Builders See Low Profit Margins
Washington, DC Despite a robust market for new housing, one-quarter of all home builders are operating on "razor-thin" profit margins a serious situation that's similar to that of many residential remodelers and cabinet shops, among other businesses in the kitchen/bath industry.
According to newly released statistics from the National
Association of Home Builders, the poorest-performing 25% of home
builders earn profits of less than one half of one percent before
taxes, compared to the nationwide average of 6.35%.
The statistical findings were the results of a four-month research effort on the business practices of more than 300 builders nationwide, according to the Washington, DC-based NAHB.
Even "average" builders don't perform financially as well as they should, the NAHB observed. "Building companies should earn about 8%-15% net profit margins," says Emma Shinn, a financial consultant with the Lee Evans Group, a Colorado firm that helps home-building companies improve their business operations. Shinn noted that the best-performing 25% of the builders participating in the NAHB study generate average before-taxes net profits of 10.47%, There's an important lesson in those numbers for not only builders, but all business professionals who operate within the building and remodeling trade.
"The highest-performing builders know their financials," says Allan Freedman, executive director of NAHB's Business Management Department. "They know how to read them, and they use them to make decisions based on the knowledge their financials contain."
Comparing your business to others of a similar size and operating strategy is invaluable in providing insights into a company's financial performamce, Freedman notes.
"That kind of benchmarking is critical," he observes. "By
understanding how well or poorly
other builders perform financially, you can compare yourself to them and gain a better understanding of just how well your company is doing."