Every year, one of our favorite partners, ECI, gathers advice from some of the best in the industry. Check out the tips for 2023, including advise from our own VP of Sales, Roger Langford.
It’s been another incredible year in the home building industry, so we asked some of the top industry experts for their thoughts and advice on tackling 2023. Everyone wishes they could get inside the head of those who have already succeeded in their industry to learn the hidden secrets behind their success. We have asked the best of the best in residential home construction for industry tips and tricks regarding operations.
Use these tips for the trades, by the trades to make 2023 the best year yet for your business.
Senior Consultant | RHC MarkSystems
Don’t Wait Last Minute on Year-End Reconciliation
Start reviewing your vendor files to ensure that all vendors receiving IRS Form1099s at year-end have the proper setting in the Vendor Masterfile. In the Vendor file on the Miscellaneous tab, the “Print 1099” field should be set to “Yes.” If you have converted into MarkSystems in 2022, you should go into your legacy system and print the list of vendors and total 2022 disbursements in Excel. You will need this information to modify the 1099 amounts in MarkSystems at year-end so that you will only have to issue one 1099 to your vendors.
Ensure all your bank reconciliations are kept up to date and done as quickly as possible at year-end.
If you have not reconciled your balance sheet accounts this year, do so at the end of November to ensure that your detailed reports agree with the “control” account. For example, run the House Totals Report to verify that the detail agrees with your WIP account totals by development. For your Construction Loans Payable, run the Loan Tracker report in the Construction Loan module to ensure that the report details agree to the Construction Loans Payable.
Principle | MCM Advisor
Invest In Your System
As an industry, we have experienced the Great Resignation, supply chain disruptions, labor shortage, a lack of qualified construction management, and other constraints in 2022.
In 2023, it’s time to get back to basics and invest in playbooks, processes, and your chosen technology.
Playbooks and processes are readily available, so each team member understands how we do business. It needs to be documented and not in someone’s head.
Is the team taking full advantage of the technology that you are using to manage the business? ECI has consultants who understand the system and are willing to help ensure you get the desired value. Once you receive the results, develop a training plan around the results to upgrade each team member’s ability and maximize your output.
If you are seeking “A” players, you need to have a plan, communicate openly, and accept feedback. They will be your “who” that gets you through the lean year ahead; embrace them.
Author, How Much is the Milk?
If We Slow Down, We Can Speed Up
I know what it’s like to run construction jobs where everything seems to go wrong. I’ve experienced subcontractors not showing up on time and materials delivered late—sometimes months too late. The pressure to build and close homes seems relentless. And by trying to keep up, we tend to skip steps.
Lumber and building material dealers have told me that 25% of their deliveries come back to the yard because the job was not ready. In most cases, someone requested the delivery, and when the materials arrived, the driver discovered the job was not ready, and he had to bring the materials back to the shop, unload and restock them.
If we slow down enough to ensure jobs are ready for material deliveries, we can increase the production capacity of our dealers by 25%. Our industry desperately needs that capacity back.
“Job Readiness,” long touted as the number one element in efficiently using labor and materials on a job site, has declined during the pandemic buying frenzy. As the market slows, use this time to streamline processes that help ensure vital steps are not missed and the job is ready when the materials and labor arrive. High demand will come back.
Those 25% delivery returns are expensive to our industry. At the rate of 1.2 million homes, these dry runs cost us over $90 million a year. Ensuring jobs are ready is one of the many ways homebuilders can take cost out of the supply chain and increase production capacity.
Senior Consultant I Builder Partnerships
2023: The Great Reset
The journey from 2020 to 2023 has been just that, a journey. Many of you hardly recognize your own companies and how you operate today after reacting to the many twists and turns in the housing industry. As the market continues to soften, now is the time for the Great Reset of the industry and your companies. An economic slowdown was a perfect time to review and reset your operations process to position your teams to come out of this economic cycle and crush it!
Chief Strategy Officer │ Avid Ratings
The Power of Personalization
Many influential thought leaders have noted that we are moving beyond the information age to the “age of choice.” We are seeing data, analytics, and technological advances allowing leading companies to create more personalized customer experiences. Brands like Spotify, Netflix, and Amazon are leaders in extreme personalization, and those brands influence consumer expectations across all industries, including homebuilding.
