Monday, July 29, 2019

Preparing for Modular Construction’s Next Downturn

It’s pretty remarkable how well modular housing is doing considering there is a housing downturn just around the corner.

“What Downturn?” you ask!

There’s always a downturn in housing. Sometimes it comes rather quietly and for a relatively short time and sometimes it sneaks up on us and yells “Surprise!” at the top of its lungs like the one in 2008.

Being prepared for the next downturn is something nobody really wants to do. We all know when times are good, like now, preparing for the worst is something we tend to push off till tomorrow and then the following tomorrow and on and on.

When you hear someone say they are a “Prepper” some of us think ‘nutcase’ but most of us are beginning to realize many preppers aren’t getting ready for the Zombie Apocalypse. They might be prepping for a time of flooding, wildfires, tornados, each bringing days with no electricity or running water with a modest stockpile of goods to see them through until the utilities are back on.

That’s what modular home builders should be doing, prepping for the housing downturn. Most economists are saying this next one might not be more of a minor hiccup but it will hurt your business if your not prepared.

Being prepared could be the difference between finally taking your family to Disney World when business slows down or taking your family to a new town to start over working for your spouse’s brother in his Subway store.

You Need to Build a Cash Reserve

Without a good cash reserve, chances are you won’t survive a recession. It’s that simple.

Keep in mind that profitability, cash flow, and cash reserves are entirely different things. Business owners often confuse them.

Consider building a reserve to cover at least three months’ worth of expenses but six months is better. Once you reach your personal cash reserve, don’t touch it. Go back to using the money you were stashing there for your business or your family.

It’s great knowing that you will weather the recession storm while many of your local competitors are playing the “Rob Peter to Pay Paul” game.

Don’t Sign Contracts with Contingency Clauses

This is something you should only do if you really, really want to build the customer’s home and it’s only one extra clause that you already know you have a great chance of meeting with little problem.

As the housing recession starts to show its ugly head your customers may try to pressure you to sign those clauses simply to gain more leverage on you because they know they are now in the driver’s seat, so to speak.

You need to build homes to keep your cash flow running smoothly, your vendors and employees paid. Don’t think for a minute your new customer doesn’t know it and will push you as far as they can to get more in their contract.

It is better to pass on their contract with all those time, quality and option clauses than it is to sign it and find out you spent 8 months making absolutely no money on their house.

Keep a Very Close Eye on your Financials

Too many modular home builders know more about strapping a deck to a house than how to read financial statements. Many of them think if there’s money in the back after they pay everybody and their Federal, state and local taxes they made a good profit.

Maybe they did make a profit but was it enough to sustain them if sales drop? Was it enough to allow them to build their cash reserves?

When you get your financials from your accountant, ask to sit down and go over them in detail. Think of yourself as a patient with a problem sitting down with your doctor to go over the results of your latest blood tests and urine sample. You want to know if you’re still healthy. Heck, that’s what we all want.

Your accountant is your business’s doctor. Sit down and go over all the things that changed since the last blood test.

Gary Fleisher (the Modcoach) is a housing veteran, editor/writer of Modular Home Builder blog and industry speaker/consultant.

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