Do the Math: Pay attention to the finance side

It's important for custom builders to know where they stand financially.

July 01, 2008

From grade school through college, math classes were torture for me. To this day, I get sweaty palms when I have to do anything that involves arithmetic. But for one glorious term in junior high, I did well in algebra, and I owe it all to my teacher. Mr. Westerman had a gift for explaining the subject in a way that made it understandable even to mathematically challenged individuals such as yours truly. I actually looked forward to his class.

Not everyone who designs and builds custom homes for a living has a math phobia, but typically, financial matters aren't a priority. Custom builders are creative types who would rather pore over blueprints or get their hands dirty in the field than sit at a desk reviewing income statements and balance sheets. But by not paying enough attention to the finance side, they're setting themselves up for lower profits and grueling work schedules — if not outright failure.

Custom builder Stephen Hann, however, believes most builders have an intuitive sense of where they stand financially. "They might be setting up an accounting system or starting to work with a new accountant when they realize something just isn't right," says Hann. That's as good a place as any to start taking control of your finances.

Top-performing custom builders maintain adequate cash reserves, know their true costs and are always ready for the market to take a nose dive, especially during the good times. But I'll bet everyone who reads this magazine has heard horror stories about builders who were wrecked on the rocky shoals of financial ignorance because they had no cash on hand, over-speculated in land, took on too many projects or simply didn't keep track of their income and expenses.

As Mike Benshoof says in his book "Financial Management for the Non-Financial Manager," you owe it to yourself and your customers to run a tight ship. Benshoof's book is an excellent resource, along with Emma Shinn's "Accounting and Financial Management for Residential Construction." Custom builder Tom DiBenedetto recommends "The Richest Man in Babylon" by George S. Clason and "The E-Myth Contractor" by Michael E. Gerber. Join an NAHB Builder 20 Club or other peer group where you can soak up information about best practices. Take courses through your local HBA. Hire a consultant. Who knows? There could be a Mr. Westerman in your future.

Susan Bady, 630/288-8194



Room labels were omitted from the floor plan on page 14 of the May 2008 issue of Custom Builder. View the corrected plan at (search for "Minimalist Modern House Showcases Art and Architecture").

The incorrect image for the Marvin entry door was featured on page 68 of the March 2008 issue of Custom Builder. We regret the errors.

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