Builder Biz Tips

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Top 10 Builder Business Tips for 2008

We are counting down the top 10 business tips for builders over 10 weeks. Each week a tip about business strategy and tactics is being presented to address these tough market conditions. Tips are presented in chronological order starting with the activity you should do first.

Top 10 Builder Business Tips Summery for 2008

10. Make sure you are in Business for the Right Reason Being a business owner is tough; being a builder is also tough. Make sure you really want to be a builder in the long run because the next two years are going to be real tough.
9. Create a Vision All great enterprises started as someone’s vision. You need to have a vision of your business as the guiding focus for improvement. Now is the time to step back and create a vision of your company.
8. Mission Statement & Business Plan All businesses need to have common goals and a plan to achieve their goals. The mission statement is written to guide decision making toward common goals. The internal business plan is going to be your road map to improve your business. I strongly encourage you to take the time necessary to create both.

7. Budget/Financial Score Card Budgeting is a process of projecting cost over an extended period of time and planning expenditures. Financial planning encompasses a plan on creating wealth and measuring your financial performance.

6. Board of Advisors Create a board of advisors, formal or informal, that can review your internal business plan and financial scorecard. Have them offer their advice on a periodic basis, maybe quarterly. Your board should be composed of colleagues within and outside your industry.

5. Build your Team: Employees and Vendors Create the best team you can of value adders, both inside your company like employees, and outside your company like vendors and professional services.

4. Improve Efficiency & Time Management Evaluate where your time is spent, eliminate wasted time, and increase the efficiency of productive time.

3. Improve Marketing Marketing attracts potential customers to you. Find low cost effective means to market to your target audience as rates are very low right now.

2. Systems & Procedures Create systems and procedures that will impress potential clients today while also being indispensable when you start getting busy. Most builders are creative, some are organized, but those with great systems will always be the most profitable. Use home building software, it's easy and will make your life so much easier.

1. Get the Clients Before Incurring Variable Costs Home buyers are hard to find. Insure the dollars you spend can be quickly and reliably turned into a profit. Optimistic spec building is a luxury of the past, and possibly the future. Find ways to conserve cash until the economy picks up.

N0. 7 – Do Your Financial Planning

April 8 2008

A study in 2006 concluded that small residential builders that created and adhered to a formal budgeting process were 26% more profitable than other builders. In these slow times, I’m willing to bet those same builders are doing even better than their competitors.

Budgeting and financial planning go hand-in-hand. Budgeting is a process of projecting cost over an extended period of time and planning expenditures. Financial planning encompasses a plan on creating wealth and measuring your performance. Last week we focused on the business plan. You need to have a clear picture of your business, customers, competitors, and market conditions before you develop a budget and financial plan, otherwise your numbers will not be accurate or even useful.

Let’s start with Accounting 101. Hopefully you have two sets of accounting records. One set is used by your accountant for tax reporting and submitting to your creditors. The format is pretty standard and its use is very limited. Depreciation and capitalization are important concepts for financial accounting. The second set of books is your managerial accounting records. This set of records makes more sense to a builder as it is a guide to show you how you are performing and where to improve. Fixed costs and variable costs (job costing) are important concepts for managerial accounting.

Most builders spend plenty of time trying to control the variable costs for each job, which affects the short term. I recommend also creating a line item budget for your fixed costs. Fixed costs include employee wages and benefits, insurance, rent, equipment, marketing and advertising type expenditures. These are expenditures that you can control in the long term. You should periodically do a break-even analysis to insure you are covering your fixed costs. A break-even analysis will provide you the information on how much you need to sell to cover costs.

Builders like to build things and to let bean counters worry about the accounting. Remember, your home building business is a business and the numbers are extremely important. You should have an accounting reporting method that is always tracking financial performance.

The three main accounting reports are as follows:

Profit and Loss Statements: Project revenues and expenses out on a quarterly basis for the next year, and on a yearly basis for the next three years of operation. P&L statements are your guide to long term profitability.
Cash Flow Statements: Project all cash receipts and disbursements out on a month-to-month basis for each of the next 12 months to 3 years. Cash Flow statements are your guide to short term sustainability.
Balance Sheets: Project your assets, liabilities, and retained earnings (capital) at the end of the first, second and third years. Balance Sheets are your long term wealth scorecards.

Measuring and tracking financial performance is like shooting free throws. How many free throws can you make out of 10? Most people think 4 or 5. Unless you keep score, you don’t really know. Go shoot 10 and tell me how many you really made. You won’t improve unless you keep score.

Here are some money saving tips for 2008:

Be selective about capital purchases as every business has a limit on how much debt it can handle. A loan for "must-have" equipment may make financing that unanticipated "really-must-have" equipment very difficult next month.
Spend less with wise decisions. Most builders are slower now, so take the time to research more and make better informed decisions.
Try bartering to save money on goods and services you need. Remember, the barter must be win-win for both parties, so offer something as valuable as what you'll be getting.
Make sure you know where every dollar you spend goes. When you make a purchase, ask yourself how it will improve your company's bottom line. Will it improve sales, bring new leads, or improve operating efficiencies?
Cut with Precision. Large corporation cost-cutting in hard times is to employ a wide sweeping cost reduction policy. For small business like yours, cost-cutting needs to be implemented with detailed precision. Exercise care and judgment in determining what and where to cut and to what level.
Don't cut your marketing efforts. Now is the least expensive time to establish market dominance. Eliminate wasteful marketing dollars, but not marketing efforts. Track your marketing results and simply cut the unproductive efforts. Find new ways to market on the cheap and keep your name out there.

