Episode 75 - Elevating Luxury Homes: Financial Strategies with Zack Kelly

Episode #75 | Zack Kelly | Elevating Luxury Homes

In this episode of The Curious Builder, host Mark Williams chats with Zack Kelly, CEO of Home Builders Financial Partners, about the importance of quality over quantity in luxury home building and the critical role of effective financial management. They dive into the nuances of cash flow forecasting, client deposits, and the benefits of having a trustworthy financial team. Plus, they offer some great insights on using technology and adaptive software to streamline the building process and enhance profitability.

Listen to the full episode:

About Zack Kelly

Often referred to as a serial entrepreneur, I enjoy working with people in multiple sectors. I am the founder and CEO of Home Builders Financial Partners, a company I started to help custom home builders and contractors nationwide manage their finances and run their businesses more efficiently through construction-specific bookkeeping and consulting.

HBFP is a valuable resource for custom home builders to simplify financial management – enabling them to focus on building high-quality homes and growing their businesses.

Our firm is comprised of construction-specific financial experts with proven experience in helping contractors run their business more efficiently – with our system allowing you to have access to a CFO, staff accountant and bookkeeper for less than the cost of one full-time employee.

We use our proven system to help contractors and custom home builders become more organized and produce higher profits and returns in their business. With clients all across the United States, we currently manage more than $250 M in construction costs annually.

Resources:

• Visit Home Builders Financial Project’s Website

• Visit Home Builders Financial Project’s Facebook

• Visit Home Builders Financial Project’s Instagram 

• Visit Home Builders Financial Project’s LinkedIn 

• Transcript

  Mark Williams:

  Hey listeners. In the last couple of episodes I've talked about the benefits of CBUSA, the leading group purchasing organization in construction. We're gearing up here in Minneapolis for an annual builder event called the Summit. September 22 through September 25, it'll be in Minneapolis, Minnesota. This event, formerly known as the power 30, is CBUSA's biggest event of the year. CBUSA members from across the country will come together to learn and engage in networking opportunities like face to face meetings with top brands and reps, interactive breakout sessions with fellow builders, and an exclusive vendor expo showcasing the latest materials. I'm excited to attend and I'm excited to be recording a podcast episode in front of a live audience. Fellow home Builders, if you want to be a part of this too, then head over to CBUSA us learn.

  Mark Williams [00:00:47]:

  Additionally, if you want to hear the backstory about CBUSA, you can listen to curious Builder episode number 26 with Ryan Lipchek. This episode is brought to you by adaptive, the software for builders that automates draws budgets and bookkeeping with AI. For over a year now, I've been partnered with adaptive, and they've just been an amazing game changer in terms of efficiency in our time and all our bookkeeping. When from the time we get an invoice, we import it into their system, the AI codes it, cost codes it, job codes it, all we have to do is review it, pass it through the people internally in the office, all digitally, and then it gets approved and paid all by ach. It's becoming extremely fast and saving us countless hours a day and a week. When it comes to draws, all of our budgets now are set in adaptive as well. So now when we cost code against the draws, we can do our change orders. And then with a click of a button, we can submit these draws to our title companies or to our homeowners for faster payment.

  Mark Williams [00:01:41]:

  If you're looking to save time, and if you're looking to be accurate, I highly recommend adaptive if. Additionally, if you'd like to listen to one of their founders share the story of adaptive, you can listen to episode number 15 on the Curious Builder podcast.

  Zack Kelly [00:01:52]:

  Mark, can you tell me every address you've ever lived in your life?

  Mark Williams [00:01:56]:

  My own personal addresses?

  Zack Kelly [00:01:58]:

  Yeah, all of them.

  Mark Williams [00:02:00]:

  Maybe 70% of them. 60% of them.

  Zack Kelly [00:02:02]:

  You always remember where you live, right?

  Mark Williams [00:02:04]:

  Yeah.

  Zack Kelly [00:02:04]:

  So that hundred homes that you've built over your career. Again, I'm making up a number. Let's say five families have lived in those hundred homes. Okay. And let's say it's a family of four. If you do the math on how many lives you impact on over a course of the houses that you've built. You should take tremendous pride in what you do for a living because nobody ever forgets where they live and everybody's got to live somewhere. So one thing that I always try to tell builders is take pride in what you do know with the impact that you have on people's lives.

  Zack Kelly [00:02:40]:

  Right? Not just your client that you're building the house for today, but the other four families that are going to come after that. That house is sold. Right?

  Mark Williams [00:02:53]:

  Welcome to Curious Builder podcast. I'm Mark Williams, your host. Today I'm joined with Zach Kelly from home Builders Financial Partners. Welcome to the show, Zach.

  Zack Kelly [00:03:01]:

  Mark, appreciate you having us on.

  Mark Williams [00:03:02]:

  Absolutely. Well, we met through a mutual connection through adaptive, and any of our listeners are very familiar with adaptive and AI tech software we use to process all our bill pay. But why don't you tell us a little bit about yourself and we'll kind of just dive into your business from there.

  Zack Kelly [00:03:18]:

  Perfect. Yeah. I'm Zach Kelly, CEO of Humble Financial Partners. Like Mark said, we are a construction specific bookkeeping and accounting firm focused mainly on high end luxury own builders. I've been in the industry pretty much my whole life. Started working as a kid, twelve years old, sweeping our houses for my stepdad, friendly houses and sword. