Original article by: BUILDER Online
This Shinn Consulting advisor identifies 4 factors for improved margin performance.
Vince Lombardi would have made a heckuva home builder.
The legendary pro football coach’s obsession with fundamentals – doing little things over and over again until they become habits of excellence – may be just the spirit required to prosper in today’s high-demand, low mortgage rate environment.
Just ask Jim Weigel, senior consultant for Colorado-based Shinn Consulting, one of the industry‘s foremost advisory firms. Weigel, a former home builder, offers Shinn clients expert counsel in management, marketing, operations, and finance, as well as quality and valuation issues.
“What I often tell people is so simple and basic, they find it tough to accept,” Weigel says. Perhaps they should. Weigel’s recommendations are focused on substantially lifting margins and improving the customer experience with “… less home builder frustration, anxiety, and 70-hour weeks.” What else does he advise? A few ideas to consider:
1. 12% (or Higher) Net Margins. “If a builder is at a 12 percent or higher net margin, that’s a healthy sign. If it’s anything less or they just don’t know, that’s a discouraging sign,” he says. “Unfortunately, profitability is a six to 12-month lagging indicator of how the business is doing.”
2. Slipping Schedules. Weigel says business health is also reflected in construction schedules and punch lists. Be wary if things slip with either one. It’s time for change.
3. Too Much Business! “This is one of the best markets we’ve seen in 13 or 14 years. The thing is many builders started out in the past five or 10 years. This is all new,” he says. That can put a business under amazing stress. “There’s no magic pill. There’s no quick-fix way to come in Monday and everything is better. What’s required is a willingness to carve out an hour or two each week to work on business fundamentals.”
4. The Promised Land. Weigel understands the compounding effects of labor shortages, supply chain breakdowns, impatient customers, and a worldwide pandemic can have on a builder. Many advise, including Weigel, that business management software that unifies the office, field crews, and vendors with a structured, single-source of the truth is the best way to quickly scale product information, product changes, vendor management, scheduling, finances, and customer information to meet rapid-growth conditions.
However, there’s a caveat.
“Management software is like a travel guide,” he says. “It’s a great roadmap to how business life can be better. It shows you how to generate fatter margins, better delivery performance, and quality.”
Weigel singles out MiTek Kova as a superb example of that road map. “Like any management software it requires an all-in commitment. My business partner in the 1990s believed there was no way to reach a six to eight percent net margin. Some today say the same thing about 12 percent. Kova can take you to 12 percent and beyond if the entire team fully commits to it.”
Few dispute 2021 could be a signature year for homebuilding. Take a tip from Coach Lombardi. Seize full advantage of the times by stressing the fundamentals and insights a software solution like MiTek Kova can provide.