Business is good in 2021. Modular home factories are working at near capacity, builders are signing lots of contracts and in most parts of the US, Winter never saw its traditional slowdown in production or contracts being signed.
In the midst of all this positive energy, a lot of mistakes and problems arise that could be easily overlooked with all that cash coming in.
However if a modular home builder is unaware of these big mistakes, all the good things that are happening 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. No Purchase Order system in place. No Purchase Order system means no agreement of trade cost or specific house information in advance. Not having one in place usually leads to work either not being completed in a timely manner or some portion of the work not being completed at all. Don’t blame the Subcontractor, blame yourself.
2. 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 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. Today, more than ever, 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.
3. 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 halfway 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.
4. Beating up your subs to rebid and cut costs. What part of the job don’t you want to be 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. Remember, "the cheap always becomes expensive."
5. Keeping a trade on too long. Familiarity doesn’t breed contempt in the building industry, it breeds a lackadaisical attitude by both sides of the builder/trade relationship. Bid every job even with your established subs and trades. This is not disrespectful, it’s simply good business. If one of your subs objects to bidding on each job, this could be an indication that they are making more than a fair profit off your jobs and are afraid a new sub’s bid will expose it. Food for thought.
6. 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.
7. Forgetting who owns your business. 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. These policies are not only for your employees, they must be followed by your subcontractors, especially OSHA and COVID-19 safety procedures.
8. 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 always be another housing downturn, especially today with the rapid rise in LBM costs and the unprecedented demand for new housing. The time to write them is not when you're heading to the bomb shelter. 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.
9. 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 people in the loop or your business will be in the poop."
10, Rethinking how to price your homes. Who could ever have predicted how COVID-19 would change the modular housing industry? Instead of it having a chilling effect and a brief period of slowdown, the demand for housing is skyrocketing. Modular home builders are receiving regular notices of rising costs from their factories. LBM is a huge part of those dreaded surcharge notices while at the same time transportation costs and the shortage of labor at both the factory level and at your company is making a legitimate profit harder than ever. Direct construction costs, not profits, are now the wild-card variables in the pricing formula.
11. You have got to keep your homebuyers in the loop. From the time you sign a contract to build someone's new home, you immediately become the bearer of bad news to your client. Telling them every couple of weeks their home is going to cost another $2,000 is one of the worst calls you'll make, especially if your factory can't schedule the home on their production line for 4 months and you know costs are going to continue to go up sharply. There is no easy way to break that kind of news but you need to do it. Become transparent and show them what is happening to the price of their home and most importantly, why.
12. 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. COVID-19 and its aftermath have done nothing to help those situations. In fact, having a flexible schedule is almost becoming a "standard operating procedure" today.
13. 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.