Dutchy wrote:Armchair expert wrote:How do these home building companies go broke?
Do they just simply undercharge?
tough businesses to manage with high working capital required, pretty easy business to enter but bloody hard to be successful in, a lot of balls in the air at all times.
ive seen a few over the years and the good successful ones have very strong and capable management.
Dead right. The bank overdraft for home building companies would be huge.
Sign a contract with a client, take maybe a 1% deposit for the admin and approvals to begin work. You have probably already spent money in terms of staff quoting up the job.
Then pour a concrete slab and submit a progress claim. Contractor will also submit an invoice and expect to be paid within 7 days. Client takes their bill to the bank, bank sometimes does an inspection to certify the builder's claim. Builder pays his contractor because they are a small business just like the builder. Builder still hasn't been paid by the client's bank.
Multiply this by the number of contracts on the go at the same time and it's fairly easy to dig yourself a hole without careful financial management.
A lot of builder's get into trouble trying to expand too quickly. Smart ones work themselves close to exhaustion before realising they need staff to ease the burden.