No Excuses Financial Management

Meet the Speaker

Mike Benshoof

Berks & Red Door Homes / SMA Consulting

Session Description

Accounting and financial management continues to be a source of fear and

frustration for small-volume builders and remodelers, and too many rely solely

on their accountant to help them run their company. This session is designed

to give you the financial confidence you want and need.

Session Learning Outcomes

• Set up and maintain financial data to ensure you make business

decisions based on accurate information.

• Analyze profitability, overhead and cash flow in a simple, easy-to-follow

format.

• Use financial information to determine if you can hire a new employee,

afford an advertising campaign or simply improve your profitability.

Purpose

What we’ll cover

• Basics

• Reporting

• Mastering

Accounting Basics

➢ Chart of Accounts

➢ Accounting Principles

Chart of Accounts

Chart of Accounts

Sales Revenue

Direct Construction Costs

Part D. Direct Construction Costs Subsidiary Ledger

General Ledger Account 1431000 Permits and Fees

1100 Architectural and Engineering

1200 Site Work

1300 Demolition

1400 Utility Connections

1500 Construction Period Financing Costs

2000 Excavation and backfill

3000 Structural Steel

3100 Framing

3105 Framing Material

Chart of Accounts

Gross Profit

Overhead

• Indirect Costs

• Finance Expense

• Sales Expense

• G&A Expense

Net Profit

Accounting Principles

➢ Completed Contract & Percent Complete

➢ GAAP, Tax & Management Accounting

Percent Complete & Completed Contract

Management Accounting

➢ Easy to use

➢ Easy to understand

What we’ll cover

✓ Basics

• Reporting

• Mastering

Reports

1. Income Statement2. Cash Flow Statement3. Balance Sheet

Income Statement 3120 Sales, single-family custom designed3125 Sales, single family custom, no land3130 Sales, residential remodeling Sales -$

Cost of Sales -$

Gross Profit -$

Expenses

Indirect Costs -$

Finance -$

Sales & Marketing -$

General & Administrative -$

Total Expenses -$

Net Profit -$

Part D. Direct Construction Costs Subsidiary Ledger

General Ledger Account 1431000 Permits and Fees

1100 Architectural and Engineering

1200 Site Work

1300 Demolition

1400 Utility Connections

1500 Construction Period Financing Costs

2000 Excavation and backfill

3000 Structural Steel

3100 Framing

3105 Framing Material

What’s in cost of sales

➢ Permits

➢ Sticks & Bricks

➢ Land @ FMV

Anything attributable to a single house

What’s not in cost of sales

➢ Superintendents

➢ Sales Commissions

➢ Finance Expenses

➢ Vehicles

➢ Etc. Etc.,

WHY?

Land

➢ Preference – land in single use entity

➢ FMV is not an exact science

➢ 35600 – True cost of lot SF

➢ 35560 - Fair market value offset SF

➢ This is for management purposes

➢ Booked correctly, easy Tax & GAAP Adj.,

➢ Watch CAP EX!!!

