“We need some more holes in the ground!”
I remember hearing my father say that often. Early on, I didn’t really understand why. I mean – our Sales Reports were great, and we had a ton of work in front of us. And in that crazy market of the late 90’s to early 2,000’s, I was happy to think about a lull in work (just to catch my breath and relax a bit).
If you’re new to the homebuilding industry, you may have heard similar phrases. If not talk about “more holes in the ground,” you may have heard someone telling you that your Company needs some more Job Starts (which is the same thing – just a little more formal set of words).
Chances are, you may have also wondered what the big deal was about getting more started as soon as possible. There may be plenty of jobs already underway – and – you may think that starting more homes just means your Company has to lay out more money to get those homes built.
While that may be true, the thing I didn’t understand (and that you may not either) is that Job Starts actually bring money into the business, too – and – Home Builders need money to continue operating.
I’ll explain below – but first – a quick analogy to help you understand a bit more.
Brad’s Non-Technical Explanation
As the title of this post suggests, Job Starts really are “the gasoline” of homebuilding.
When you go to drive your car (assuming you’re not on an all-electric car, of course), you need to put gas in to make the car go.
As you drive that car, the gasoline is being used up. That little gauge on your dashboard tells you just how far you have to go before that gas runs out.
And – as you get lower – you start thinking about where the nearest gas station is. You need to be preparing to have more gas to continue moving.
If you were like me in those early years, you’d say – “What’s the big deal? There are gas stations ahead. I’ll just refill sometime in the future.”
That sounds ok – until you find out the gas stations are closed when you hit empty.
You’re always better off making sure the gas is continuously being filled – instead of waiting until it’s too late.
See why Job Starts are important?
I hope that gas station analogy makes some sense.
Home Building is a “cash heavy” industry. Cash is needed to keep the business moving forward. And cash comes from either the customer or a Lender who is financing until the end of construction.
A Home Builder is paid in draws from the customer (or a Lender) as construction progresses – or – at the very end when construction is complete.
And, as each phase of construction continues, costs continue to be incurred.
Since any profit isn’t really recognized until the end of construction (after those costs stop and the final payment clears all costs), money is needed to pay the Trade Partners and Suppliers.
In addition, overhead costs (salaries, rent, utilities, etc.) still need to be paid, too. If all goes well, enough work is there to absorb both job costs and overhead are covered.
But that only works if there is enough work happening. If job starts slow down (or stop), so does the cash. And that’s not a good position to be in for a Home Builder.
So, if you’re early on in your career, pay attention to the Job Starts at your Company. By doing this, Management will be sure to recognize that you are understanding the business from their point-of-view. And that’s a great person to hold on to (and promote).
Happy Building!