Next week’s topic is about surrounding yourself with smart people who can help you.

N0. 8 – Writing Your Mission Statement & Business Plan

April 1 2008

Mission statements and business plans are terms better known in the corporate world than they are for small residential builders. Well, builders who want to be successful better become more familiar with these terms.

Last week, we went through creating a vision of your company. This week we are going to create the road map to bring that vision into reality. It’s time to write a mission statement and create a business plan.

Wikipedia defines a mission statement as a brief statement of the purpose of a company or organization. I like to think of a mission statement in a more useful way. A mission statement should guide employee behavior. Our employees carry a business card with our mission statement printed on it. If they are unsure of the right course of action, they should be able to pull out that card and the mission statement should direct them on the correct course of action.

I recommend that you do the same thing, whether it’s just you or you have 20 employees. Everyone in your company should be working with the same mission. A mission statement should be somewhere between 1 and 3 sentences. Take the time to carefully write it so that it is your overriding guiding principle. It should universally apply to all functions of your business including hiring and firing decisions, money matters, or dealing with customers and suppliers.

Once you have written your mission statement, you need to roll it out to your employees. Explain to them the purpose of a mission statement and how they should use it to guide their actions and to make decisions.

Next, I recommend creating an internal business plan to use as a road map or step by step improvement plan. Business plans are typically used for attracting outside investors. If you are interested in a typical business plan, then you can learn more from the Small Business Administration at http://www.sba.gov/smallbusinessplanner/index.html

In this case, we are creating a business plan to be used by only your company. It will lay out the game plan to operate your firm. It will be your blueprint and guide you towards achieving your business goals. A typical entrepreneur has a good business idea but is rarely qualified to manage all areas of a business. A builder running a business is similar. Much of the value in creating the plan is taking the time to think about the areas of your business that are beyond your core strengths. To many times we get caught up working within our business that we rarely take the time to work on our business.

The sections of your business plan to create are as follows:

Company Description: Take the time to understand and write down your true business. There is a big difference between 1) building unique custom homes for buyers in the spec market, and 2) delivering a customer focused custom home building experience.
Goals & Objectives: Set and describe your short term and long term goals and objectives. Insure you incorporate step by step milestones to reach your company’s vision. These should be both quantifiable and measurable. Increasing sales by $250,000 every quarter is quantifiable and easily measured.
Marketing & Sales Plan: Explain how you will sell your homes and services, and how you will move into new markets. Identify the specific marketing techniques you plan to use. Document how you plan to identify, contact and sell to potential customers. Create an advertising plan that allocates resources for media, print, direct response, and public relations. Design or reuse product literature and marketing brochures.
Operations and Management: Establish a plan to better execute the construction process. Evaluate whether you should be implementing new building techniques or different materials. Now may be the time to jump into the year 2000 and automate some processes using home building software. There are plenty of estimating, construction scheduling, change order, and selection management software available on the market.
Financial Forecast: Analyze your financial needs and profit projections. Even though you may enjoy being a builder, you need to earn a profit. Forecast your overhead, labor and material costs to understand where improvements can be made. Compare your costs of doing business to your competition. This topic will be expanded upon next week.
Plan for the Future: Your business plan should be continuously updated. In this section, you are making a list of things to keep your eye on. You are looking ahead to possible changes coming in the future, almost like making predictions. Keep an eye on competition that is entering or leaving your market. Periodically scan the industry to see what new products are being introduced. Set aside time to attend industry shows and take educational classes.

Let’s summarize. All businesses, whether a one man shop or multi-national corporation, need to have common goals and a plan to achieve their goals. The mission statement is written to guide decision making toward common goals. The internal business plan is going to be your road map to improve your business. I strongly encourage you to take the time necessary to create both.

Next weeks topic is your financial scorecard.

N0. 9 – Create a Vision of Your Company

March 25 2008

All great enterprises started as someone’s vision. You need to have a vision of your business as the guiding focus for improvement. Now is the time to step back and create a vision of your company.

If you made it through last week’s step #10 ‘Why Are You a Builder?’, then I’m assuming you are serious about improving your business. You already have all the basics of being a builder, like preferred vendors, subcontractors, a pick up truck, cell phone, and an office with a computer to read this tip. Now it’s time to re-invent your business. Re-inventing your company starts with a vision of what is should look like.

It's tempting to roll up your sleeves and plunge right into the details of changing your business: evaluating new building products, looking at new developments, and sizing up your competition. It's possible to get so caught up in changing what you already know that you lose sight of the big picture. Before you get lost in the details, take a step back and create a vision.

Find some place where you can think uninterrupted for an hour. Set aside time to just think. Sit back and imagine what a great building company yours could be without a ‘only if’. Really focus on what you envision your company could be in 1 year, 2 years, 5 years, or even 10 years from today. Involve others in your brain storming if you’d like. Toward the end of the hour, start writing down the new vision of your company.

