The Self Taught MBA: A Conversation with Mike Benshoof, MD for the Ailing Buildercomments (3) May 22nd, 2012 in Blogs
The son of a homebuilder, Mike Benshoof first set foot on the jobsite at age 13. He swung a hammer through his early 20s, when he went to college. Mike then spent seven years at NVR, a national homebuilder, in production and sales management. Following, Mike pursued an MBA with a concentration in Finance and Economics and then became the Director of Business Analysis for the Economics Group at the National Association of Home Builders. During his time at NAHB, Mike authored several books. Today he is a frequent speaker at NAHB's International Builder Show and various local HBA's. He is the author of the best selling builder book,Â Financial Management for the Non-Financial Manager and the co-author of Business Planning, and theÂ SMA Sales Manual, a complete and definitive guide for new home sales representatives which is available by calling 407-447-5209.
An MBA with over 20 years experience in new home construction, financial and operational management, Mike brings us a perspective honed through his SMA Consulting firm, which has coached hundreds of builders on best industry practices. He also co-founded and is the President of Red Door Homes, a scattered site home building company.
Who are your clients at SMA Consulting, and why do they seek your services?
Mike Benshoof: Typically, our clients are homebuilders or remodelers in their mid 30s to early 50s who have been in business for many years. They call us when the pain becomes unbearable. The details vary with each client, but the basic problem is always the same: not enough money, too many hours of work. The business runs them, and it's not running in the direction they want to go. Â
How do you help this builder?
MB: I start by asking the builder where he or she stands financially today, both personally and businesswise, and then I ask, "Where do you want to be tomorrow?" For example, a builder calls when he realizes he's not going to be ready for retirement. Maybe he has $150,000 in cash savings, and a consultation with a retirement counselor revealed he will need at least $1,000,000 to retire comfortably. The builder knows he only has about a decade to make it, and yet by saving the $25,000 a year he's been putting aside, it will take him 34 years. It's my job to figure out what he can change in his business to make it happen within his time horizon, make a plan, and then help him achieve it. Typically, we stay involved one or two years until the builder's well on his way to achieving financial independence.
You described an impossible situation; in your example this fellow would have to quadruple his savings to retire. How can he achieve it?
MB: It's tough, but we can do several things, we can improve a builder's gross margin and lower his expenses, and most important, create a system in the process so that he can keep it going. But to achieve anything, we have to start by getting the builder onto true management accounting. Â This is different from tax accounting, it's the ability to measure all aspects of the business and know not only the year end gross and net profit, but what type of jobs make the builder money, what it takes to get those type jobs, and how many of those the builder needs to meet his goals. In other words, the first step is setting up a system to measure every aspect of the business and obtain useful management information from which we can make decisions.
There's a client of ours that's got a tree removal and roll off service, so we spent time setting up a set of books that parsed every revenue stream until he could clearly see where he made money, and where he didn't. Was it in cutting trees, grinding stumps, removing trees from the property or just dropping and pulling roll-offs?
We determined the number of trees he needed to remove to break even and then make a profit, we did the same with the roll-offs, and then set about finding the relationship between calls to the office, roll-offs pulled per day, and the number of tree removal bids required to turn 10% of those bids into a profitable workload. Every successful enterprise measures every aspect of the operation. You have to understand that numbers are not a scary thing. It's just the stuff you need know before you can make your business profitable.
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