Fall 2009 issue of Horizons

Raise Your Expectations CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

smaller square footage. Energy-efficient space will be in demand and green building trends will be a strong consideration. Lower costs per square foot will be an emphasis. • Sales and Marketing — As many forms of print media continue to struggle, communicating with potential home buyers will be a major issue. With the recent boom in social networking – Facebook, Twitter, LinkedIn – home builders will be challenged to keep up with rapidly changing customer preferences. Also, builders will need to have state-of-the-art interactive Web sites, which will drive a lot of traffic. The number of display models will be greatly reduced to 1-2 per project. Untrained sales staff and assistants will not be tolerated. • Increased Gross Profit Margin — No business can operate long-term with the margins this industry has experienced in recent years. Gross profits have declined as much as 8 percent from all-time highs. Expect margins to increase with the revaluing of lot prices, the slowdown in discounting and an increase in the number of to-be-builts versus specs. When the market does begin to recover, there will be much opportunity. Builders who have planned accordingly will be in a position to take advantage of a renewed market.

by the crisis. The amount of company and personal net worth that have been lost will take considerable time to recover. • The appraisal part of the industry will need to stabilize. The sometimes unpredictable means used to determine appraisals will have to provide some relief from foreclosure activities. There is little doubt that home builders will operate in a much different manner after the crisis. Potential changes include: • Business Operations — Builders have learned to operate with less people. In addition, with the advances in technology, more systems and processes are no longer completed manually. Expect this trend to continue. Customers, suppliers and contacts will expect real-time access to information. Systems and processes will need to be at their highest level as only the “best” have survived. • Financing — Lending compliance and covenants will continue to be at a heightened stage. New projects will require substantial real equity, personal guarantees and restrictive covenants. The quality, quantity and timeliness of required information will greatly increase, likely including an enhanced level of service from your outside CPA firm. In addition, the home buyer will be asked more frequently to carry the construction loan personally. • Less Land — The number of lots a builder will be able to “carry” or own likely will be limited by lending constraints. Investors and other third parties will be the holders of raw land and developed lots. Although specs have been a huge percentage of the market, expect pre-sales to make a healthy return. • Design Trends — It appears the market is shifting somewhat. As the demographics age, potential home buyers want nice features but likely in WHAT DOES THIS MEAN FOR THE SURVIVORS?

STAY TUNED AND BE POSITIVE!

Questions? Contact:

Steve Hays, CPA Partner-in-Charge Home Builders Services Group 314.290.3336 steve.hays@rubinbrown.com

32 u fall 2009 issue