State of the Industry Report: Sidebars
February 8, 2010
Weathering the Storm by Bob TafaroA declining housing market, slow commercial sales, less storm activity, and a significant drop in roofing demand. Those events characterized 2009, and it was a year filled with uncertainties, to say the least. Yet it also was a year that may prove pivotal for our industry - not only for the challenges we faced successfully but also for how we laid a foundation to focus and re-focus customer demand on value and quality.
Overall, the year’s results were mixed. Certain segments of the industry did well, yet it was a tough year for distribution and contractors. We realized a significant fall in sales of total roofing squares, partly driven by less storm activity. Sales on the West Coast, in the Southeast, and in Florida were slow with some increased storm demand from Dallas to Chicago.
However, it appears that the freefall in residential new construction has bottomed out, as evidenced by how financing constraints - a big barrier to growth - have been somewhat relaxed. Still, we do not expect a full recovery in the residential market until we see signs of substantial improvement in the unemployment rate.
In addition, 2010 may continue to test us when it comes to commercial sales. Unlike residential, we see no signs of a recovery. However, the slowdown hasn’t been all bad news. It has given us the chance to focus more attention on re-roofing and re-covering, such as in TPO. Contractors have repositioned these products and - with the help of manufacturers such as GAF - have created a new set of tools (such as re-roofing specifications) that will enable future growth.
Despite the difficult cyclical changes, our industry has been able to address the growing demand for value and quality. In the year ahead, we expect homeowners will continue to demand products and services with added benefits. That means a good value may no longer be defined as the lowest-cost alternative. We’ve noticed an increase in sales of our higher-end shingle products, especially in cases where the homeowner sees a property value benefit that outweighs the additional cost. Many consumers are willing to pay more up front for products that provide longer protection and add value to their property.
To meet the demand, the best-positioned contractors will continue to invest in quality products, quality management processes, and brands that are consistent with quality. We expect that as contractors demand more value, they will seek out the channels and distributors that provide deep product offerings - that is, higher-end, value-added products rather than commodity products alone - and help them grow their businesses.
An example of added value is “green.” Interest in and requests for green products will only grow in the coming months. Currently, we do not know how the government’s program to support homeowner energy efficiency will evolve, but it’s something we should all watch closely because it could further add momentum to this growing trend.
Value also means a quality installation. As a manufacturer, we recognize that contractors are challenged when it comes to sourcing skilled labor. So we make it our job to help make installations easier and simpler through an increased focus on education. This year, we expect demand for and delivery of training will continue to increase.
A couple of challenges we expect in 2010 are beyond our control - demand and raw material costs. Demand is unpredictable, and raw material costs remain unstable. Fortunately, raw material prices were less volatile in 2009 when compared to 2008, but we expect significant increases in 2010.
Despite a mixed year, our industry is weathering the storm well. We’re meeting the demands of smart, informed consumers who are demanding long-term value, quality and environmentally-friendly products. Both the industry and the consumer are realizing some shifts - and those should prove advantageous for us all in the future.
Bob Tafaro is President and CEO of GAF Materials Corporation.
Monroe Porter: Don't Wait for the Economy to Save YouMonroe Porter, president of PROOF Management Consultants, sees signs that consumer confidence is beginning to pick up but predicts 2010 will continue to be a soft market for many roofing contractors.
“We believe commercial new construction will continue to be slow for several years,” he said. “Commercial contractors should remember that commercial construction projects follow lengthy timelines made up of environment studies, zoning, funding, design, etc. Much of this and last year’s work has been planned for many years. Fewer projects are on the books and the ones that are tend to be government related.
“We do see residential re-roof work picking up, but this tends to be a regional issue based on weather, unemployment and other issues. We find solid contractors who sell value have had little decline in their closing rates - they just have fewer leads. New residential continues to be low priced as it is a buyer’s market for builders.”
He had this advice for contractors:
“Don’t wait for the economy or a sharp increase in sales to save you. Yes, the market may improve, but you still must make your overhead match your current volume. The longer you wait to react, the more your capital will shrink. Times have been good for many contractors and many are awash with cash. Such cash can make companies too comfortable and slow to cut costs.”
Porter urged business owners to focus on the basics of selling, beginning with communication skills.
“Look at closing ratios, relationships and where you can leverage your success,” he said. “When the market was hot, anyone could sell. Homeowners where just glad if you showed up and it did not take much of a communication effort to succeed. Don’t let poor sales skills blow residential leads. Also, leverage your business to business relationships. Call in past favors. Meet people face to face and don’t rely on e-mail and fax machines.”