As the building industry navigates new headwinds, it becomes even more critical to understand customers to personalize products and curate experiences intimately. We are seeing a shift from passive consumers to interactive “prosumers,” and the increasing demand for personalization comes with that shift. Research shows that 80% of consumers are more likely to purchase a brand that provides personalized experiences.
To facilitate personalization, builders need to focus heavily on data and feedback. The first step is collecting omnichannel consumer feedback. Analyzing that feedback and acting on it to satisfy consumer cravings for real choice separates leading brands from the competition. Product, price, and location, wrapped up in personalization, are becoming powerful differentiators for attracting today’s homebuyers.
Managing Member | The Mainspring Group
Build Agility into Your Business
Home Builders have two choices when it comes down to looking into the future and being successful. Choice one — accurately predict the future and set yourself up now to leverage it when it comes. Choice two — don’t try and predict the future but set yourself up to leverage what comes. Most builders’ processes and systems are dated and only concentrate on efficiency, but efficiency relies heavily on accurate predictions. Over the last couple of years, we’ve learned that volatility and a lack of predictability are here to stay. Builders — [re]build your system with agility at the center and adapt to market conditions in the future. This is the only way to be successful during volatile highs and lows.
President | HBI (Home Builders Institute)
Promote Careers in Construction
The current downturn in the housing market won’t solve the crisis-level shortage of skilled workers in residential construction. Now is the time to strengthen your team’s training. Housing has cooled in many markets, but housing remains low, while the demand for housing that people can afford remains high. Boosting skills training today will help the industry better serve home buyers and renters now and in the future. There is a lot we can do together:
- Advocate for training by working with local schools to incorporate a workshop-based curriculum into class offerings
- Create pre-apprenticeship opportunities for young students so they can gain early exposure and experience
- Provide financial and in-kind support to schools by donating funds, supplies, resources, and mentoring time in construction-related classwork
- Work with home builders associations to create community programs and support
- Participate in career fairs to engage a broad and diverse range of people in the construction trades
- Learn how you can leverage the way HBI provides no-cost, pre-apprentice training and certification for middle and high school students, transitioning military and veterans, unemployed and displaced workers, low-income and opportunity youth, and justice-involved youth and adults
- Fight against long-held misperceptions about the skilled trades and promote the benefits of careers in construction
Senior Consultant | ECI Software Solutions
Trade Partners Are Your Most Important Relationships
Congratulations on making it through the whirlwind of a year in 2022. Between the wild price fluctuations of material, the lack of good labor, and higher interest rates, home builders have been through a lot.
Although we’re starting to see some price corrections for supplies, Trade Partners will still be scarce. Now is the time to take your Trade Partner relations to the next level.
You want to make sure you are making each one of them successful at their businesses – so they, in turn, can continue to make your business successful.
- Invest time in putting together “Scopes of Work” that are a win-win for you.
- Encourage and teach them to professionalize their businesses.
- Keep asking them, “What can I do to improve both our businesses?”
Follow these simple steps to keep refining your home-building business, and you’ll be on your way to being the “Builder of Choice” for Trade Partners in your area.
Vice President of Sales | Professional Warranty Services Corporation
Homebuyer Confidence is Key to 2023 Success
Today’s homebuyers face higher costs, from groceries and gas to interest rates. As the market tightens, home builders need to do more to communicate their value and promote homebuyer confidence. Buyers still love the sizzle of location and floor plans, but it’s equally important to create trust. Protecting the homes, you build with a third-party warranty is a highly effective way to grow that trust. 75% of buyers ask builders about their warranty and customer service offerings when deciding, and 90% of buyers say they would prefer a home warranty backed by a third party. Warranties don’t sell homes, but they create a level of trust that leads prospective buyers to feel more comfortable signing on the dotted line.
CEO | On3
Use Market Downtime to Strengthen Your Team
As we look to 2023, the year may bring familiar headwinds as the cyclical ups and downs of housing come to arrive. However, with each passing cycle, we get better, stronger, and more efficient at running our business. The key is to ensure that everyone on your team is growing: your leaders, construction teams, and entire staff. As this market likely will pause, use it as an opportunity to build better and faster by documenting your best practices and educating your teams. If you do, when the next economic cycle lifts your company to new heights, you’ll be ready to handle the breakneck speed that will overwhelm your competition.
