Modular housing is having a good run right now and that tends to attract not only site builders wanting to build more houses in less time but also people that have never built a house before and are entering our industry from other fields like banking, IT, sales reps and even early retirees.
Many of them will fail. Not because they weren’t smart enough or didn’t work hard, rather from not following some simple guidelines that every startup business needs to know. Here are some basic rules for any business but is especially important for new modular home builders.
- Thinking you are profitable once money begins to flow in from bank draws. Money flowing in has to exceed all costs, including inventory, credit, and your salary, before there is a real profit. Many new builders see initial revenue from customers, and love the fast growth, but fail to anticipate the cost of early vendor payments, monthly overhead costs, and later taxes.
- Considering the job done once a client has been handed the keys to their new home. A new builder must be aware that they have to stand behind their home for at least a year to fix or repair problems. Some states require an even longer period of time for specific items. Not preparing for service calls after the sale by building a cash reserve into your selling price can be dangerous. This difference will kill your profit margin.
- Not paying close enough attention to cash flow. For new builders, cash is king. If you fail to pay a cash obligation when it is due, the business is technically insolvent. Insolvency is the primary reason firms go bankrupt, even while making a profit. Entrepreneurs should sign every check and manage cash personally, rather than delegate this task to anyone.
- Not producing and reviewing financial reports regularly. Too many new builders, and even veteran ones, hate the numbers side of the business, so they assume their accountants will warn them of danger signs. But accountants rarely see the big picture, which you need for profitability and survival. It’s well worthwhile to learn the basics and use financial reports.
- Not having a budget. A budget is the financial plan and road map to get you from your business plan to profitability. Without a road map, you can be lost and not know it. Make sure you have a budget which is specific, measurable, achievable, realistic, and timed (SMART). Prepare it, update it regularly, and use it.
- Not having a Marketing or Business plan. The time to complete the rough draft of both of these is before you even start your home building business. Be realistic and know that it will take twice as much money and three times longer than you anticipate to succeed.
- Wasting money unnecessarily. Every business ends up buying things they don’t need, or paying more than they should, due to lack of attention and lack of negotiation. Review supplier terms regularly, and don’t be afraid to shop around. Take advantage of early payment and volume discounts, where possible. Don’t stop looking at different modular home factories. It’s possible that the factory you area currently with may not be the best fit for you right now.
- Avoid self-sabotaging behavior that you may not even be aware of, like blaming others rather than taking responsibility for all decisions, or not charging what your homes are worth, due to lack of current market information or a personal bias.
These are just the basic rules of what you need to do if you are new to the modular housing industry. This is not rocket science stuff, just good old common sense and if you think you don’t need to follow these rules, I hear there are plenty of openings in the food service industry.