How do some of you smaller, custom builders run your businesses? Without going into too much background, I’ve been building homes for a while, and am just about to start my own custom home project. I am planning to put a sign out front, and hoping that curious browsers will approach me about building their next home (come on, think back to when you were a young-buck superintendent for the local custom homebuilder – you wanted to go out and give it a whirl on your own, too).
My concern is about the business – specifically, how to run it. Say John Q. Customer approaches me, loves my work, and wants me to build the palace he and Mrs. Customer have been planning for years. Great! I’m on my way – but where? What do I do next? Let’s start with a few assumptions – and I’ll admit up front that I’ve made easy assumptions for the sake of argument. I realize it will rarely be this simple.
First, buyer has a set of plans that are basically complete (ha!) and buildable/permitable. Second, buyer can afford the house as drawn (ha ha!). Now, being a lowly superintendent who just happens to have enough connections to build his own house, I can’t really afford to carry Mr. and Mrs. Customer until closing. So, how do I build them a house? Do I have them take out the loan? If so, how do I get paid? Do I have to keep working my “day job” until closing, when I can collect the (hopefully) big payoff?
Basically, I need some guidance on how to go from a successful superintendent with a large custom homebuilder to a one-man show running my own company. Any personal experience, guidance or recommendations would be greatly appreciated.
Replies
Andy,
There are volumes written on this very subject, but to answer your question as directly and as simply as possible......
If you can not afford to finance (in its entirety) the projects that you take on with the money you have in your business account, then you should find a smaller project that you can afford. I am not saying you should finance the entire project for the client, I just want to emphasize that a project could put you out of business in one quick hurry if you don't have working capital. Also, find yourself a very good attorney and accountant who is well experienced in builders/contractors.
I am sure others will chime in with their opinions.
Glad to hear there are volumes on this subject, because I can't seem to find many. Most of what I've found has to do with setting up accounting procedures and insurance and tax strategies. That's all fine and dandy, but first, I need to know how to go about the business of building someone else's project - as opposed to my own project.
I agree 100% that it would be lovely to have enough money to cover the entire project already in my account. However, if I had that kind of money in my account, I'd probably be on a boat sipping scotch somewhere. My goal is to get that kind of money in my account - and I gotta start somewhere.
Don't get me wrong - I'm not arguing with you, and I appreciate your input. In fact, if you have some specific recommendations re: the "volumes on this subject," I'd be grateful if you could pass them along.
Thanks for your input.
Having been in business for over twenty years I can't give you any current how-to contracting business book titles but there are plenty of them out there. And you need to read them. The question that you are mainly concerned with is such a basic one that I can see that you have plenty to learn about the business. I think that you can do it, but before you make the leap make sure you have the knowledge.
To answer your specific question, no GC but a spec builder finances a custom home. This is the responsibility of the homeowner and their bank. The contract will spell out payment points based on the substantial completion of specific tasks. Commonly these would be completion of the foundation, completion of the frame, roof and windows completed, drywall hung and taped, cabinets installed, Siding completed, Interior finish, and final payment. You can negotiate any payment points that are acceptable to all the parties and can also include payments for deposits (such as cabinets) which may be required.
You will still need plenty of capital to pay your suppliers and subs promptly. At an absolute minimum you should have enough capital to pay all your bills for a month. If you are involved in a large house this will be a lot of cash, 50k-100k. You will need this much cash or a line of credit for this unless you can get the homeowner to provide this much up front.
Good luck working on your own. It can be a very rewarding challenge. It can also be a nightmare if you are unprepared or unsuited for it.
andy... i'd hang out here for a couple months... especially in the business section..
do you remember the " not quite ready for prime-time players " ?
it's great adventure.. but i sure wish i knew more going in than i did...Mike Smith Rhode Island : Design / Build / Repair / Restore
Andrew
One bit of advice that comes from the notorious Sonny Lykos....
"charge for estimates"!
If someone gives you a full set of plans to figure, that takes a whole lot of time.
Your time and your families time away from you......you'll get more respect from the customer if you charge for your time and knowledge spent.
edit: and no, they don't get the fee back if you get the job..cause you don't get the time you spent back!
Be well paid
andy
My life is my practice!
http://CLIFFORDRENOVATIONS.COM
Edited 12/27/2003 12:52:06 PM ET by Andy Clifford(Andybuildz)