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Author: Steven W. Hays, Sr., CPA As the market changes, there are elements that RubinBrown’s Steve Hays and Felicia Malter told participants to watch and manage carefully during a breakout session at the 2008 Forecasting Breakfast. These components include net income, direct construction cost percentage, gross profit percentage, break-even numbers and sales per employee. Hays stressed that net income profit percentage is the most important to manage. “Keep in mind that you are not in business just to collect a salary,” he said. “You’re in business to make money.” “The biggest cost that a home builder incurs is in his or her direct construction costs, yet some builders do little to control these costs,” Malter said. “Managing this number is critical.” She explained that even a small reduction in direct construction costs as a percentage of sales can significantly increase a builder’s bottom line. In regards to gross profit percentages, Hays told the audience that the key to maintaining an adequate gross margin is buying land at the right price and designing a home with the correct construction costs. They suggested that the “direct” costs of construction should not be more than 80 percent. As the term suggests, the break-even analysis on a home is a tool to calculate at which sales volume the variable and fixed costs of producing a home is recovered. Hays stressed how important it is to know at what point a builder’s homes stop costing money to produce and start generating money for the company. The final area discussed was the relationship of costs associated with employees’ salaries. “I hardily suggest that builders should cross train their employees,” they explained. “Planning your business requires that you understand what each employee is costing you and how much they contribute to the bottom line.”
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