Rob McNamara: Control Costs, Ensure Safety“At this point, it seems many in our industry are just happy they survived 2009,” said Rob McNamara, President of F.J.A. Christiansen Roofing Co., a Tecta America company, and President of the National Roofing Contractors Association. “Beyond weathering the storm, it does not appear 2010 will offer a lot to celebrate right off the bat - however, it sure beats the cliff’s edge we at this time last year. I suspect key trends for the year will be a continued challenge in our industry’s supply-demand curve as the availability of projects remains tight. This is especially so considering we will not have the carryover of new construction projects as we had from 2008 into 2009. A greater percentage of work will continue to come from the public sector, though we are hopeful that roofing purse strings in the private sector will gradually loosen as confidence in the economy slowly builds. I feel we also may witness some ill effects due to the economic recovery we are seeing in other parts of the world, particularly Asia, translating into higher commodity input costs and resulting material price increases later this year.”
McNamara had this advice for contractors going into 2010:
“At least until we see how the year unfolds, contractors need to continue to control costs wherever possible. Like it or not, the ‘Great Recession’ has triggered a reset in our economy and, as with just about anything else these days, it will be a good time to be a buyer of roofing projects in 2010.
“Don’t lose sight of the importance of safety within your organization. Over the past years, I feel our industry has made some great strides in treating our safety and claims experience like a profit center (not to mention the satisfaction that goes along with having our co-workers go home safely at day’s end). During tough economic times, and in the rush to meet very tight budgets, we can lose sight of the importance of safe work practices. Despite the times, rooftop safety remains a great cost-avoidance opportunity if we can keep our eye on the ball. Helps make spouses and kids happy too!”
Dr. Jim Hoff: Turn Your Entire Business Model Green“Given the rapid growth of green roofing products, roofing customers - both commercial and residential - are becoming increasingly concerned about the environmental impact of the materials they purchase,” said Dr. Jim Hoff, Research Director, Center for Environmental Innovation in Roofing. “But they are also sensitive to the character of the organizations that supply and install these materials. In a nutshell, green building owners prefer green products supplied by green businesses.”
“Over the past year, I’ve had the opportunity to meet with roofing contractors across the country that are turning their entire business models green,” he continued. “They are reducing the energy impact of their operations with more fuel-efficient equipment and smarter ways of getting people and materials to the jobsite. They are eliminating material waste and demanding their suppliers to do the same. They are establishing local recycling and reuse programs for a wide variety of roofing materials. And the results show up on both the top and bottom lines. As they reduce energy and eliminate waste, they save money; and as they increase the environmental visibility of their businesses, they gain market attention and reputation. So, my advice for roofing contractors in 2010 is to become the environmentally preferred contractor in their local markets. There are lots of resources available to get started, and the rewards - both tangible and intangible - are well worth it.”
Chuck Chapman: Follow the MoneyChuck Chapman, President of Central Roofing Co. and Standard Roofing Co., Tecta America Companies, and President of the Western States Roofing Contractors Association, pointed to new housing starts and bank lending as key areas to keep an eye on. “Once both of those trends start to increase, so will the roofing industry,” he said. “The southwest part of our country is so dependent upon residential new construction to fuel their economies, so once that gets going again commercial will follow. The private sector needs to have funding available for projects to move forward, so once the banks start lending again private commercial work will become available.”
He urged contractors to be “lean and mean” this year. “2010 is going to be as tight if not tighter than 2009, so you have to manage your revenue. Only the strong will survive this recession, so tighten those belts and hang on.”
The key to success, said Chapman, is taking care of the customer. “Opportunities are few and far between in this economy, so you have to maximize every opportunity that you are afforded. Excellent customer service will differentiate you from your competition and guarantee you success. Once you think you have gone the extra step, go one more!”
Bob Brenk: Reflect on Employees, CustomersBob Brenk of Aldo Products, 2008-09 President, Reflective Roof Coatings Institute, looks for restoration work to take up a larger share of contractors’ business. “The roofing contractor that specializes in installing reflective coatings will continue to see an economic environment that favors restoration work over complete tear-off and replacement,” he said. “Additionally, given the overall green building movement, the benefits of white roof surfaces have received unprecedented publicity and headlines within the past year and need to be stressed during the sales process. White, reflective roofs are ‘in.’”