Ask yourself these two questions to get started:

What do I wish I was doing right now during slow times that would be attracting new clients?
What could I be doing in 2 years when the housing industry is good that would attract the best clients?

Your reinvented company needs to be demanded by home buyers. Successful businesses rarely create something new first, and then second, find someone who will buy it. The same is true for you. Your company should be creating a value that is being demanded by home buyers. Think about what home buyers want and that you can deliver.

A great place to start is figuring out who should be your target customer. Is it the double income professionals with 2.3 children who have little spare time and wants square footage and value? Is it the empty nesters that have plenty of time, yet want low maintenance? Maybe your target customer has limitless spending and wants you to serve up all their decisions during catered meetings. Figure out the demographics of your target customers. Your vision should include marketing to and selling to your target customer, as well as, service levels and quality of the actual homes.

Women are the new decision makers, they can not be ignored. According to a study done for Traditional Home Magazine, women are involved in 74% of the home building decisions. I’ve personally seen builders’ loose potential clients by solely asking the man questions during initial meetings. I mention this for two reasons. First, women should strongly influence your thinking when defining your target customer. Second, your re-invented company vision may be focused on serving the needs of women decision makers. Your meetings can be scheduled to coordinate while kids are in school. Your future floor plans can incorporate larger laundry rooms and care-free whirlpool style tubs.

What makes you unique or different? Most builders could make money the last 10 years during booming times, but now only the best are making money. There was such a demand the last 10 years that all builders had clients. Now you have to stand apart and be different from your competition. It helps to evaluate your competitors, but don't model your business after them. You don’t want to be like them, you're in business to beat the competition. Learn your competitors' best practices and learn from their mistakes.

Develop a unique selling proposition. Once you know your target customer, figure out a unique value that you can deliver better than anyone else. At least better than anyone within an hour drive. Create a means to clearly and convincingly demonstrate the concrete, tangible benefit or result your clients will get when they decide you are their builder. Home buyers will pay you in relation to value, not in relation to the time or cost you invested to deliver that result or benefit.

Take advantage of recent trends. Pick the trends that fit your selling proposition. There are plenty of builders moving into ‘Green Building’, 50+ housing, and flexible housing to name a few.

Green building is still be defined, but is based on being planet friendly regarding materials and energy use.
50+ housing, as amply named, is based on designing a house to suit the needs of people over 50. If your target customer is over 50, then it goes without saying that your homes better include certain features like hand rails, ramps, and be on one level.
Flexible housing is advantageous for those who want the flexibility of turning a work out room into a bedroom once children join the family, then into an office once the children are off to college, and then back into a spare bedroom once the in-laws come to visit. If you can communicate the flexibility of a house to potential clients, they will see the value for themselves as well as being able to resell the house to fit someone else’s needs.

How will technology fit into your vision? Think about what technology are home owners demanding now, as well as, in the future. It’s a safe bet that home buyers who can afford a home theater will want one. Also think about how you want technology to help you become more efficient. Would you like to automate your sales process, scheduling, or material ordering? I’ve written plenty about technology for builders in the past, so I’ll leave it at that.

Hopefully I’ve given you some ideas to think about when creating your vision. Remember, set aside at least an hour to create your vision and write it down. Next week, we are going to transform that vision into an action plan.

No. 10 – Why are you a builder?

March 18 2008

Quick joke: Jerry, a door to door salesman rings the bell. Little 10 years old Johnny opens the door. Jerry looks down to see a big fat cigar pinched between Johnny’s teeth. Surprised, Jerry asks “Is your Mother home?” Johnny blows smoke at Jerry and smoothly replies with a grin, “What do you think?”

The answer to some questions is not always as obvious as it is in the proceeding joke. This is a tough time to be a builder. This is the longest downturn most of you have ever experienced. For many of you, it’s the first down turn you’ve experienced. We need to ask the obvious question. Why are you a builder?

If you were marginally successful 2 years ago when business was booming, then chances are you are really struggling during these lean years. It may be time to pick another means to earn a dollar. Being a builder is tough. Most builders work long hours, carry significant risk, and are always fighting daily fires. There’s no shame in moving to an easier and more profitable venture.

Don’t be like my friend Glenn. As mortgages dried up during this slowdown, he saw his business declining. He was smart enough to move on to something else, unfortunately he moved into home appraisals, which obviously is experiencing the same downturn.

It may be time to eliminate the risk of owning the business and work for someone else. Hopefully you are skilled and have connections to get on somebody else’s payroll. There are minimal barriers to exiting now and re-entering later as a builder when the housing market picks back up.

Do you love being a builder? You’re going to devote a lot of time and energy to running your business and building it into a successful enterprise, so it’s important that you really enjoy what you do. Let’s take it a step further. Do you love being a builder, or do you love running your own business? Are the negatives of running your own construction business greater than your passion to be the owner? If you like running a business, then you could pick an easier industry. If the construction process is what you like, then you could work for someone else.

How about your family? Are you able to balance the commitments of your business and your family? Being a builder means long hours, weekends, and the pressure to earn a profit. Having a family means long hours, weekends and the pressure to earn a profit. Its ironic how both have the same demands and can be tough to balance. There needs to be both self gratification and financial rewards, for you and your family.

