Source: CUSTOM HOME Magazine
Publication date: May 1, 2008
By Steve Maltzman, CPA
I recently had the opportunity to moderate a panel of builders who have been winners of BUILDER magazine's prestigious America's Best Builder Award. They included Jeffrey Abrahams, CFO of Touchstone Homes in Atlanta, and Stephen Rolston, president of Land Ark Homes in Ottawa, Canada. In this column I will highlight some of the best practices that were discussed by the panel.
Financial Management. The No. 1 key to the success of top builders is that they understand their numbers because they have strong accounting systems in place. Many custom builders simply report their internal financial reports on a completed-contract basis, without recognizing any of the revenue or costs from their houses until they are complete. Others use the cash method, only recording transactions when cash is received or disbursed. Still others employ the accrual or billings method, which recognizes costs when invoices are received and revenue when draws are billed to the customer.
The best practice is to report costs and earnings from pre-sold homes using percentage-of-completion accounting. This method recognizes gross profit, cost, and revenue throughout the life of each contract based upon a periodic measurement of progress. It is most desirable for pre-sold homes because it more accurately matches costs with revenues and, therefore, profit for a given period.
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