Brenek emphasized the importance of maintaining relationships with employees and customers in an uncertain economy. “Even in slow times, keep your key people on the payroll,” he said. “Roofing contractor work is ultimately a service business that requires experienced and trustworthy staff. Having to train new people is always expensive and creates unforeseen liability in the field for both you the contractor and the manufacturer whose products you install.
“There is always more than one area on which to focus. In a slower economic environment everyone is chasing the next contract and the competition is fierce. However, do not lose sight of the loyal customers that have given you repeat, discretionary business that may provide higher margins than publicly bid projects. Do not forget about your loyal customers.”
Chip Macdonald: Invest in Your Workforce“It’s not the Eurasian global economy or the Hispanic labor wave that will kick the ladder out from underneath us in 2010, but our own workers compensation insurance premiums,” said Chip Macdonald, President of Best Safety LLC. “The shame is that we’re doing it to ourselves without anyone else’s assistance. With more and more construction companies facing Experience Modification Rates (EMR) above 1.0, the industry’s ability to survive the rising penalty becomes questionable. Until labor and management make an effective partnership a priority in this area, I foresee dwindling profits and rising losses. It’s more than a little ironic in our space-age, technological society, what will ultimately save our economy from Wall Street’s ruinous behavior will be the steel-willed, entrepreneurial spirit of the American employer. Nothing exemplifies this better to me than the small contractor and his stubborn workforce grinding away at a project on the outer reach of both his fiscal and physical capabilities.”
He urged contractors to take a long-term view and focus on their greatest resource - their workforce. “Develop a one-year, five-year and 10-year plan for your company as if today were Day One,” he suggested. “Keep your training program current and rapidly deployed. I know you’re not afraid of getting a little tar on your hands, so don’t be afraid of training them yourself. Attend OSHA Institute seminars and get yourself an education before it’s just a day too late. Preventing the accident you don’t see coming is definitely not a job for a coward. You’ll get more criticism than praise, more complaints than help. Choose knowledge over ignorance and preparedness over reactive management.”
He summed it up this way: “Teach yourself every day to be the roofing contractor you would actually like to work for in 2010, and I guarantee that you’ll still be here, safe and profitable, in 2020.”
Ken Kelly: Understand the Customer's PerspectiveKen Kelly, President, Kelly Roofing, said contractors must focus on the customer to succeed. “In 2010 customers are going to be watching every dollar they spend closely,” he said. “As an industry we need to respond by providing realistic costs, expenses, life span, savings and performance data. Unrealistic warranty time frames and energy savings estimations are going to alienate our customer base from future trust. The race to success is not a game; customers don’t like to be played with.”
Contractors must re-examine the entire customer experience, said Kelly. “Map the entire job process from initial lead to after completion follow-up contact,” he advised. “Analyze every step to find out if it has value to the customer. If not, you don’t need to be doing it. Then look at every step and see what additional value you could provide. Reinvent every wheel. Make it easy to do business with your firm. Take the workload off of the customer. Over-deliver until the customer knows you will always be there for them.”
William Good: Green Building and Grass Roots Movements“The green building movement will continue, will accelerate and will take on a lot of different forms,” said William Good, Executive Vice President of the National Roofing Contractors Association. “We will continue to see vegetative roof systems grow in popularity, and we’ll start to see more ‘building-integrated’ or ‘roof-integrated’ photovoltaic systems on homes and buildings. Costs for PV systems will decline; efficiencies will improve; we will get closer to a time when the economics of PV roofs really make sense.
“Smart contractors will be able to discuss green roofing options with the customers; these will include expected paybacks for different R-values; tax credits and incentives for a host of roofing options; recycling and other environmental concerns; and - let us never forget - durability and sustainability.
“One other key trend that we’ll continue to see is the seemingly contradictory combination of low interest rates and tight credit. That will make it difficult, as it was in 2009, for developers and building owners to take on new capital projects - which means an increasing majority of the roofing industry’s work will be repair and replacement.”
Asked what one area contractors should focus on, he replied, “Get involved politically! The barrage of new programs coming out of Washington, D.C., and coming out of state capitals, is only likely to worsen. The industry’s list of issues includes health care, climate change, immigration and estate tax - and all will be in play in 2010. In addition, we expect to see a host of new regulations coming from OSHA, EPA and others that will affect the industry directly. We’ve recently been witnessing the beginnings of a groundswell of opposition to much of what’s being proposed, but it will take a real grass roots effort to rein things in.”
