Management: 5 Business Threats and Opportunities
authors Patrick O'Toole | June 16, 2021
In 2021, many remodelers will post their best top-line results in years. At the same time, they remain guarded about their bottom line—for good reason.
With so many wildcard factors at play, margin erosion looms around every corner. Costs of building products are rising. Timelines are slipping because of back-ordered products and supply-chain issues. Skilled labor and high-quality trade contractors are almost impossible to hire.
And then there is a new federal administration. Though it is unknown how much corporate taxes are likely to rise for the current year, they are likely to go up. Regulators have been charged with stepped-up enforcement. Several agencies are much more active than they had been in previous years: the IRS, the Wage & Hour Division of the Department of Labor, the EPA and OSHA, among others.
But there are new opportunities as well. In 2021 millennials, who have been a big part of the latest boom in home buying, have recently become the dominant remodeling demographic. For remodelers wise enough to put their focus on millennials and who understand that stage of life and home improvement needs, now is a good time to position themselves to acquire these new clients for the years and decades ahead.
Through conversations with remodeling professionals as well as with business management experts, here are critical business issues that remodelers should keep top-of-mind in the second half of 2021—a time when they must keep their business humming but also a time to begin preliminary planning for 2022.
Potential Retroactive Taxes
Without a doubt, remodelers should be seeing more revenue in 2021. Profit, however, is under a lot of pressure. A big question on the table is whether corporate taxes, which have been at an all-time low of 21 percent since 2017, will be raised to 25 or 28 percent to pay for a pending infrastructure law and other spending.
Until 2017, corporate taxes had been at 35 percent. The lower tax rates for businesses made it easier for remodelers to be profitable. One possible outcome to the infrastructure spending plans is the remote prospect of a tax increase that will take effect retroactively for 2021, according to reports in both The Wall Street Journal and The Washington Post.
In interviews with the Treasury Secretary Janet Yellen and other administration tax-policy officials, they are “thinking broadly” about revenue-raising policies. This could mean an implementation date that is retroactive instead of coming next Jan. 1, for example. This is true not only for corporate tax rates but also for capital gains, which makes the current environment doubly complex for remodelers who are considering selling their businesses this year.
The unpopularity of retroactive tax increases notwithstanding, the determining factor on whether to move forward with an early effective date for tax increases will reportedly depend on the condition of the economy this fall, administration officials say. This will be an important debate to be watching this summer. It is another critical variable to consider as you set prices for your work.
ADA Compliant Websites
Each year remodelers spend untold sums keeping their websites in tip-top shape. The primary metric is and will be how well it converts visits to inquiries (form fills). Today, however, there is another very important design consideration: Your website needs to comply with the Americans with Disability Act of 1991.
Websites were clearly not within the scope of the law when it was enacted. But today, commercial websites must conform to the usability needs of all places of business. Websites have been deemed public accommodations under the law, says Chris Behan, a home-improvement industry website marketing guru and founder of Socius Marketing in Tampa, Florida. According to Behan and others, plaintiffs’ attorneys have now begun making hay by attacking firms that operated clunky and hard-to-use websites.
Web compliance firm UsableNet says lawsuits grew 25 percent in 2020 to 3,550 cases, with the bulk of those cases originating in rank order: New York, California, Florida, Pennsylvania and Illinois. Most suits are brought on the basis of the desktop versions of websites, but mobile and app usability is also actionable. California’s 1950s era public accommodation law known as the Unruh Act provides $4,000 for each violation. Videos without captions was the primary cause for action.
What determines whether a website is ADA compliant depends largely on a website’s adherence to usability standards developed by the World Wide Web Consortium (W3C), which publishes Web Content Accessibility Guidelines (WCAG). The 2018 standards, WCAG 2.1 AA, are what is required today. Version 2.2 is expected to be released this summer.
There are basically 50 web-design considerations to make your commercial website usable to users with disabilities ranging from “blindness and low vision to deafness and hearing loss as well as limited movement, photosensitivity,” as well as “accommodations for learning disabilities and cognitive limitations,” the WC3 website explains. At the bare minimum, commercial sites must include an “accessibility statement,” just as they would a privacy statement.
Last fall, the Online Accessibility Act was entered into Congress. It will likely be another year or two until it becomes law. The first version relies heavily on standards for WC3. This summer, ask your web developer about your site’s accessibility. It makes sense to get ahead of this potential business issue.
Stricter Tests for Independent Contractors
Many remodeling and home improvement firms save from 20 to 30 percent on their labor costs by utilizing 1099 contractors to install their jobs. The savings come from a variety of sources versus W2 employees. There are no payroll taxes, no unemployment insurance taxes, no need for workman’s compensation insurance and no need to comply with a number of state and federal regulations governing hours, working conditions and overtime, notes attorney D.S. Berenson, managing partner of Berenson LP.
These benefits have been well-known for many years. But successfully defending your classification of subcontracted labor as 1099 might be getting more difficult under the new administration, which indicated it would be adopting California’s testing provisions to determine whether contractors are deemed independent.