My point is simple. The first step is a gut check to see if you have what it takes to be a builder. You are either staying in the building business and need to plan for the long haul, or you are out and need to consider an exit strategy.

If you are still crazy enough and have the passion to be a builder, then over the next 9 weeks we are going to take steps to improve your business. Next week starts with your unique strategy.

Improve People Performance

March 11 2008

Everyone wants to improve how much they accomplish in a given day or week. Managers and business owners try to improve the performance of their staff. You need to understand human nature before you try to improve yourself or others.

Stay with me for a bit to understand how human nature relates to business. Here are some examples of human nature:

Most people do not like change, its human nature.
Some people do not like to make decisions, its human nature.
Some people work better on their own, while others work better in teams, again its human nature.

You can NOT change human nature. You need to learn to how to adapt and to expand the comfort zone of human nature. It is far easier to work within the laws of human nature than it is to impose your will. Are you struggling to make a change? Do you think human nature is playing a role in the success of your implementation? Think about the following examples that may be appropriate for your situation.

Let’s say you want to try something different, like a new automated tool. Experimenting with people who oppose change will doom the results independent of the tool. Let the daring and sporadic person try the new tool, and then if it works, roll it out to the others.
If you have a husband and wife team as your clients, do not force them both to make decisions. Let human nature run it’s course and the decision maker will become apparent.
Do not try to get people who prefer to work alone to be part of a team. Thrusting individuals into a team usually leads to disaster. People who like to work alone thrive on independence and ability to control their finished product. Do any of your electricians, faux painters, estimators, or high end tradesman come to mind? If you do need independents to work together, then start by asking them to work in conjunction with others, yet all being able to do their own work. Slowly add group tasks where the outcome is greater than the sum of individuals.
Similarly, do not divide up those that like to work in a team as their productivity will plummet. Many people set their work pace based on others around them. Inserting a fast worker into a team will pick up the pace for all. Many team workers do not like to make decisions, they prefer to do the work and let others do the thinking. Hence, insure you have a leader on each team. Caution, two leaders can be trouble.

Human nature also explains why most builders are reluctant to use technology in the office. It’s no secret that home builders as a whole are behind in using technology to run their businesses. Technology is not in the comfort zone of the traditional home builder who relies on his hands to do the work and drives a pickup truck from site to site for status updates. Younger builders and new builders who come from outside the building trades are more familiar with computers and home building software. These builders are taking advantage of remodeling software, online scheduling, home buyers documenting selections online and automating construction change orders to be more efficient and productive.

My point is to think about human nature when you are trying to implement changes to increase productivity. For you, it may be time to push your comfort zone into the world of technology.

Stop Giving Away Your Profits

March 4 2008

I was asked to review a mailer last week by one of our clients, Brad M., which started with the heading ‘Price Reduced’. Brad has been a friend as long as he’s been a client so there are two things I know for sure about him. First, he’s a builder who likes to make money. Second, you really need to tell him bluntly to get his attention as he’s pretty stuck in his way of thinking.

I blurted out to change the heading to ‘Prices Going Up’ knowing this would catch him off guard. After he realized I was serious, I asked him “Why aren’t you selling more homes?” It’s a simple question many of you should be asking yourself.

Lowering the price of your spec homes or building services more often than not only reduces your profits. “Price Reduced’ is a marketing ploy used to increase the short term sales of commodity items like ball point pens at an office store. You aren’t selling a commodity as an impulse item. Custom homes are unique products that should be marketed and sold as such.

Many home buyers are not buying new upscale homes right now because either 1) they can not sell the home they currently live in, or because 2) they can’t get loan approval. Neither of these reasons can be resolved by the builder reducing price. Suffice to say,

Brad didn’t use ‘Prices Going Up’ as his mailer header to incentivize his prospects to act now before the prices increase. Nor did he use ‘Price Reduced’. Fortunately, we did discuss plenty of other ways for him to sell the two specs he’s been sitting on for over two years.

Ask yourself, ‘What can we do to increase sales given the market condition?” Here are some thoughts to get you started:

Are you marketing effectively to your target audience to bring in new prospects?
Do you have a successful sales process that converts prospects into customers?
Are you clearly communicating the benefits of being your customer?

To summarize, stop giving away your profits by lowering prices!

Can You Set and Keep an Appointment?

February 26 2008

Can you set an appointment in advance and be there on time?

Yes – Great, look for next week’s Builder Business Tip; you don’t need this lecture.
No – You have a problem that needs to be resolved. I talk to builders everyday, most of it is scheduled in advance.

I cringe every time I hear “Give me a call in the morning and I’ll check when I have time.” Another sure clear clue of trouble is when I hear “I’m not sure when I’ll have time, I’ll give you a call.” These are coming from builders who truly want to meet, not just excuses being given to a used tool salesman.

If you’ve said something along these lines to someone you really wanted to talk to, then you better evaluate your future. If your time management is that bad, then you may be better off working for somebody else. It is understandable that as a builder, you are very busy and that occasionally you will be late or miss a meeting. It is quite another to be so bad that you can’t even schedule a meeting in advance.