Rod Menzel: Keep Service Levels HighRod Menzel, President of GreatWay Roofing, urged contractors to concentrate on the basics, beginning with customer care. “I know that most people are jumping on the solar bandwagon, and it is an obvious trend that is before us,” he said. “I read that Steve Jobs with Apple said that if he jumped on the smart phone (Treo, etc.) trend when all others were encouraging him, they would not have had the capital for the iPod - something to think about. I think the bigger trend is as companies become lean, their service starts to slip. I am seeing this in all industries and the consumers notice.”
In today’s economy, great service can set businesses apart. “If you need to become lean for 2010, be sure to focus on efficiencies,” he said. “If you can make the cuts while staying efficient, your service levels should remain high, and as we all know a happy customer generates referrals.”
The key to pleasing customers, according to Menzel, is exceptional service. “Service these days is horrible,” he said. “Ideally your customers will say, ‘Wow, no matter where I go, service stinks! Then I met this roofing contractor and I can’t believe how considerate and professional he was.’ Do whatever it takes to make your customers happy. When the job is done, they are going to be placed in one of two bowls - either the Rose Bowl with the other raving fans who ‘spread the word’ or in the Toilet Bowl.”
Tim Hershey: Don't Forget the Value of a HandshakeTimothy C. Hershey, President of Thoroughbred Contractors, specializes in the private the industrial roofing market, but he touched on some basic elements that apply to any roofing business. “I am still a true believer that no matter what trends tend to come and go in our industry, there are a couple of things that I am certain of: good sound roof design, proper installation and good workmanship will and should always prevail above all else, no matter what seems to be the next big thing,” he said.
“We have all been affected by the economic downturn; however our company is certainly seeing some marked improvement within our client base - especially when compared to this time last year. And I truly believe that this is the time when the strong and the properly prepared will survive, and unfortunately, as with all types of businesses, in an economic slump, some businesses will not survive, and the roofing business certainly will not be immune. If I could offer any advice, it would be to tell contractors to truly know what their operational, overhead and labor expenses are. That way they are not only prepared for the ‘valleys’ in this crazy business, but maybe - and even more importantly - they will stop trying to be the ‘lowest’ and be one of the ‘best’ instead.
“Go back to the basics. Good old-fashioned face-to-face business. Sometimes we all get so caught up in the ability to communicate electronically that we sometimes forget the value of a handshake, a smile and a nice warm greeting.
“I truly believe that a person only has one thing that is truly his, and that is his word,” he concluded. “If you agree with someone face-to-face that you are going to do something a certain way, and it’s done with character, integrity, honesty and honor, nothing (within your control) should be able to break that bond.”
T.J. Daniels: Set Goals and Keep ScoreAsked to single out one thing contractors should focus on in 2010, T.J. Daniels, President of Bright Roofing & Restoration, was quick to respond: “The numbers.”
“Know your numbers,” he stressed. “Know them frontwards and backwards, inside and out. Knowledge is power, and the most powerful things in our business are the numbers. Some people who visit my office think we are a bit ‘over the top’ with our numbers. To me it’s a sense of stability. Maybe we are ‘over the top,’ but that’s OK. It has become a part of our corporate culture.”
Analysis of the numbers is the only way to tell if the company is meeting its objectives.
“At our yearly kickoff meeting, our people are introduced to our goals,” said Daniels. “We have sales goals, production goals, goals for gross margins. We start with goals and then we measure our progress towards them. We measure sales on a daily, monthly and yearly basis. We know our closing ratios. We talk about the numbers in our sales pipeline. We know our overhead expense allotment, our equipment costs and marketing costs. Each and every job is costed out and talked about.
“Charles Darwin once said that it’s not the strongest of the species that survives, nor the most intelligent, but the most responsive to change. With all of the uncertainty around us every day, we must be ready to respond to change. An intimate knowledge and understanding of the numbers gives us the best chance at successfully adapting to the changes that are waiting for us in 2010.”
Rick Davis: Focus on Sales and Marketing EffortsRick Davis, President of Building Leaders Inc., urged contractors to stay in tune with the economy - and its effect on their customers. “This should be a year of cautious optimism - optimism that we can believe the economy isn’t going to get much worse, yet with caution that the upturn won’t be major,” he said. “Contractors should be vigilant about playing for long-term success. This means continuing the tightening of operating expenses while promoting your business. Focus on sales and marketing while tracking the effectiveness of your return on investments.”