According to analysis of California’s ABC independent-contractor test by Dave Yoho Associates (DYA), here are the new national ABCs:
A. The contractor is free from the control and direction of the employer in connection with the performance of the work, both under a contract and in reality;
B. The contractor performs work that is outside the usual course of the employer’s business; and
C. The installer is customarily engaged in an independently established business of the same nature as the work performed for the employer.
According to Berenson, it is tough to overcome the second test. Arguing that installing windows is outside the normal course of business for a window contractor is not easy to win. Having written contracts with subcontractors is an important first step. “Penalties and back wages can be up to $100,000 per misclassified contractor in taxes, fines and overtime claims,” explains a DYA white paper on the topic.
(DYA is hosting a conference focused on this topic and several others June 22 to 24 in Alexandria, Virginia. Contact Qualified Remodeler if you are interested in attending.)
Fines and penalties for misclassifications are built from the ground up. It starts with $50 for each W-2 not filed, plus 1.5 percent of the wages and 40 percent of the amounts not withheld from the employee, as well as 100 percent of the matching funds plus interest, Berenson says. Penalties for failure to pay are 0.5 percent of the unpaid liability. Intentional misconduct as determined by the IRS can also result in fines up to 20 percent of wages paid. Criminal penalties of up to $1,000 per misclassified worker can also be imposed.
Solar, Batteries and Electric Vehicle Supply
Even before the COVID-19 pandemic shifted homeownership preferences toward homes in the suburbs, the country’s largest cohort, millennials (ages 25 to 40), began buying suburban homes with increasing frequency. Numbering 83 million, millennials and their remodeling preferences will increasingly drive a remodeler’s business going forward. The question to ask this summer is how ready you are for this shift.
According to research from Harvard’s Joint Center for Housing Studies, millennials are buying old and very old homes at a much faster clip that previous generations, and they are spending more to fix them up. In addition, there is plenty of evidence to suggest this younger cohort is willing to buck up for green and sustainable products as well as solar and EV products.
NAHB Remodeler of the Year for 2021, Alan Archuletta, said his younger clients in suburban New Jersey are making product substitutions (trade downs) on some finishes in order to get newer items they value more. According to Archuletta, these include photovoltaic roof shingles and whole-house battery back-up solutions, as well as one or more electric vehicle charging stations.
If you’ve never specified or priced an electric vehicle charging station for your clients, this summer is a good time to learn. Your electrician is a good place to start. He or she can quickly determine whether a home will need more capacity in order to accommodate the typical Level 2 charger. There are numerous places to study up on the products available. Design considerations include whether they are mounted inside or outside and whether they are built-in or able to be plugged in.
As far as solar power goes, this is no longer some far-off product offering for fringe clients. Companies such as fast-growing Power Home Remodeling are aggressively moving into this space. The national home improvement firm, based in Philadelphia, is beta-testing a photovoltaic home-improvement offering. It is doing the market test in New Jersey, but it expects to have a business model that will enable it to begin marketing solar along with its traditional strengths in siding and roofing.
The day is coming soon when remodelers who are slow to answer questions about these product categories will quickly be passed over by their younger clients.
New and Better Business Software
A decade ago, it was not uncommon to find an experienced remodeler getting by on word-of-mouth reputation alone. For some it was a badge of honor to not have a website. Leads came from a Yellow Pages listing, and jobs were managed on a series of legal pads. Today, those folks are largely gone. Today’s young remodelers are digital natives.
Think about it: Marc Andreesen’s Mosaic (eventually Netscape) internet browser was born 30 years ago, effectively launching the Internet age. This is the world in which young remodelers have grown up.
As a result, today’s new remodeling entrepreneurs understand user interfaces and digital communication intuitively. This is your competition going forward. They are a new class of entrepreneur—grounded in the fundamentals of building trades but capable of delivering a world-class customer experience from smartphones.
Leading remodelers must embrace the fast pace of business software innovation. A review of new software published in the March issue of Qualified Remodeler uncovered a world of enterprise and project management software tailored to the specific needs of residential construction professionals. BuilderTrend merged with CoConstruct, creating a large and enthusiastic user group of young professionals. Houzz Pro, a cloud-based enterprise software launched one year ago, is continually adding new features all built on a platform that millions of homeowners already use: Houzz.
Then there are new software solutions designed to solve (or smooth out) specific pain-points in the notoriously bumpy remodeling project journey. Leap, a program born out of the home-presentation needs of Patrick Fingles’ remodeling company NuLook Home Design eight years ago, is a fast-growing, stand-alone software company. The same is true of One-Click Contractor, a contractor-driven software that foresaw the need for an effective in-home selling platform for remodelers.
Today’s contractor world is one built on new software technology where APIs, or application interfaces, enable a seamless customer experience from website inquiry to finished project. The second half of 2021 is a good time to evaluate your business software against all the new offerings on the market. Ask for product demos. Through this evaluation you may decide to shed costly unused add-ons from a bygone moment in your company’s software history and actually save money in the process. QR