Why Do Builders Go Broke?

The building industry has never faced so many challenges as it is right now. The issues around supply chains and rising costs are sending many builders broke.

As builders consider what to do next and how they move forward the real questions that remain to be answered are how do we prevent this from happening again and as a builder how do you bulletproof your business?

It’s not possible to control the external market forces that delivered the perfect storm we experienced in 2020 to 2022. Labour shortage, material price volatility, weather and interest rates all combined to deliver unprecedented circumstances which ultimately has led to many builders becoming insolvent. Being insolvent is a game-over scenario for a builder. You can’t just wake up on Monday and start again, it’s literally commercial game over. Very few builders recover to go on and lead successful building businesses once they have folded. Regardless of the reasons for the business collapse recovery is near impossible. Your license and insurance records will forever link this event and make re-building a commercially viable business downstream challenging near impossible, not to mention the consumers who avoid previously bankrupt builders like the plague.

 

Most builders don’t realize just how close they are to the edge of a career-ending implosion. Most builders don’t understand the impact of such an event until it is far too late. In this type of event the builder losses everything.

So, why do we see this continual cycle? Even when times are less challenging we have a continual cycle of builders going bankrupt. Why?

Is the problem arrogance, naiveness, lack of commercial understanding, commercial aptitude, training or industry-related? Well, it’s a combination of all these things.

We can’t control the industry issues, but we can improve our understanding and skill set on everything else. This is the first step to operating a profitable and sustainable building company.

I see this time and time again. Builders completely overestimate their understanding of fundamental business practices. Most builders I speak with advise that they have a high understanding of quoting, profits margins, fixed and floating overheads and marketing. Well, I can tell you if they did understand those things they would be managing a building companies in the top 5% of performers but sadly most are trading insolvently without even knowing. Then it sneaks up on them and one day they find themselves unable to trade on.

So how do you prevent yourself from becoming another builder closing the doors? How do you build a company that enables you to scale and achieve more profit than you would working for wages as a project manager?

The answer might surprise you, and it’s really simple.

If you interview every single successful builder you will find one thing common in everyone and that is they didn’t do it alone. They had partners and skilled people around them. Now, as an independent builder you only really have two choices and that is you can hire those people or you can join a group.

 

What do you need ?

  • Every builder needs a marketing team. Builders who think that they can build a business on referrals are deluded. You can not scale a business reactively!
  • You need integrated management systems to enable easy management of consumers, customers and projects.
  • You need a business plan. Without a business plan you don’t have a road map to follow.
  • You need ongoing training and support. Upskilling and maintaining business-relevant training is critical to success.
  • You need a USP (Unique Selling Proposition). 67% of consumers select the builder they are going to build with before they make their first call. If you don’t have a reason for them to call you and if your marketing team are not doing their job correctly the consumer never calls.

So, what are your options? You really only have 2.

You can hire all these people yourself. You will have to manage them to ensure your getting the best return on investment. As far as costs go, the Small Business Association suggests that a builder with a turnover of less than 5 million should be spending 7% to 8% of their turnover on marketing alone to maintain business pipelines and 10% to 12% if you want to increase market share. Coupled with other costs you could estimate, depending on your specific circumstances that up to 18% of your turnover will be spent on securing these services.

Or you can join a group like Green Homes Builders. You can secure the rights to the brand for your area and pay a royalty of 5% of contract value for all the services you need to grow a sustainable and profitable business. We have a proven playbook!

Yes, this will sound like a sales pitch, and your right it is! This is exactly what it is but the numbers don’t lie. This is an honest and transparent assessment of the issues and options available to you as a builder.

Again, you could pass this off as a sales pitch, but before you do, do your research and check your numbers and be honest with your assessment.

Being part of a successful group and owning a successful building company isn’t for everyone but it’s far better than the alternative.

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