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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, [email protected]