He urged contractors to be patient with customers. “Remember that the sales process is longer than before and results will not come instantly,” he said. “Polite follow-up should be conducted on every lead and quote that you have submitted to prospects. The answer is not ‘no’ - it’s ‘not now.’ Keep in touch with prospects so that you are the resource they first think of when it comes time make a decision.”
Jim Stamer: Diversify and DifferentiateJim Stamer, President of Prospect Waterproofing Company, urged contractors to understand and adapt to changes in the market and continue to differentiate themselves from their competitors. “Set realistic goals and objectives, understand your costs and have a reasonable expectation of what 2010 will bring,” he advised. “We have seen the market change in 2009. Contractors are entering new markets in order to make ends meet - e.g., residential contractors entering commercial markets. Where once competition was limited to a handful of contractors, we see up to 20 bidders on a project and it’s not limited to specialty contractors. We see the same level of competition by the GC’s. Look for opportunities to differentiate yourself in order that any premium for your services is justified.”
Distributors Are Ready to Help Contractors Adapt in 2010by Tom Watts
Distributors and suppliers are an integral link in the value chain, and their support can be the difference between success and failure for a business. Distributors have many ways they can help their contractor customers, including providing the training necessary to help them branch out into new product lines.
Mike Schwarz, Director of Marketing and Business Intelligence for ABC Supply Co. Inc., said with new construction rebounding slowly and remodeling activity being limited by high unemployment and tight credit availability, contractors should consider expanding the range of products and services they offer to their customers.
“The focus on energy savings and government-sponsored incentives to drive investment in these types of products will also remain important to the industry in 2010,” Schwarz said. “To date, these incentives have primarily focused on the areas of re-insulation and window replacement, but additional incentives are being considered and the criteria for products that meet current incentives may change.”
Schwarz believes there will be a continued shift to green products and practices, including shingles and low-slope products in cool colors, metal roofing and an increased emphasis on recycling residential tear-off waste. “It also looks like new solar roofing products will hit the market in 2010, but their impact likely won’t be felt immediately,” Schwarz said.
Contractors who can differentiate themselves by offering a broader range of products and services will be better positioned to land add-on sales and develop long-term repeat customers, Schwarz said.
“One thing that we would suggest is that contractors take advantage of the many training programs provided by distributors and manufacturers,” he said. “It can really help them improve their selling skills and open the door to opportunities for additional revenue.”
Homeowners and building owners have more choices than ever before, Schwarz said, so it is important for contractors to find ways to set themselves apart in the marketplace.
“One way contractors can simplify the selling process and make it easier for their customers to understand the choices available to them is to offer good, better and best product and service options,” he said. “In this type of business climate, contractors often use price as a lever to close the sale. It is extremely important to understand the full cost of a job so that it can be priced correctly and allow for a fair return on the work performed.”
Differentiate YourselfTom Adams, Vice President of Sales for Bradco Supply Corp., said forecasts have indicated that single family construction has bottomed out in 2009.
“There are some positive signs indicating 2010 will show a slight increase in this area,” Adams said. “That upward trend will be the catalyst for some market opportunities for smaller builders and remodeling projects as the consumer confidence grows. There may also be some additional pricing pressure and availability concerns in 2010 based on raw material increases, manufacturing inventory right sizing, and residual fall out for materials directed to the paving industry.”
There could be less work in the commercial market this year than there was in 2009. “The 2010 market is expecting a 5 percent to 10 percent decrease,” he said. “Owners will continue to look for economical ways to maintain their roofing systems. Maintenance and coatings systems will remain strong in 2010. White reflective coatings should continue to grow.”
Adams said contractors need to focus on doing the type of work in which they have a proven track record of success.
“Risk versus reward in a tough economy can be disastrous for the contractors barely making ends meet,” he said. “Contractors should focus on their service, quality of work, and willingness to market themselves in this very difficult economy.”
Still, Adams noted that contractors need find the ability to differentiate their companies and service from all the other contractors vying for the same work. He concluded with this advice for contractors: “Have the ability to offer options, upgrades, and best warranty possibilities to their customers since consumers are paying an all-time high for their roofing products.”
Replacement Work Is Out ThereBrad Resch, President of Gulfeagle Supply said the best area of opportunity for roofing contractors in 2010 is, without a doubt, the re-roof segment.
