Cost of Doing Business Study, 2012 Edition

By NAHB Business Management and Information Technology

Do your profits measure up? Although the housing collapse hit all builders hard, some are managing to earn a profit in spite of the odds. By building home equity, they have positioned their companies to prosper when more buyers return to the market. Which companies were able to eke out a profit in 2010 and why? The Cost of Doing Business Study, 2012 Edition, offers clues. Whether you are a small-volume, production, or custom builder, you can compare your performance with industry peers using the intelligence NAHB's economics and business management experts provide in this book. This analysis of financial statements from hundreds of builders nationwide shows you which ones are selling the most homes and earning the most profit. It also shows how builders are strategically cutting costs to make their numbers work now. Compare your gross margin, net profit, cost of sales, operating expenses, and financial ratios with other builders like you. Then read the suggestions from industry pros for making your numbers work, too. This book is an essential tool for home builders who want to plan for profit. The book also includes 35 proven cost-cutting tips to reduce direct construction costs.

• Language: English
• Publisher: BuilderBooks
• Release date: Jan 1, 2012
• ISBN: 9780867186833

Book preview

The Cost of Doing Business Study, 2012 Edition

BuilderBooks, a Service of the National Association of Home Builders

Disclaimer

This publication provides accurate information on the subject matter covered. The publisher is selling it with the understanding that the publisher is not providing legal, accounting, or other professional service. If you need legal advice or other expert assistance, obtain the services of a qualified professional experienced in the subject matter involved. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favored status by the National Association of Home Builders. The views and opinions of the author expressed in this publication do not necessarily state or reflect those of the National Association of Home Builders, and they shall not be used to advertise or endorse a product.

©2012 by NAHB. All rights reserved. No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying and recording or by any information storage and retrieval system without permission in writing from the publisher.

Printed in the United States of America

15 14 13 12     1 2 3 4 5

ISBN1-0: 0-86718-680-1

ISBN-13: 978-0-86718-680-2

For further information, please contact:

National Association of Home Builders

1201 15th Street, NW

Washington, DC 20005-2800

800-223-2665

www.BuilderBooks.com

Contents

List of Figures

List of Tables

Preface

Acknowledgments

Introduction

CHAPTER

1    All Survey Respondents

2    Builders with Land Costs

3    Builders without Land Costs

4    Combination Builders

5    Small-Volume Builders

6    Production Builders

7    Builder Financial Performance by Region and

Business Model

8    Operations

9    Historical Data and Trends

10    Maximize Profits and Excel in Operational Performance

11    Do-It-Yourself Business Solutions: Managing Your Own

Financial Records

12    Simplify Business Management and Increase Your Profits

Using 7 Key Numbers

APPENDIXES

I    Market Base Available Construction Cost Budget

II    35 Tips to Reduce Direct Construction Costs

III    Items to Negotiate with Trades and Suppliers

IV    The Cost of Doing Business Survey Instrument

V    Detailed Tables

Glossary

Resources

Figures

Chapter 1. All Survey Respondents

1.1 Cost of sales, expenses, and net profit (loss)

1.2 Profit (loss) margins and owner’s compensation

Chapter 2. Builders with Land Costs

2.1 Cost of sales, expenses, and net profit (loss)

2.2 Profit (loss) margins and owner’s compensation

Chapter 3. Builders without Land Costs

3.1 Cost of sales, expenses, and net profit (loss)

Chapter 4. Combination Builders

4.1 Cost of sales, expenses, and net profit (loss)

Chapter 5. Small-Volume Builders

5.1 Cost of sales, expenses, and net profit (loss)

5.2 Small-volume builders with land costs:

cost of sales, expenses, and net profit (loss)

5.3 Small-volume builders without land costs:

cost of sales, expenses, and net profit (loss)

5.4 Small-volume combination builders: cost of

sales, expenses, and net profit (loss)

Chapter 6. Production Builders

6.1 Cost of sales, expenses, and net profit (loss)

6.2 Production builders with land costs: cost of sales,

expenses, and net profit (loss)

6.3 Production combination builders: cost of sales,

expenses, and net profit (loss)

Chapter 7. Builder Financial Performance by Region and Business Model

7.1 Regional differences in average land costs and profit

(loss) margins

7.2 Profits (losses) and owner’s compensation for three

types of builders

7.3 Balance sheet for builders with land costs, without

land costs, and combination builders

Chapter 8. Operations

8.1 Main operation

8.2 Years in the Residential Construction Business

8.3 Average Number of Homes Closed in 2010

Tables

Chapter 1. All Survey Respondents

1.1 Respondents’ profile

1.2 Gross profit

1.3 Net profit

1.4 Balance sheet

1.5 Financial ratios

1.6 Top and bottom 25%

Chapter 2. Builders with Land Costs

2.1 Gross profit

2.2 Net profit

2.3 Balance sheet

2.4 Financial ratios

2.5 Top and bottom 25%

Chapter 3. Builders without Land Costs

3.1 Gross profit

3.2 Net profit

3.3 Balance sheet

3.4 Financial ratios

Chapter 4. Combination Builders

4.1 Gross profit

4.2 Net profit

4.3 Balance sheet

4.4 Financial ratio

Chapter 5. Small-Volume Builders

5.1 Gross profit

5.2 Net profit

5.3 Balance sheet

5.4 Financial ratios

5.5 Small-volume builders with land costs: gross profit

5.6 Small-volume builders with land costs: net profit

5.7 Small-volume builders with land costs: balance sheet

5.8 Small-volume builders with land costs: financial ratios

5.9 Small-volume builders without land costs: gross profit

5.10 Small-volume builders without land costs: net profit

5.11 Small-volume builders without land costs: balance sheet

5.12 Small-volume builders without land costs: financial ratios

5.13 Small-volume combination builders: gross profit

5.14 Small-volume combination builders: net profit

5.15 Small-volume combination builders: balance sheet

5.16 Small-volume combination builders: financial ratios

Chapter 6. Production Builders

6.1 Gross profit

6.2 Net profit

6.3 Balance sheet

6.4 Financial ratios

6.5 Production builders with land costs: gross profit

6.6 Production builders with land costs: net profit

6.7 Production builders with land costs: balance sheet

6.8 Production builders with land costs: financial ratios

6.9 Production combination builders: gross profit

6.10 Production combination builders: net profit

6.11 Production combination builders: balance sheet

6.12 Production combination builders: financial ratios

Chapter 9. Historical Data and Trends

9.1 Summary data from The Cost of Doing Business studies

9.2 Cost breakdown of a single-family home

9.3 Housing Giants’ average home price breakdown

9.4 Publicly traded builders

9.5 Pretax profit margins for publicly traded builders

Preface

The National Association of Home Builders (NAHB) has published 17 editions of The Cost of Doing Business Study since 1970. During those 42 years the U.S. housing market