Let’s look at some of the causes:

There is an old phrase ‘work on your business, not in your business’. Simply stated, if you are running a business, then you should be planning and managing, both of which can be scheduled. If you are doing all the work and unable to set and keep appointments, then maybe you are just working independently. Ask yourself “why am I doing this alone?” Make sure you are doing it for the right reasons. Working for someone else can relieve the headaches and uncertainties of running a business. This is the case of a story I wrote several months ago about Mary the pie shop owner who worked 7 days a week making pies for little profit. She was happier, had more free time, and made more money working for someone else.

If you have so many ‘fires to put out’ on a daily basis that you are afraid to set an appointment, then you have way too many problems. You may want to evaluate those doing the subpar work. You may need better processes. Eliminate the cause of the problems, not slap band-aides on them as you go. I can't imagine the number of construction change orders that result from poor workmanship.

If you don’t know what’s in store for tomorrow or the next day, then you are being reactive and not proactive. This type of person stays busy doing the last thing requested of them. Suffice to say, the last thing is probably not the most important thing. Don’t be one of those people who are busy getting busy; focus your attention on tasks that make progress. You better get some type of custom home building software or remodeling software that helps you organize your tasks.

My point is not to degrade those who struggle to manage their time. My point is to evaluate why you are struggling with time management and try to fix it.

Note: Refer to my Jan 22, 2008 Builder Biz Tip on ‘Time Management’ to learn more on how to improve.

Lessons about 'Hustlers' & 'Statues'

February 19 2008

Are you a Hustler or a Statue?

Both types of home builders were at the International Builders Show (IBS), but only one of them will be successful.

I attended IBS last week which was a great opportunity to talk to dozens of builders from across the country. Given the slow housing market, it was very interesting to observe the different strategies. There were a handful of fortunate builders who were as busy as ever because of their market or niche. However, most builders were affected by the slowed housing market and fell into one of two camps.

Statues- These builders are motionless, standing around doing nothing to improve. Their plan is to wait until the housing industry gets busy again.

Hustlers- These builders are busy taking the available time to fine tune their business. Their plan is to improve now while they have time, so they are even better when the housing industry picks up.

It was pretty easy to know which camp a builder belonged. When they state “Why should I update my website, nobody is knocking on my door anyway?” it’s pretty clear they are ‘Statues’. 'Hustlers' at IBS were taking classes, looking at the next eye catching feature they could build into a home, and roaming the aisles evaluating software and asking questions to improve their processes.

Let me tell you a true story about a friend of mine. Andy M. quit his job at a prestigious investment firm when the stock market was heading south a few years ago. He’s not the sharpest tool in the shed when it comes to investing, so we thought he was crazy. He started his own investment service at the markets worst time. But, he had a plan. No one was investing money, so the investment companies became ‘Statues’. He hustled to contact as many potential investors as he could. Nobody else was calling, so numerous clients switched to his service. Jumping ahead a couple years when the market bounced back, he is now the rich guy driving his new convertible to his new estate. Andy M. was smart enough to be a ‘Hustler’ while his competitors were being ‘Statues’.

The same story can be told about builders today. Are you a ‘Hustler’ or ‘Statue’?

‘Hustlers’ are being proactive right now doing some of the following:

Implementing home building software and remodeling software that can streamline management functions like estimating, customer relations, selection documentation, online scheduling, customer communication, automated change orders and other integrated solutions.
Updating marketing methods like websites, news letters, brochures, email campaigns, and search engine optimization.
Evaluating new building techniques like green building, which can also compliment marketing efforts.
Improving human skill sets by attending classes and seminars.

Just like your high school coach, I encourage you to be a ‘Hustler’!

Documenting Construction Change Orders

February 12 2008

Why is it so hard for home builders to document change orders? It’s obviously a problem for many of you. ‘Change orders’ was Googled 10,572 times in the last 30 days. ‘Construction change order’ was Googled another 2,027 times. That tells me pretty clearly that home builders are looking for help with change orders; so I’ll address it.

Change orders have a negative connotation. They are costly to both builders and home buyers, as well as, they typically slow down the construction schedule. Home buyers cringe when they hear the term ‘change order’. Therefore, only use the term ‘change order’ when something is being changed that both parties already confirmed. Do not confuse home buyer decisions that are made during the construction process with change orders. Home buyer selections should never be termed a change order. If Mr. Home Buyer confirms red brick, that’s a selection. If Mrs. Home Buyer then changes it to brown brick, then that is a change order. Decisions made during construction can better be phrased as selections, options, enhancements, or upgrades.

The best way to handle change orders is to eliminate as many of them as possible. Bad decisions lead to change orders. Make sure you are educating your home buyers prior to making decisions so they make the right decision the first time. Implementing a process that helps home buyer’s make decisions benefits both of you.

Some change orders are inevitable on any project, so here’s a simple change order process that works every time:

Builder or home buyer initiates a change order request.
Builder provides a cost for the change, time consideration, and any pertinent details.
Home buyer approves or cancels the change order.

Those three steps may seem overly simple, but in truth, it should be that simple. You can include more details in those steps to meet your needs, like adding change order fees, interest fees, profit margins, and decision deadlines. Documenting a change is the critical step. Implementing and accounting for it become easier once it’s documented. Most home building software and remodeling software offer an automated change order system, such as SelectionWare, Buildtopia, Sage Master Builder and Timberline.