Make 2023 the year you build from within and train away all the bad building habits in your homebuilding company. By doing so, you will realize efficiency, build speed like never before, and make the most money you ever have — the real win.
Consultant | Shinn Consulting
Return to Estimating Fundamentals in 2023
When looking at the forecast for the 2023 housing market, I recommend that all home builders return to fundamental estimating systems and processes. To achieve the tightest cost controls, builders should control what material is used, how it is used, and how much is used. Continuing with bid management should not be an option for 2023 and beyond. Push to unitize your purchasing with precise assembly-based estimates.
Generating accurate estimated purchase orders will drastically increase efficiencies for builders and their trade partners. As the market continues to evolve, unitized purchasing allows for quick and efficient transitions in a changing market. Start with your big-ticket cost categories for the most significant impact. Invite your trade partners to collaborate from the start to ensure success and buy-in.
President | Success Strategies
Design Collections and Packages CAN work in a buyers’ market
Over the past years of our hot housing market, many builders have turned to pre-configured “Design Collections” or packages as an alternate way for homebuyers to personalize their homes, with the added builder benefit of decreased cycle time.
This method can be an excellent way for builders to better serve some or all their customers. But the hot market of recent years has masked many flaws in HOW builders have created and offered design packages. Now that the market has softened, some builders are finding that buyers are flexing their muscles and demanding flexibility (i.e., more control, more choice) to “dismantle” some of the collection components.
In a down market, design packages can still work well, stay intact, and deliver heightened per-home options revenue. Those that survive down markets will be the design collections based on a strategic foundation of business goals and consumer purchase psychology. From this, coordinated products are then slotted in at the SKU level. If you base your packages on design as the driving factor, they may not withstand a slow market.
Follow these rules:
- Clarify your goals so the packages align with your brand image, competitive position, architectural product, target market, anticipated growth, and revenue or profit goals.
- Know why your buyers want to buy this way and where they will accept compromises.
- Keep up with the trends and change the design collection SKUs accordingly.
- Sell the concept: why is this a better way to buy?
- Marketing matters: drive value and desire for packages and SKUs with a strong marketing presentation
Stay Ahead of the Game with Clear Expectations
Builders create their best referral opportunity with a steadfast focus on complete and accurate home buyer expectations about products and processes, backed up by a commitment to quality management in each phase of construction and proactive warranty attention. Offering to set the first inspection appointment before closing sends a message of continued commitment.
“Look after your team. Assuming you have hired the right person and have the right people in the right jobs on your team, spend the time to set personal and professional goals for each team member. Give them the support and room to develop and grow within the business. You will be rewarded with happier and more engaged people who are more likely to stay with you. This is even more critical in times like these with the severe lack of skilled people in the industry.”
Executive Business Coach, Australia/New Zealand
Association of Professional Builders
“Talking about the business you want is ’nice,’ stop talking about it, roll up your sleeves, and build the business you deserve!”
Executive Partner/Managing Director | Joseph Chris Partners
The last few years have been nothing short of extraordinarily demanding. Our industry’s resilience was remarkable and not surprising, given the talented and resourceful professionals it comprises. As we finish 2022 strong and head into the new year, it is a great time to “level up.” While I know many individuals who have already achieved the level-up status, I also cannot help but think they are still finding ways to improve, do better, and achieve even greater goals. “Leveling up” simply means taking your life to the next level. We all have big dreams and goals and desire to make them come true. To realize those goals, you must become better, discover new skills, and take a few chances. When you become better, you level up. Here are a few great starting points to move you in the right direction:
- Leveling Up – What does it mean to YOU, what results do you want, and how do you get there?
Your definition of leveling up life is just that, your own. Your goals and what inspires you are yours alone. There are often small changes that someone can incorporate in their life that can have a considerable impact. But why stop at modest adjustments when you can chase something exciting and larger than life? Nothing changes if we don’t commit to a goal, whatever the size. Once the meaning has been defined, coming up with a plan to commit to is critical (and not an option). One cannot have a strong organization without a defined business plan; simply put, your life is big business.
- Are you intentionally surrounded by inspiration?