Income Statement Sales -$

Cost of Sales -$

Gross Profit -$

Expenses

Indirect Costs -$

Finance -$

Sales & Marketing -$

General & Administrative -$

Total Expenses -$

Net Profit -$

Sales –

Cost of Sales =

Gross Profit

Indirect Costs

Sales -$

Cost of Sales -$

Gross Profit -$

Expenses

Indirect Costs -$

Finance -$

Sales & Marketing -$

General & Administrative -$

Total Expenses -$

Net Profit -$

4010 Superintendents

4020 Laborers

4030 Production manager

4040 Architects, drafters, P&E

4050 Other indirect construction wages

4110 Payroll taxes

4120 Workers' compensation insurance

4130 Health and accident insurance

Finance Expense Sales -$

Cost of Sales -$

Gross Profit -$

Expenses

Indirect Costs -$

Finance -$

Sales & Marketing -$

General & Administrative -$

Total Expenses -$

Net Profit -$

5010 Interest on line of credit

5020 Interest on notes payable

5040 Interest on construction loans

5050 Interest on completed inventory

5120 Points and fees

5130 Appraisal and related fees

5140 Inspection fees

5210 Closing costs

Sales & Marketing Sales -$

Cost of Sales -$

Gross Profit -$

Expenses

Indirect Costs -$

Finance -$

Sales & Marketing -$

General & Administrative -$

Total Expenses -$

Net Profit -$

6010 Sales Salaries

6020 In house commissions

6040 Outside commissions

6100 Marketing

6200 Model home expenses

6500 Other marketing expenses

6510 Concessions – Giveaways

6520 Concessions – Closing cost ast

General & Administrative Sales -$

Cost of Sales -$

Gross Profit -$

Expenses

Indirect Costs -$

Finance -$

Sales & Marketing -$

General & Administrative -$

Total Expenses -$

Net Profit -$

Very similar between

TAX, GAAP and Mgmt

Income Statement Sales -$

Cost of Sales -$

Gross Profit -$

Expenses

Indirect Costs -$

Finance -$

Sales & Marketing -$

General & Administrative -$

Total Expenses -$

Net Profit -$

Gross Profit –

Total Expenses =

Net Profit

Income Statement - $’s & %’s Sales 287,000$

Cost of Sales 237,650$ 82.80%

Gross Profit 49,350$ 17.20%

Expenses

Indirect Costs 4,300$ 1.50%

Finance 3,222$ 1.12%

Sales & Marketing 5,050$ 1.76%

General & Administrative 23,033$ 8.03%

Total Expenses 35,605$ 12.41%

Net Profit 13,745$ 4.79%

Difference between Profit and Margin?

Cash

1. Your cash2. Other people’s cash3. Change in cash

1/25 2/1 2/8 2/15

Cash Inflows

Customer Deposits

Estimated Closings 106,946.45$

Closings

Estimated Draws 80,670.00$ 110,863.00$ 48,608.00$

Draws

Final Check Register 206,233.56$

Other

Total Cash Inflows 206,233.56$ 187,616.45$ 110,863.00$ 48,608.00$

Cash Outflows

Operating Expenses

Payroll

Overhead

Deposit Refunds

Other Cash Outflows

Payables 75,937.00$ 87,943.00$ 43,897.00$

Interest & Recurring 14,770.08$ 10,000.00$ -$

Notes payments 44,253.37$

Permits 50.00$ 36,500.00$ 11,649.00$

Other Cash Outflows

Final Check Register 199,900.09$

Adjustments

Total Outflows 199,900.09$ 90,757.08$ 178,696.37$ 55,546.00$

Beginning Cash 71,049.00$ 77,382.47$ 174,241.84$ 106,408.47$

Net Cash Flow 6,333.47$ 96,859.37$ (67,833.37)$ (6,938.00)$

Ending Cash 77,382.47$ 174,241.84$ 106,408.47$ 99,470.47$

Acct. Description

Current Assets

100 Cash

110 Short Term Investments

120 Accounts and Notes Receivable

Inventories

141 Land and Land Development Costs

143 Direct Construction Costs

150 Finished Units and Other Inventory

Total Inventory

160 Other Current Assets

Total Current Assets

Fixed Assets

181 Land and Buildings

183 Furniture, Equipment

184 Motor Vehicles

185 Construction Equipment

Total Fixed Assets

Accumlated Depreciation

Net Fixed Assets

170 Investments and Other Assets

Total Assets

Balance SheetCurrent Liabilities

252 Construction Loans Payable

220 Notes Payable

210 Accounts Payable

230 Accrued Taxes Payable

201 Contract Deposits

240 Other Current Liabilities

Total Current Liabilities

250 Long Term Liabilities

250 Loan from Officers

Total Liabilities

Equity

290 Capital Stock

292 Retained Earnings

Net Income

295 Treasury Stock

295 Owners Draws and Distributions

Total Equity

Total Liabilities & Equity

What we’ll cover

✓ Basics

✓ Reporting

• Mastering

What is a system?

What is a benchmark?

A benchmark is how you quantify an

action or aspect of your business.

Internal & External

Benchmarks

=

Business Model

How do you use benchmarks?

What is your finish line?

Budgeting Sales

First Quarter Cu

sto

m S

pe

c

Ow

ne

r's

Lo

ts

Cu

sto

m L

ots

Cu

sto

m S

pe

c

Ow

ne

r's

Lo

ts

Cu

sto

m L

ots

January Average Sales Price 650,000$ 525,000$ 700,000$

February 1 Average Customer Deposit (per home) 22,500$ 26,250$ 70,000$

March Average Concessions Offered (per home)

Q1 Total 0 1 0 In House Commission Rate (as a %)

