The Holiday Season is among us as I write this, and I can’t help but think of all the holiday stories and movies that air every year – most all spouting an underlying message of lessons-learned that the main character can see when they look back.
Think George Bailey in “It’s a Wonderful Life” or Ebenezer Scrooge in “A Christmas Carol.” Both of these characters come to realize that their lives have been changed and formed by their experiences. Sometimes, they see the error of their ways. And they want to shout from the streets to their neighbors (or from the window to all who will hear) what they learned and how their experience can help others see a better way, too. It’s their gift to others.
Consider this post my Holiday gift to you – a message that I can only tell based on my experience. And I hope that it can help you – if you find yourself in a situation that is very similar to what I went through.
In this article, I’m going to explain how we had our family homebuilding business structure set – and – what I’ve learned as I look back now.
Be forewarned, though, that you will probably find a number of cheesy movie/story references as I go through this. But would you expect any less from me? I hope not.
The Ghost of Homebuilding Past
Back in the mid 2000’s, homebuilding was booming for every Home Builder. Interest rates were low, and Lenders couldn’t make loans fast enough. New Developments were popping up everywhere. Homesites were easy to find. It was one big dance party in the industry gym (ahem, first holiday story reference, if you’re looking).
Our homebuilding business was enjoying those merry times. We had 5-6 Division Offices throughout Central Pennsylvania. Between those offices, we were building 150+ homes – easily in the tens of millions of dollars in revenue.
And we built all of these homes – in all of these locations – in a single homebuilding entity.
It never seemed weird to me. We just thought we’d keep things simple. No need to have additional legal fees, extra tax filings, etc. And it was just “faster” to start building in a new location with what we already had in place.
We had our entire staff in one company, too. Again, why overcomplicate things? Among these staff members (and the number of folks we had is the subject of an entirely different post):
- Owners
- Management (Company + Division Managers)
- Accounting Teams
- Salespeople
- Draftsmen
- Estimating Personnel
- Project Managers (Inside)
- Superintendents (Outside)
- Construction Laborers
With home sales coming in left-and-right, what could possibly go wrong, right?!?
The Ghost of Homebuilding Present
As Holiday stories go, timelines jump around a little bit. And this story is no different.
We fast-forward from the heyday of the mid-2000’s of homebuilding past to the present.
If you’re new to the industry, you may wonder why it was necessary to mention that time – and – what it means to the story.
Those who have been in the industry can tell you that the late 2000’s/early 2010’s were not so merry and bright for homebuilders. I mean – it was a whole lot worse than traveling through the seven levels of the Candy Cane Forest, past the Sea of Twirly-Swirly Gum Drops, and walking through the Lincoln Tunnel.
In short, the market collapsed and many homebuilding companies (including ours) didn’t make it to see the end of the 2010’s. Instead of taking you through that very dark period in this article (which is way too complicated to review here), just take my word for it that it was rough for a lot of people.
The Good News
Most all good stories have a silver lining, and mine is no different. At present, I get to work with Home Builders all across North America – helping them improve their processes and businesses.
And, because I now work with so many Home Builders, I now get to see homebuilding business structures that I never even thought about when our family was in business.
I see many that are set up just like ours – using only one business. But I see a lot of other structures that, in retrospect, I wish we would have considered (instead of trying to stay simple and not overthink it).
What kinds of things have I seen that I didn’t think about before? Structures like these:
- Separate legal entities per Division
- Separate legal entities for each Development
- Separate legal entities for “overhead”
- Land-holding-only companies
- Land-Development-only companies
And these have been mixed-and-matched in so many different ways. While it may seem much more complicated and unnecessary,the extra companies make a lot of sense and can protect you and your company in the event that the market tanks, interest rates skyrocket, and sales slow or dry up.
But when would that ever happen?
The Ghost of Homebuilding Future
If you’re a part of a homebuilding business that has everything in one company, consider this your holiday morning wakeup call!
Let the Ghost of Homebuilding Future show you that one entity for everything may not be in your best interest.
Thinking how you can split your risk into several entities might be worth the time and expense to do so. Looking back, I regret that we didn’t explore more creative ways to do this very thing – and I don’t want you to regret it either.
But, “that’s the good thing about regret. It’s never too late. You can always change tomorrow if you want to.”
[This is the part where I slip on the robe, pull out a pipe, and impart my holiday wisdom to you.]
Take a look at your homebuilding business structure and realize that times will not always be merry and bright. The Grim Reaper of the industry will be lurking in the background – ready to pounce.
If you can’t get out of your own way and can’t see a different way to structure things, find someone who can look at it with “outside eyes” to help you.
Find a way to build a business structure that IF the Grim Reaper of homebuilding does come a-knocking, you are prepared to weather his visit and – at worst – lose only a portion of your business (but still be able to keep going).
You might still shout, “Not my gumdrop buttons!” But losing only those buttons is much easier than coming back from being entirely devoured.
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