of Change Orders
Change orders seem like a strange place to ring up cash, but don’t forget the opportunity to get them paid for, in full, at the signing! If you don’t receive full payment at the signing, then secure at least 50% at signing and the balance at the next milestone. Some people will even charge for the time to make up change orders, so if they are not acted on, the contractor gets paid for those wild goose chases for just that perfect look but when you finally get it together with a number, they pass on it. It is also not a bad idea to charge an administrative fee to perform a change order, include the time lost while the job is not on the original schedule and other subs and suppliers needed to work out a new schedule. Face it, change orders are disruptive, they are usually not your idea, so they are one of the only chances to “get even” (not rip them off, but NO discounting change orders) for things that happen along the way. They can always say no, OR get someone else to do the work. Be careful to list all the free things you have done that were not in the contract as “No Charges” so they see that it is not a one way street.

Use Payment Discounts
Take advantage of all discounts for payments on materials, services, and other business expenses. A 2% discount for payment by the 10th of the month is like 72% annualized return. Anyone getting that kind of return on legal activities?

Restructure Debt
Move short term debt into long term loans, so it is paid over a longer period. Banks, other loan facilities, and investors might give a multi-year loan that reduces the monthly repayment of debt.

Strategize Paying Bills
Remember adding to payables will reduce cash needs, so pay bills at the last minute, before there is an interest charge or penalty. Don’t be afraid to ask for an extension of time to pay, but do follow through!

Work with Insurers
Many insurance products will allow you to borrow against any cash value in life insurance, (even cash it in, if your health is good) or use the dividend to help pay for the premiums for life, disability or other forms of insurance. Many insurers offer discounts for insuring multiple types off insurance products with the same carrier, such as auto combined with liability insurance, or an umbrella, or Workers Comp.

Negotiate with Supplier Competitors
If you have been shut off at some of your suppliers, you can try to open accounts at their competitors, getting 30 days or more to pay the bills instead of the COD with your current supplier.

Shop with Coupons
Shop the specials, buy in bulk, and be smart with your spending. I am always looking at the flyers for office supplies, inks, caulking, insulating foams—anything that I know I will have to buy eventually, but can get 20% off if I buy it now.

Get the Check in Hand
Don’t use the mail for billing, but do use it for paying bills. Telling someone to leave you a check or that you will be by to pick it up, is much more reliable than: “the check is in the mail.”

Charge More for Your Services
Raise your prices. That’s right, even in a recession. If you didn’t make money in the last raging bull market that lasted 10 years, then you obviously weren’t charging enough. You might as well practice now while your sales skills are the sharpest, and your best employees are the only ones left.

Clean House
Sell underutilized assets, tools, equipment, trucks, cars, trailer just to get it off the books, tax rolls, and clean up your yard or garage. You won’t get much, but next time you need one of these items, you will realize that most of it could be rented for less than the cost of use divided by your annual cost of ownership.

Rent Instead of Own
Lease instead of buy to lessen the down payment and obligation to fully pay for the asset, assuming you are going to keep it. Leases are easier to break than giving the truck back to the bank.

Get Investors
Sell part of the business to your employees (for cash of course), or to a silent investor that sees the potential coming out of the oncoming market correction.

Alan Hanbury, CGR, CAPS, CGP, of House of Hanbury Builders based in Newington, Conn., provides remodeling and handyman services. A longtime leader and past chairman of the NAHB Remodelers, Hanbury is a sought-after lecturer and writer on the remodeling industry and its professionalism. For more information, e-mail Hanbury, call him at 860-666-1537 or visit www.houseofhanbury.com.