“In the U.S. the re-roofing market offers a large-sized volume with historical stability,” Resch said. “I feel this market will grow nationwide in 2010, helped in part by improvement in consumer confidence. This combined with an expected loosening of credit will assist in increasing the demand in the pent-up re-roofing market. The re-roofing market is by far the area of largest opportunity.”
Resch recommends that that roofing contractors review their account sales during the past five years. “If a roofing contractor finds that sales have been heavy in the new construction area, then consideration should be given to shifting their efforts towards the re-roofing market,” Resch said. “The recovery of the new home market will be down the road, possibly into 2012. In addition, the profit opportunity appears much better in the re-roofing segment of the market.”
Resch said the shift to concentrating on the re-roof market will require some basic changes in a contractor’s strategy. “The change will include cost of the tear-off and disposal of old roof coverings, repairing damaged decking and the need for in-home selling,” he said. “The changeover will also require some back-to-basic thinking required in the re-roof segment. Door hangers, mail-outs, and the use of other time proven sales tools that are generally inexpensive can help a contractor grow this segment of his business.
“The business strategy requires effort and change if you decide to refocus your efforts from the new construction to re-roofing business,” he concluded. “However, as market conditions have change, the switch to re-roofing will provide the best strategy for 2010.”
Focus on ProfitabilityBob Feury Jr., CEO of Allied Building Products, cautioned contractors against slashing costs to get more jobs - sound advice no matter what type of market you’re in. “I think contractors need to be careful not to simply chase work to stay busy and focus on profitability,” he said. “It is a tough market out there and more and more contractors are chasing fewer jobs, and you can find yourself under water quickly.”
He had this advice for contractors: “Don't be afraid to lose a job, carefully manage your cash flow, and don't trade staying busy for profit.”
Feury agrees that environmentally friendly systems and the development of solar systems as potential growth areas are hopeful signs - especially for roofing contractors who are experts at helping business owners manage their roof assets. “The biggest trend in the industry at the moment is the move towards more green roofing systems,” he said. “Photovoltiac systems in particular seem to have some momentum as more and contractors are looking for a way to get involved in both selling and installing systems. I can see this trend continuing for the next several years.”
Kevin Kennedy: Protect the Future of Your CompanyKevin Kennedy, CEO of Beacon Exit Planning, LLC, retired as one of three owners of the Evans Roofing Company in 2008 completing the third succession of a 64-year-old company in an internal buy-out transfer to the new owners. He now assists business owners with exit and succession planning, and he asserts it’s never too early to think about the endgame.
“Beacon creates customized written exit plans that focus on monetizing the business and moving the owner into the next stage in life,” said Kennedy. “The plan establishes and controls the process of when, who, and how to monetize the illiquid wealth trapped in your business and protect your wealth.”
It’s crucial to understand market trends, noted Kennedy. “We are in an ‘Age Wave’ created by the baby boomers who are now retiring,” he said. “The trend will begin having more sellers than buyers of private businesses as we move forward. Exiting owners should now begin creating a plan for an exit that will require three to four years to meet their financial goals: aligning their management for the next window of opportunity, and to deciding on an internal or external transfer.”
Timing is everything when it comes to an exit strategy, maintains Kennedy. “In real estate it is ‘location-location.’ In exit planning it is ‘timing-timing.’ Ironically, these challenging times are a good time for planning. It humbles businessmen and makes them wiser. They should note that the past three economic 10-year cycles had recessions followed by periods of growth three years later. The past 30 years may not repeat themselves, but if the pattern continues, 2013-18 may be a prime period of business sales and transfers. Waiting later may border on another recession. You should begin to position yourself for the next window of opportunity now to grow your management, increase your profitability and replace yourself.”
Owners need to create a plan and business model to:
• Build back the business value.
• Deal with the different taxes from different transfers.
• Facilitate legal agreements.
• Consider the different valuations of your business depending on the transfer.
• Project the cash flow that will be needed to meet your financial goals.
• Determine the insurances required to protect you wealth and estate.
• Ensure proper estate tax planning protection.
• Perform financial planning and calculate reinvestment of the exit proceeds.
• Prepare the company to operate successfully without your presence.
