No. 1 Stress: Predicting the Near Future

It’s somewhat reassuring and not all that surprising to learn that even a top-ranking financial whiz in the volatile home construction business cannot foresee his firm’s immediate future.

What may happen to his company in the next year or two ranks No. 1 on his stress list, registering a 7.54 on the familiar scale of 1 to 10, the latter representing the greatest personal pressure.

The certified public accounting firm of Laventhol & Horwath, specialists in services to the real estate industry, found that factor to be the principal worry among chief financial officers of leading Southland builders.

“Short-term strategic business planning” scored highest in a survey attempting to examine the stress generated from areas of responsibility over which such an executive may or may not have control.

From among CFOs of the top 130 single-family home builders in Southern California, 39, or 30%, responded to a 15-category confidential questionnaire.

Following short-term planning as their biggest concern were other major worries, such as effects of tax reform, registering 7.32; cash flow, 6.90; interest rates on short-term financing, 6.26, and use of accounting policies and financial reporting requirements, 5.82.

Their low-level worries were receivables and collections, registering 3.05; economic fluctuations’ impact on costs, cash flow and receivables, 3.46; shifting financial management responsibilities, 4.62; selection of appropriate computer hardware and software, 4.80, and effective use of state-of-the-art computer systems, 4.87. The latter two items had been more stressful concerns in recent years.

In-between worries included techniques to evaluate long-term business decisions, registering 5.77; development and maintenance of effective systems of internal control, 5.33; employment recruitment, development and retention, 5.18; strategic business plan--long term (three or more years), also 5.18, and taxation and reporting requirements imposed by government, 5.03.

Laventhol & Horwath was not surprised to find that strategic planning caused the greatest amount of stress.

Short-term planning, for one or two years, sets the course for a builder’s commitments for major developments and his projections for cash flow.

The firm said “effective short-term planning is an absolute must for a profitable future” and is a difficult task, “especially when we consider that top management must project the impact of complex tax reform, the fluctuations in borrowing rates, the demand for housing and many more issues.

“A mistake made by many top managers is ‘going it alone.’ A significant amount of pressure can be avoided by enlisting the aid of an outside consultant who has the computer hardware/software to do sophisticated operating projections, the tax expertise needed for effective structuring or the experience needed to provide and explore alternatives for greater success.”

Does that describe a particular CPA firm, willing to share the praise or the blame?