It’s no secret that the people we regularly spend time with and are inspired by can dramatically impact one’s life. The well-known quote, “Show me your friends, and I’ll show you your future,” is a compelling and accurate statement for all ages. Seek out the traits and qualities of those who inspire you to greatness and relentlessly encourage you toward accomplishing your goals. Eeyore befriended Tigger despite their opposite personalities. Eeyore’s passive nature and Tigger’s optimism and outgoingness helped them to accept each other’s flaws and understand each other better. Everyone needs a “Tigger” in life, even if you’re not an Eeyore.
- Learning to Level Up
Leveraging your ability to learn new skills is incredibly important. Whether leadership coaching, sales training, better communication skills, or improving time management to want to grow, there is still much to learn. The commitment level to accomplish these goals must become a daily driver.
Let’s encourage each other to Level Up in 2023 and never look back. Adjusting to changes by creating positive personal change is a game-changer!
Vice President of Global Supply Chain | EOS Worldwide
Have a Business Operating System
You’ve got many systems for your business. But what’s the system for managing the overall business? It’s a BOS or “Business Operating System.” These run the gamut from complex, for large multinational corporations, to streamlined and straightforward, explicitly created for small-to-mid-sized entrepreneurial organizations. It is essential to research them, then pick one and stick with it.
First, ensure you’ve got the right structure to execute successfully, then get to work.
Top-performing companies must be strong in all key areas of their business, not just some. Be sure to include the following key components in your checklist:
- Vision: Getting everyone in the organization 100% on the same page with where you’re going and how you will get there.
- People: This means surrounding yourself with great people, top to bottom, because you can’t achieve a great vision without a great team.
- Data: This means cutting through all the feelings, personalities, opinions, and egos and boiling your organization down to a handful of objective numbers that give you an absolute pulse on where things are.
- Issues: Becoming great at solving organizational problems – setting them up, knocking them down, and making them disappear forever.
- Process: This is the secret ingredient in your organization. This means “systemizing” your business by identifying and documenting the core processes that define the way to run your business. You’ll need to get everyone on the same page with the essential procedural steps and then get everyone to follow them to create consistency and scalability in your organization.
- Traction: This means bringing discipline and accountability into the organization – becoming great at execution – taking the vision down to the ground, and making it real.
If you identify gaps and work to strengthen these six key areas of your business, you’ll be a top performer. Combining a proven process – a strong business operating system – with the discipline and accountability to execute it is a proven formula for success. Make it happen!
Angela Gardner and Christi Powell
Titles | Women Talk Construction
Make mentoring part of your volunteer and giving-back plans for 2023 and the future! Many industries are experiencing workforce changes, but the construction sector will be hurting beyond words if we don’t start attracting women, minorities, and the next generation.
“Over 40% of the current U.S. construction workforce is expected to retire over the next decade. In addition, the current shortage of some 430,000 construction-industry workers is expected to grow substantially over the next two years.” Forbes
This is one reason Christi and I started Women Talk Construction Podcast and Forum. We know sharing these amazing women’s stories that have made construction their career choice could share words of wisdom and even inspire others to at least look at construction as an option.
What we found when we started mentoring:
- They are inspired and can see that they can do it too.
- You can guide them through challenges.
- Your wisdom can encourage growth & knowledge.
- You, as a mentor, can gain new perspectives.
- Don’t be afraid to share your successes and failures ~ You are passing along a wealth of valuable knowledge.
- By connecting them to peers that you feel are relevant to their growth, you’re helping them start and learn to build relationships.
- Your giving back will inspire them to do the same.
- Help them diversify their connections with people that have had different experiences. Help them connect with peers that have gone through challenging times (recession in 2008 or pandemic 2020), experience in a specific job, or a person that founded a company similar to what they hope to start.
- Most important: The experience will change your life AND build an industry in dire need of talent.
Tips for finding a mentor:
- Tell people (teachers, peers, friends, guidance counselors) you are looking.
- You can choose whom you want to be your mentor – you’re interviewing them to make sure you mess well.
- Visit some of the social sites and groups. (Sometimes, people will note willingness to mentor in their “About” section on LinkedIn).
- It is a two-way street. The mentor receives just as much. Make sure you both have similar goals in the mentoring relationship.