There is no excuse for not documenting change orders, whether made in the field or office. The five minutes saved in the field by not documenting a change order has an avalanche effect. Implementing the change becomes harder as little is communicated, accounting becomes a nightmare as invoices don’t match existing paperwork, and collecting from the home buyer becomes a "he said-she said" battle. Five minutes of documentation and an approval system can save hours of headaches and lawsuits.

I recommend the following to solve the change order epidemic:

Implement a change order system, whether automated or on paper.
Be disciplined to document every change order.
If you are too busy to document a change order, then see step 2.

Magic change orders fairies do not exist, implement a system that fits your company!

Sell More by Being Different?

January 29 2008

Why would a prospect buy a home from you? Unless you are the only builder in town, home buyers have options and you are just one of many. Choosing to buy from you will come down to why you are different from other builders. Put yourself in your buyer’s position. Think about the criteria your targeted home buyers use to choose a builder. Figure out why they should choose your company, and then communicate that message to your prospects.

First, trying to market to everybody is appealing to nobody. A critical step in any decision process is reducing the options to those that specifically meet your criteria. If I was hiring a superintendent, then I’d look at resumes with the objective of being a superintendent. I’d pass right by every resume that broadly stated their objective as wanting to work in the building industry. The same scenario applies to prospective buyers. If a prospective buyer wants to design-build a French country home, then they are going to evaluate builders who differentiate themselves by being design-builders and/or those that specialize in French country. They will pass right by the builder who claims he can build anything.

Second, differentiate your business by what you build and how you operate, not by price. Comparing one home to the next is hard to do, comparing one builder to the next builder is virtually impossible. Your prospective home buyers are going to make their decisions on which home and builder fits their needs the best. Be ready to show proof that your construction change order and selection processes are well documented. If you use home building software or remodeling software like SelectionWare, Buildtopia, Sage Master Builder or Timberline, then point out how it benefits them. Stay away from differentiating yourself by lowering your price. Lowering your fee comes straight off your earning potential and it is something the prospect can’t even equally compare. Pricing strategy fits into your sales and marketing plan when attracting prospects, not in differentiating yourself once you are amongst the final candidates.

Third, home buyers that choose you because of your differentiation will be better customers. If they choose you for the right reasons, then you will have a better builder/home buyer experience. If they select you for the wrong reasons, then your business practices will conflict with their needs and inevitably your problem solving time will increase and profits will decrease.

Finally, make sure you are ready to answer the question of why you are different. Make sure everybody in your company can correctly answer what makes you different with a prepared 30 second answer. Take the time to carefully phrase your answer.

Time Management for Home Builders

January 22 2008

Everything comes down to time and money. Given more time, you could make more money. Hence time management is your most valuable resource and it is the one you can never get back. You can not but more time. Every industry that I’ve experienced thinks they are the busiest people on the planet. This scenario is extremely accurate for home builders, whose time is the biggest asset and demands on time are endless. Think about the amount of time you spend on construction scheduling. Most builders think they don’t have time to document change orders.

Successful people know how to use the time they are given. Thankfully, we are all given the exact same amount of time. Here is a way to evaluate your time and become more efficient.

First, record and evaluate where your time is spent.

Write down absolutely everything you do for 1 day. Record exactly what you did and how many minutes you spent doing it.
Evaluate whether the time was productive or nonproductive.
If your days vary, then document 3 or 4 days, even a full work week.

You are the one judging whether your time was productive or nonproductive. Driving time is definitely non-productive. Phone calls are generally non-productive. A second phone call on a topic is definitely non-productive. Discussing your client’s new pet tricks for 10 minutes is non-productive; there are better ways to build good will. A client meeting for 45 minutes is productive if decisions were made and documented. Documenting a construction change order is productive. Evaluating home building software or home remodeling software is productive. If uncertain, then ask your self “What was accomplished?” and “Was it worth the amount of time spent?”

Once you know where time is spent and whether it is productive or not, you can start being more efficient with your time.

Second, take these 8 steps to become more time efficient.

Eliminate non-productive time. Take it out of your routine as much as possible. Try to eliminate trips to job sites. Eliminate chit-chat phone calls.
Evaluate what you should be doing and allocate time accordingly. For example, you may decide to spend 12 hours a week on marketing, 8 hours on estimating, etc. You can break it down into hours a day like 1 hr managing others, 1 hr on phone calls and emails, etc.
Prioritize the most important things you need to accomplish and put them first on your to-do list. Completing two important tasks is better than 10 non-important tasks.
Determine the time of day that you are the most productive and then schedule important and difficult tasks accordingly. Schedule mundane tasks to be done during your less productive time.
Delegate all tasks to others that can be delegated. Others may even be able to do some of your tasks better and more efficient.
Create repeatable processes for tasks that you do on a routine basis. Doing payroll every two weeks is fast and easy once a repeated process is in place where you follow the same three steps every time.
Multitask when able. Return phone calls while in line at the drive through. Answer emails while on-hold for a phone call.
Last, but not least, implementing home building software can save you hours every day. Several options exist to save time communicating with home buyers and vendors, documenting construction change orders, organizing home buyer selections and options, and doing overall project management.