The first step in exit planning might be to admit you need help. “You intuitively understand your business, but have never exited a business before,” Kennedy explained. “Exiting is not easy and you probably only have one chance to get it right. Studies show that less than 30 percent of first-generation owners and less than 10 percent of second-generation owners succeed in transferring their business to the next generation. It is very disappointing to see so many businesses prosper only to watch the aging owners fumble the ball in the ‘red zone’ and fail to monetize their business and protect their wealth and legacy.”
Heather Jones: A Bleak Overall Forecast for Construction in 2010Jones, Construction Economist for FMI Corporation, shared some of the data from FMI’s most recent construction forecast. “The outlook for put in place construction for 2010 remains bleak,” she said. “Total construction in 2010 will be down 4 percent after declining 13 percent in 2009. While 2009 was likely the bottom in terms of percent decline, 2010 will be the bottom in terms of dollar volume.
“Residential construction is expected to begin recovering in 2010. Nonresidential construction will decline 15 percent in 2010 after declining 10 percent in 2009. Non-building construction will continue to be a positive contributor, increasing another 5 percent in 2010, driven mostly by conservation and development construction.
“The residential sector is expected to begin to recover in 2010. Single-family put in place construction will recover at a slower rate than single family housing starts. The number of square feet per start is declining, meaning that new homes are getting smaller. They are also getting less expensive. The average and median new home sale price is decreasing. The first time home buyer credit and recessionary environment were contributing factors to this decrease. Multi-family construction has been impacted severely by tight credit and will not recover until credit loosens. Residential improvements construction is expected to increase slightly in 2010 as consumers make improvements rather than moving up, and the age of the housing stock requires improvements.
“The nonresidential sector will see another year of double-digit decline in 2010. Health care, educational and transportation are the only segments that will remain near flat. These segments are less dependent on the general economy. Public safety construction will be the only segment likely to see actual growth. This growth is driven mainly by military construction. The lodging, office and commercial segments are highly cyclical and will experience severe declines in 2010. Manufacturing construction, which has remained strong mostly due to refinery work, will turn down as many of these mega projects are completed…
“The economy may show some signs of improving, but it is just the beginning of the downfall for nonresidential construction. Nonresidential construction typically lags the general economy by about 18 months. Intense competition that has been bringing down prices has been reported. This is good for owners, but not so good for contractors. Nonbuilding construction will remain positive for the forecast period with power and conservation and development leading the sector.”
David Harrison: Conquer Fear by Building Trust“The major trend in 2010 continues to be fear,” said David Harrison, Managing Director of Harrison Management Consultants. “Employees are fearful of maintaining their jobs. Even if their company is doing well, they hear from friends and relatives stories of doom and gloom. This increases their anxieties even in the best of circumstances. Anxieties that are not addressed can negatively affect quality and productivity.
“Customers are fearful of making a mistake in their purchase decision. Even if their personal financial situation hasn’t changed during this difficult economy, they are more cautious about wasting money. Most contractors make the mistake of dealing with the symptom, which is described as being more ‘price conscious.’ The reality is the customer is more concerned with making a mistake and therefore needs to build more trust and enhanced education about the value that they are receiving.
“Distribution and manufacturers are fearful of being able to generate enough gross profit to continue to fund the levels of sales and operational service to their clients and avoid further cut-backs. Further, focus on receivables management is increasing and stressing relationships.”
He offered these recommendations for coping with the current economic climate:
“The primary advice I offer my clients in contracting and distribution is that they increase their efforts and initiatives that generate even more trust and educate the customer better about value. My definition of the value opportunity is ‘the size of the gap’ in this equation: the intensity and insight between the customer understanding the potential problems and risks in the decision that they are going to make - and compares this to their trust in your ability to eliminate problems and reduce risks better than competitors.
“If the contractor could focus on one thing it would be improving communications.
“For employees, I work with clients to help them communicate a vision ‘beyond the fear’ of the current economy and see the benefits of a stronger foundation now that will result in a better future.
“For your customers, I’ve been involved with contractors who have significantly improved their success by developing a world-class proposal. Most proposals look relatively the same. That screams ‘I’m a commodity.’ If there are no differences, the only mistake a customer perceives they can make is to ‘pay too much’ for your service. Great proposals demonstrate differences and communicate superior value.
“In summary, during difficult times, I encourage contractors to work more ‘on’ their business rather than ‘for’ their business. That means developing communications and processes that provide specific guidelines and approaches for your team and help improve both efficiencies and effectiveness. As a result, when the economy turns around, you will have a stronger foundation that will make it easier to grow quickly, profitably and with fewer hassles.”