Friday, February 5, 2021

10 Profit Sucking Things Plaguing New Home Builders

Many new home builders attend seminars, buy How-To books, watch webinars and listen to TED Talks to learn how to improve their business. There has also been a plethora of videos and live talks on LinkedIn since the beginning of the pandemic last year also targeting the same topic.


However if a modular home builder doesn’t correct the following mistakes, all the time spent improving your business could simply be a waste.


You need to make sure you are not making these profit sucking mistakes and if you are, Stop Doing It and begin looking for ways to correct them and watch your bottom line at least stabilize and hopefully improve


1. Not being ready for subcontractors. If your jobs aren't ready for the trades, you're setting yourself up for a big problem. Even though a lot of the work is done in the factory and even though you may have your own finish crew, what happens if your electrician, plumber, HVAC, etc is delayed because you weren’t ready for them? Nothing, that’s what. You are at their mercy and if they had to move on to another job while waiting for yours, it could set back your completion date by weeks. Don’t blame the Subcontractor, blame yourself.


2. Paying your subcontractors too early. Pay them too early and you may not get them back to finish the job. As a GC you’ve had subs ask you for an advance or even the total when they are half way through your job. You’re a good guy and do it telling them they have to get the work done ASAP. That may or may not happen. Don’t blame the Subcontractor, blame yourself.


3. Beating up your subs to rebid and cut costs. What part of the job don’t you want done properly? A low bid from a sub because you beat them up will almost always mean corners are cut and in many instances, things are not done at all. It would be better to negotiate a fair price, keep them happy, pay them promptly when the job is finished and you will have a sub that will go the extra mile for you. 


4. Lack of Systems and Procedures. This is your business, not your foreman’s, not your supplier’s and definitely not your subs. If not already in place, you need to begin to create standard operating procedures for your company. If your systems aren't documented, they don't exist. If you don’t have them already, call your fellow modular home builders that buy from your factory, contact a professional experienced in preparing them or simply sit down with your team over pizza and beer and hammer it out.


Anything is better than nothing. Maybe you do have policies and procedures in place but what happens when they are not followed? Do you have the required HR warning procedures in place to fire someone that continually breaks the rules you set up for your business. Do you ever check to see that your procedures are followed? Don’t forget who owns your business.


5. No marketing, sales or business plan. No matter how many times some builders hear me say that these are a ‘must’ for the success of their business, they simply think it takes too much time and effort to do and besides, they have been doing business for years and years and they know absolutely everything they need to know. There will never be another 2008 housing crash. Time to head to the bomb shelters. These plans help guide your decisions and actions and should be reviewed and updated at least annually and should be used, not just put on a shelf or given to lenders.


6. Keeping your employees out of the loop. Nothing will tire your staff quicker than a lack of communication. Keep the lines of communication open both to and from the management level. You'd be surprised how responsive your employees will be if you keep them in the loop. Provide clear direction and they'll be yours forever. Even if you are a one-person builder that subs everything out, you’ve got to keep these people in the loop or your business will be in the poop.


7, Not Pricing your homes for the market. Your market will set the price of your homes, not your cost. For example, after doing research you find that other builders are selling a 2,400 sq ft home for $350,000 excluding land costs and you are trying to sell yours for $400,000 based on your costs, you may have a problem. The local market will set the sales price of your homes, not the cost of the goods used. Direct construction costs, not profits, are the only variable in the pricing formula. Time to rethink your position in the market.


8. You can’t control your home buyers. We’ve all the customer that wants what they want when they want if even if it means changing their minds after the house has hit the production line at your factory. It’s time you take control of the process by setting time frames, offering guidance and picking selections, thereby lessening the confusion for your customer.


There is a premium to be paid if you just want red M&M’s. This is your business and you have to help your customers in a very business-like way. Stop your groveling.


9. You don’t have a flexible build schedule. Most builders use some type of build schedule. Everything from customer meetings to quotes from the factory and your subs to inspections. What most of you don’t have is any flexibility built into it. When there is a setback such as a delay at the factory, rain for a solid week, unexpected snow, or even your delivery being pushed back a week, many of you throw your hands up and think it is the end of the world. It really is if you haven’t built some flex time into your build schedule and shared with your customer all the things that could go wrong when building a modular home. Keep your customer in the loop and they will work with you. Don’t and the surprises never stop coming for them.


10. You don’t inspect your job sites enough. Are you conducting critical point inspections? You should be. Don’t just leave it up to your foreman to do it. It’s your business. Decide what is critical that you personally should be inspecting on every house. Don’t just show up with donuts and coffee. Show up with a checklist and go over the results with the people responsible. Do this before the customer walks. You are the one the customer will blame for poor quality workmanship.


Even if you are only guilty of one of these mistakes, that is one too many. Remember, this is your business so start correcting your mistakes.


Gary Fleisher, the Modcoach, writes
Modcoach News and Modular Home Coach blogs as well as the best site for off-site consultants, Modcoach Connects


Contact Gary at modcoach@gmail.com

2 comments:

Tubby McFatso said...
This comment has been removed by a blog administrator.
Kevin said...

All are very good points and while I have documented 1800 tax software procedures with detailed polices to govern each, aka legal statutes, it was one of the most difficult task I have undertaken. I am studying right now 3 Text on Carpentry, OSHA and IRC, along with construction math, and I relate these text to my Virginia Real Estate Exam, a lot of material to cover yet much will never be used in the real world of building modular.

The biggest issue I discovered over the years was teams tend to document "mechanical procedures" as an all in one policy manual as that is how each of us work. Policies are not opinions, they are not procedures in how to do something, they are facts based on Building Codes, OSHA and the alike, and the mechanical procedure, as in Carpentry, is separate from the actual direction by legal standard. The statutory code can change, the right way to frame a wall probably is not going to change regardless of the build process, yet the policy directing such has to be separate and followed, without exception which is subject to change without notice. Remember the government doesn't need a reason to change, lets look no further than the safety issues imposed upon factories over possible COVID 19 infections.

The 3 text I mentioned are good references in developing your own Polices (OSHA and IRC) along with Procedures which can be developed using the Carpentry Text as well as many other reference tools.

I wish 1 Text Existed which outlined Carpentry, OSHA, IRC, building math, and Administrative procedures required by the various state codes on insurance, contracts, business structure, tax implications, licensing and so on as this would be an invaluable tool. 3, 5 or 7 books 550 pages each is not a quick reference tool.

Thanks for permitting me to comment, just one persons opinion based on previous experience.