Second Quarter Outside Commission Rate (as a %) 6.00% 6.00% 6.00%

April 1 1 % Co-op Sales 100.0% 25.0% 0.0%

May

June 1 Average Construction Costs (per home) 395,200$ 420,000$ 385,000$

Q2 Total 1 1 1 Average Land Costs (per home) 150,000$ -$ 175,000$

Third Quarter Total Direct Costs 545,200$ 420,000$ 560,000$

July Average Days Under Construction 180 210 190

August 1 Average Construction Loan Commitment 550,000$ -$ -$

September 1 Average Interest Rate 7.50%

Q3 Total 1 1 0 Construction Loan Fees (per home) 2,750$

Fourth Quarter Average Appraisal Fee (per home) 500$

October 1 1 Average Daily Interest Rate 68$ -$ -$

November Average Interest Paid Per Home 12,240$ -$ -$

December

Q4 Total 0 1 1

Total 2 4 2

Budgeting OverheadYearly Category

January February Nov Dec Total Total

4,500$ 4,500$ 4,500$ 4,500$ 54,000$

-

-

-

4,000 4,000 4,000 4,000 48,000

-

8,500$ 8,500$ 8,500$ 8,500$ 102,000$

462$ 462$ 812$ 812$ 7,994$

-

-

-

-

462$ 462$ 812$ 812$ 7,994$

4010 Superintendents

4020 Laborers

4030 Production manager

4040 Architects and drafters

4045 Estimators

4046 Purchasers

8110 Payroll taxes

8120 Workers' compensation insurance

8100-8190 Payroll Taxes and Benefits

Total Salaries and Wages

8130 Health and accident insurance

8140 Retirement, pension, and profit-sharing plans

8190 Other employee benefits

Total Payroll Taxes and Benefits

4000-4090 Salaries and Wages

4000-4990 Indirect Costs

Nittany Builders Fiscal Year: 200- 12

Income Statement Summary Month: May 5

Period Ending: May 31, 200- % of Year: 42%

Actual Budget Variance Actual Budget Variance Actual % Budget % Variance

Closings / Revenues:

Projected Closing 1 2 (1) 4 5 (1)

Sales Price 287,000 629,421 (342,421) 1,292,790 1,635,211 (342,421)

Total Sales Revenues 287,000 629,421 (342,421) 1,292,790 1,635,211 (342,421) 100% 100.0%

Less: Cost of Sales 237,650 510,000 (272,350) 1,085,438 1,359,426 (273,988) 84.0% 80.7% 3.3%

Gross Profit Margin 49,350 119,421 (70,071) 207,352 275,785 (68,433) 16.0% 16.9% -0.8%

Total Indirect Construction Exps 15,333 12,407 2,926 57,407 55,621 1,786 4.4% 3.4% 1.0%

Total Financing Expense 3,222 2,650 572 14,232 13,660 572 1.1% 0.8% 0.3%

Total Sales & Marketing Exps 5,050 100 4,950 6,250 1,300 4,950 0.5% 0.1% 0.4%

Total General & Admin Overhead 23,033 22,433 600 114,950 111,450 3,500 8.9% 6.8% 2.1%

Total Operating Expenses 46,638 37,590 9,048 192,839 182,031 10,808 14.9% 11.1% 3.8%

Net Income from Operations 2,712 81,831 (79,119) 14,513 93,754 (79,241) 1.1% 5.7% -4.6%

Month Year-To-Date Year-To-Date

What do you see?

Nittany Builders Fiscal Year: 200- 12

Income Statement Summary Month: May 5

Period Ending: May 31, 200- % of Year: 42%

Actual Budget Variance

Closings / Revenues:

Projected Closing 1 2 (1)

Sales Price 287,000 629,421 (342,421)

Total Sales Revenues 287,000 629,421 (342,421)

Less: Cost of Sales 237,650 510,000 (272,350)

Gross Profit Margin 49,350 119,421 (70,071)

Total Indirect Construction Exps 15,333 12,407 2,926

Total Financing Expense 3,222 2,650 572

Total Sales & Marketing Exps 5,050 100 4,950

Total General & Admin Overhead 23,033 22,433 600

Total Operating Expenses 46,638 37,590 9,048

Net Income from Operations 2,712 81,831 (79,119)

Month

Nittany BuildersIncome Statement Summary

Period Ending: May 31, 200-

Actual Budget Variance Actual % Budget % Variance

Closings / Revenues:

Projected Closing 4 5 (1)

Sales Price 1,292,790 1,635,211 (342,421)

Total Sales Revenues 1,292,790 1,635,211 (342,421) 100% 100.0%

Less: Cost of Sales 1,085,438 1,359,426 (273,988) 84.0% 80.7% 3.3%

Gross Profit Margin 207,352 275,785 (68,433) 16.0% 16.9% -0.8%

Total Indirect Construction Exps 57,407 55,621 1,786 4.4% 3.4% 1.0%

Total Financing Expense 14,232 13,660 572 1.1% 0.8% 0.3%

Total Sales & Marketing Exps 6,250 1,300 4,950 0.5% 0.1% 0.4%

Total General & Admin Overhead 114,950 111,450 3,500 8.9% 6.8% 2.1%

Total Operating Expenses 192,839 182,031 10,808 14.9% 11.1% 3.8%

Net Income from Operations 14,513 93,754 (79,241) 1.1% 5.7% -4.6%

Year-To-Date Year-To-Date

What we’ll cover

✓Basics

✓Reporting

✓Mastering

Speaker Contact Information

Mike BenshoofBerks and Red Door HomesHarrisburg, PAMBenshoof@BerksHomes.com