Repeat the process of recording your day and improving time management at least every quarter. It’s too easy to fill your day with busy work when you should be focusing on important activities.

SWOT Analysis for your Business Strategy

January 15 2008

Given the down turn in the market and uncertainty of how long it will last, many builders are second guessing their strategy. A SWOT analysis is commonly used to begin the strategy process. SWOT is an acronym for Strength, Weakness, Opportunities, and Threats.

Take the time to do a SWOT analysis if you plan on making major long term decisions. Your SWOT results will help you make the right decisions.

Start with an internal examination of your business, reviewing your own strengths and weaknesses. This is where you evaluate the attributes within your business.

Strengths: List the things you do very well. List if you are great at marketing or working with people. List if you have a great sales team, great trade partners, or keep meticulous records.
Weaknesses: List the things that you do poorly. Be honest, otherwise you will never improve. List if your construction schedules are always being pushed back or if your selection process needs better documentation.

Next, review your external environment to evaluate available opportunities and harmful threats.

Opportunities: List anything that can be helpful to your business. List new revenue streams similar to your primary focus like residential builders could do remodeling and commercial build-outs. Look for business opportunities like partnering with developers and realtors, or participating in collective marketing programs.
Threats: List the sources that can be harmful to your business. New competitors, a down market, over exposure of too many specs, and limited cash flow are a handful of examples.

Once you understand your SWOTs, then it’s time to think strategically. Evaluate which strengths you want to build upon to help maximize your business. You may choose not to alter other strengths as more efforts will not lead to significant gains. Evaluate which strengths align with the opportunities available. Similarly, evaluate your weakness to determine which ones need attention. Fix the weaknesses that you identify as being critical. De-emphasize the weaknesses that are difficult to eliminate.

Look at your strengths and weaknesses collectively and apply them to the opportunities available. If your strengths are having a well documented building process and great sub-contractors, but your weakness is marketing, then look for opportunities where others are doing the marketing and sales and you are managing the construction scheduling process.

Every situation has multiple strategies. For example, here’s an abbreviated scenario:

Strengths: working with customers, designing plans.
Weaknesses: little building experience, poor trade partnership network.

One strategy might be to hire skilled employees with building expertise that are well connected to preferred vendors. Another strategy might be developing a partnership with a general contracting company to do the actual construction once you finish the design. Further analysis will determine which strategy is best. Hiring skilled employees works if the ‘skilled workers available’ is an opportunity and ‘cash flow’ is not a weakness. Partnering with another general contractor works if you’ve also listed ‘plenty of prospects’.

Create strategies that insulate you from the threats. If ‘increased competition’ is a threat, then you could use your marketing strength to increase demand as a strategy.

Doing a thorough SWOT analysis will result in a better strategy!

Business Checklist for 2008

January 8 2008

Last week’s tip was on setting measurable goals for 2008. This week we are going to take it a step further to also make a 2008 checklist. The beginning of the year is a great time to make a list of everything you want to accomplish.

Let me tell you about Mike, a friend of mine who is a custom home builder. Mike wants to step back and let his son Junior start running more of the business. The problem is that Mike has been saying this since Junior finished school. Mike is not ready to step back because he doesn’t have his company organized enough to pass the torch. Yet, as the years go by, nothing changes. The books are sloppy and every job is run like it’s the first one they ever did.

Now is the time to start accomplishing the things you know that need to be done. Start by making a list of the things you want to change and improve. Place a number by each one, write down what needs to be done, who is responsible, and a due date. Post your list where it can be viewed by everyone and review it on a periodic basis. Give yourself realistic due dates so you have time to accomplish all of them.

Start with an overall evaluation of your business to determine what belongs on your list. Evaluate what you do right and wrong.

Add items to your list that further enhance the things that saved time and made money.
Add items to your list to eliminate problems that cost you productivity and money.

Next, add book keeping items to your list as you are preparing tax returns. Examples include:

Insure your active subcontractor’s insurance policies are current. It is far easier to request these in bulk and document the information than it is to backtrack after a problem occurs.
Insure your trade partner’s SSN’s and EIN’s are correct before creating tax forms like 1099s.
Make back ups of valuable information. If possible, copy records to a disk and store in a safe deposit box.
Clean up accounting records and accounts. If you are still using your glove compartment, then it’s time to invest into a simple accounting package.

Next, review your marketing efforts to look for improvement tasks. Examples include:

Update your website with current pictures, models, contact information, etc.
Evaluate your brochures. Do you like the one you have? Do they compliment your website? Do they show why you are different from other builders?
Update references contact information and rekindle key relationships.
Be creative; create one or two new ways to stand above the rest so prospects contact you.

Review your documentation to insure efficiency. A few questions to ask yourself:

Is this the year to create standard documents like contracts and material specs?
Would creating standard scopes of work increase efficiency and eliminate confusion?
Have you created and documented a standard construction schedule? Is it a useful resource that all employees can use on every house as an easy to follow guide? Get the details out of your head and listed so you and your staff can plan accordingly.
Are there ways to eliminate paperwork?

Create a list of all the other things you should be doing. For example:

Do you have a scheduled maintenance program for your equipment and tools?
What classes are you and your staff attending this year to continue education?

Create a list you want to accomplish and get them checked off!