- Find out if your company has a mentoring program. Companies are starting either one-on-one programs or groups.
You will discover new things about yourself by mentoring and sharing your knowledge. We have made lifelong friendships along this journey. It has opened our eyes to how much support, guidance, and desire to feel a sense of belonging matters, even in construction. We have been blown away by how many around us want to make THAT needed IMPACT. #BeAnImpactor #Mentoringmatter
Charles C. Shinn, Jr.
President | Shinn Consulting / Builder Partnerships
Be Proactive Instead of Reactive in 2023
The housing industry is already in the early stages of a recession, and the US economy is forecast to go into a recession by the second quarter of 2023. Builders should develop a business plan based on the new reality of sales already softening by 30% or more, cancellations doubling, and the FED’s battle against inflation with mortgage interest rate increases from 3.09% last year to currently 7.25%. For a $400,000 loan, the monthly payment has increased by $1,000. Once the base business plan is established, it should be bracketed with 10% and 20% sales modifications up and down. Based on these plans, the management team should pre-plan management decisions on “what if” scenarios, establishing trigger points to implement the action plans. This way, critical decisions are made ahead of time and not in a crisis management environment.
Co-Founder and COO | Out of the Box Technology
Evaluate your Accounting Software Often
Time can fly by when you are a business owner, but that doesn’t mean your accounting software should be flying under the radar. The overall health and wellness of your financials is important for the long-term success of your business. This goes beyond just glancing at your chart of accounts and gazing at the bottom line. Your data file should be consistently reviewed for data integrity, gaps in workflow, proper file setup, and application of streamlined processes. In addition, you should be reviewing your Receivables and Payables, Bank Reconciliations, and more based on both industry and business models. Once you make these financial check-ups a common practice, your business and your peace of mind will thank you!
President & CEO | InfoPlus Accounting
Create a Purchasing Policy for Your Company
Construction purchasing can be a complex process. There are various factors to consider as you create a purchasing policy for your company. A comprehensive policy will help you get the best materials for your jobs and keep your costs under control.
Document your requirements for your purchasing team member. Here are a few tips about what to include in your policy for each job:
- Clearly define your estimated needs for each project. For example, what type of materials do you need to purchase? How much do you need and when? Which contractors do you believe you will engage for the job? When will you need them?
- Research your options. Once you know what you need, you can start researching your options. Get quotes from suppliers, compare prices, and find the best cost and service values.
- Create a system. Once you’ve found the best suppliers, create a Purchase Order system for ordering and tracking your purchases. A Purchase Order system helps you stay organized and keep track of your spending. (Note: Premier and Enterprise versions of QuickBooks include the option to create detailed Purchase Orders, and it provides Open Purchase Orders by Job reports).
- Set a budget. Before you start purchasing, set your budget. (Enter budgeted costs in your QuickBooks Estimate template.) Monitor your “Estimated vs. Actual Costs” QuickBooks reports to stay on track and avoid overspending.
- Revisit your policy regularly to ensure it’s still effective and efficient. Your purchasing needs will likely change as your company grows and changes.
Creating a purchasing policy is an important part of running a construction company. By building on these tips, you can create a system that works for your company AND helps you get the best materials and contractors at the best price.
Now that you’ve read through what all our builder experts have to offer when it comes to improving operations, which ones will you implement today? Don’t let all this valuable knowledge go to waste. Make it part of your 2023 strategy before the new year.
Consultant I Builder Partnerships
Your Cost, Not Your Margins, to Meet the Buyer’s Budget
Interest rates have decreased buyers’ budgets by approximately 20%. Not all buyers can afford higher monthly payments or have extra deposit money available to keep their payments within budget. Some builders are offering buydowns. Others are offering discounts. Both options reduce margins. The only other alternative is to reduce direct construction costs. Over the last few years, as sale prices increased, we added amenities into our homes. We were also too busy to effectively monitor the waste in our homes. And we did not focus on the efficiency of our homes. We can address all three of these things very quickly. This works on our backlog going forward, as well. These issues can be addressed in about 30 days, in time to offer new, lower pricing in Q1 2023. We should also consider developing a new product that is more efficient with less square footage. In most cases, this can be accomplished in a few months. This should be the number one priority for the purchasing and estimating team.