When I took over my family’s design/build business in 1983, it was to fuel my passion for design. Still, every year that my father and grandfather’s business succeeds, I know it’s because I pay attention to my numbers.
Like me, most builders and remodelers I know would rather spend 100 percent of their time on our craft. We live for the creative and hands-on part of our work; for me, that is residential design. And we pretty much dread the budgeting, bill collecting, and payroll side of things.
Yet my priority every week is to review my numbers so I know exactly how we’re doing.
I think of my ongoing good fortune as a journey. What’s in front of my windshield is foggy; what I see in the rearview mirror is clear. So every week, I cut through that fog by analyzing what’s ahead of me. I review which jobs are in production and which are coming up; how much profit each one will earn me; and what expenses I will incur along the way. I calculate how much money I need to pay staff and buy materials. Plus, I calculate the amount of my family’s mortgage, my auto payment, my daughter’s college tuition, and the summer vacation my wife and I want to take.
By taking these steps, I don’t wake up at night in a cold sweat worrying if I have enough money. Instead, I monitor what I sell and what I spend. If it looks like revenue won’t cover expenses, I make it a priority to sell more. I do what I need to do to bring money into the company.
I know exactly what I need to do to keep my business running and when because I keep careful track of the money.
If you sell a job, do you know what it’s worth? Not just the sales price, but what your actual gross profit will be—and when it will come in?
If you’re operating under the assumption that the money will take care of itself, try approaching it another way. Don’t fall into the trap of thinking, “If I do great work, the money will be there.”
Instead, estimate your personal expenses for the next six months: mortgage, truck payment, groceries, car insurance, medical co-pays, vacations—everything. Then, do the same for company expenses: rent, newspaper ads, payroll.
Once you know how much you need to spend, you will know how much you need to sell. Say you sell a $300,000 spec home. Your gross profit might be around 15 percent, or just shy of $45,000. You estimate the job will take five months to complete. Do the math: You will earn about $9,000 per month, for the next five months, minus overhead expenses like insurance, tools, advertising, and salaries.
If you need to bring in $18,000 a month, you need to sell another spec house. If you need to bring in $90,000 a month, you need to sell nine more.
Numbers are reliable. They drive our success, at least as much as our creative talent and our skill with our hands do. They tell me exactly how we’re doing. Numbers aren’t my passion, but they are my priority. The numbers keep me in a business that allows me to exercise my passion for designing and building—and to support my family.
That’s nothing to leave in the fog.
If you would like to see an example of a spreadsheet or the metrics that I use to project my revenue requirements, email your request to email@example.com.
Jeb Breithaupt is a third-generation builder, designer, and remodeler, and the owner of JEB Design/Build in Shreveport, La.