Setting Busines Goals for 2008

January 1 2008

Building homes is fun, running a home building business is work. One of the best ways to improve your business is to set goals. Take the time now before things get too busy to review 2007 to create goals for 2008.

Here’s a quick story. Mary owned a pie shop. She worked 7 days a week and sold a lot of pies. At the end of the year her accountant asked if her business met its goals. She responded that they were very busy and worked a lot of hours. I’ll stop the story at that point. Was the pie shop earning a 15% profit? Was she more efficient at making pies compared to last year? Had she hired any key employees that could improve the business?

Unfortunately, too many home builders get caught up in a similar fate as Mary’s pie shop. They become reactive and caught up in fighting fires or only calling a prospective buyer after the prospect called. Successful builders are proactive; they set a plan and stick to it while minimizing the fire fighting distracters.

Take the time now to set up a continuing improvement process based on goals.

Step 1. Set goals that are attainable, yet push for improvement.
Step 2. Measure and display performance relative to goals.
Step 3. Implement improvement actions to meet goals.

The benefits of setting goals are three fold. First, taking the time to set goals forces you to think about what is really important. It is far more important for Mary’s pie shop to earn a 15% profit than to be busy 7 days a week. Second, measuring and displaying results creates a forum of knowledge. Third and most important, the improvement actions created to meet the goals improve company performance. Rewards for meeting goals are a whole separate topic.

Evaluate your business to determine which attributes are the most beneficial and set goals accordingly.

For most business, goals start with money, such as:

Profit per home.
Profit margin (%) per home.
Houses sold or closings per year.
Upgrade revenue.
Variance to budgets or estimates.

Many goals are based on time, such as:

Days from 1^st meeting with home buying prospect until contract signed.
Days from 1^st meeting with home buying prospect until breaking ground.
Days from breaking ground until closing.
Days from walk-thru punch list created until completed.
Hours worked per week. Have your spouse track this one as you’ll likely cheat!

Think about your business cycle to set goals, such as:

How many prospects visit your website per month.
How many prospects called or emailed you.
How many prospects toured your model.
How many detailed proposals did you make.
How many new signed contracts.

Some goals are broader is scope, such as:

Set a number for hiring and training new key employees.
Customer satisfaction evaluations.
Implementing new procedures or systems.
Implementing new software.
Setting a date to have website fully functional.

The key to setting good goals is making sure they are measurable and results based. For example, a goal of contacting 30 prospects per month is measurable, but not results based. That’s a task, which is not related to value added results. Contacting 15 prospects that come in for an onsite meeting or tour the model is both measurable and results based.

Measure your results on a periodic basis. If your goal is annual, review it at least monthly. If your goal is monthly, then review it weekly. Post your results were those contributing to the goal can review them and respond accordingly.

Once results are measured and reviewed, improvement proposals can be discussed and the best ones implemented. Some improvement actions may have a positive impact, while others simply don’t work. The incremental improvements over time will continue to shape your business. Continue to learn from prior practices and improve.

In 2009, I’m going to ask you to re-evaluate your goals. Set the bar higher for those you met easily, update some 2008 goals, and create new goals as your strategy evolves.

Is Communication Important for Builders?

December 25 2007

The #2 reason a prospect engages you to build their home is they trust you and think that you will communicate well with each other. Most of a builder’s time is organizing what a home buyer wants and communicating it to trade partners. One of the most frequent questions I get asked is how to improve communication of schedules, specs, selections, and change orders.

Given the importance a home buyer places on communication and the impending success rate with trade partners, it should be abundantly clear that great communication is vital to every builder.

Unfortunately, too many home builders are poor communicators. Cell phones are quick and easy for builders, but they are terrible communicators. Many builder’s also compound their own problems by getting in the habit of expecting others to repeatedly call them. Granted, builders receive too many sales calls. It is far better to answer the phone or return a call, and tell them whether or not you are interested; as opposed to perpetuating the game of having them repeatedly call, which is a waste of time for both of you.

Communication is about receiving the message, not sending!

The reason you are communicating is so the other party knows what you want them to know. It only makes sense then, that if you want them to comprehend your message, that you should send it in a way that they best receive it. Cell phones are an easy way for you to send a message, but a terrible way for the receiving person to comprehend or document the details usually accompanying phone calls about construction. Placing a sticky note on your assistant’s chair may make you think you communicated, but if they best receive messages verbally, then that sticky note is not worth the paper it’s written on.

Send messages tailored to meet the receiving party’s preferred method. Ask your home buyer’s if they prefer email, fax, phone calls, or summary written reports. Ask your assistant if they prefer written notes, verbal instructions, voice mail, email, etc.

Think about how you best recall information and implement that method for yourself. Back in college, I learned the best way for me to remember information for a test was to write it down. It wasn’t the note that helped me remember, it was the action of thinking about the topic in enough detail to write it down that enabled my brain to remember it. Therefore, I hand write notes while talking on the phone to clients to insure that I understand their needs, even though I may never look at the paper again.

Today, there are many more ways to communicate than just 10 years ago. Thinks about how you are communicating given the transition from fax machines to email, from meetings to voice mail, from cell phones to text messaging. Learn how the receiving party prefers to accept your message and use that method.

Successful people know how to communicate, that includes successful builders.