Making Money Starts With a Good Business Plan

A thriving business starts with a sound business plan, Tim Davis, a builder and author of “How to Make Money in the Home Building Business Without Losing Your Mind,” told convention-goers at the International Builders’ Show in Orlando.

“A good business plan will transform your banking relationships, attract investors and kick your business into high gear,” said Davis.

When crafting a business plan, Davis said that more does not necessarily mean better.

A five-page plan should define who you are; your product, market niche and target market(s); who is going to buy your product; how you are going to make money; and your cash flow projections and projected profits and losses.

To make bank dealings run more smoothly, Davis said that builders should create relationships with bankers, and not banks, and they should ask for what they want and not be intimidated by the process.

“Terms are negotiable with banks,” he said. “Go in with the attitude, ‘what can my business do to help this bank?’ You answer that question, and you sell the bank on your terms.”

Every builder has a brand, Davis said. “This is the image that first comes to the mind of the general public when they hear or read your company’s name.”

Everything Is Marketing
To generate a positive impression with the public, builders need to maintain a clean job site and an uncluttered office and ensure that subcontractors act in a professional manner.

“Everything is marketing,” said Davis.

To “keep your business going forever,” Davis encouraged builders to maintain a formal referral program.

“It’s not enough just to ask for a referral,” said Davis, who added that builders should advertise the program with their current as well as prospective customers.

Noting that written testimonials are one of the most powerful marketing tools a builder can have, Davis said that builders should interview their customers soon after a home purchase, transcribe their comments and have the buyer sign them.

“Often a customer will say they will be happy to write a testimonial. But the fact is, they get busy and rarely follow through. If you take the notes and send it back to them to read and sign, they will often be happy to oblige.”

When working with outside Realtors®, Davis said that both parties should establish written guidelines on what they each expect from the relationship, maintain frequent communication and answer two important questions in advance: What happens to the commission if the builder has to lower the price in order to get it sold and who gets the commission if the builder sells the house on his own?

The only reason for a builder to establish a Web site is “to make more money,” Davis said. When designing a site, Davis said that builders should avoid flash introductions, flash animation and fancy graphics. The site should be easy to navigate and omit links to other sites.

“If you link to another site, the chance of the customer coming back is one in 10,” he said. “If it’s hard to navigate the site, people will just click right out.”

When drawing up contracts, builders should always include the following six clauses:
1. Arbitration clause
2. Mold clause
3. Injury liability
4. Completion date
5. Completion of contract
6. Warranty (“This warranty is in lieu of all other warranties, express or implied, including, without limitation, warranties of merchantability, fitness or habitability, all of which are disclaimed by the seller and waived by the buyer.”)

To help manage change orders and options, Davis offered the following suggestions:
• Don’t offer low margin options and change orders
• Don’t accept every change order
• Sell only high-margin options
• Create a policy and procedure and stick by it

When working with subcontractors, builders should include the following clauses:
• Indemnity clause and additional insured clause to protect the builder from liability caused by the subcontractor and insure the builder through the subcontractor’s policy
• Acceptance of work by other trades clause that puts the responsibility on the subcontractor to make sure that previous work is adequate
• Warranty of work clause, which obligates the subcontractor to stand behind their work and provides the builder with legal recourse
• Site supervision clause that requires the subcontractor to provide an on-site crew manager for their personnel and relieves the builder’s superintendent from managing the subcontractor’s crew
• Subcontractor’s employee clause, which establishes that a subcontractor is an independent contractor and not an employee of the builder
• Scope of work clause, that clearly defines the subcontractor’s responsibilities

For more information, visit www.thebuilderscoach.com.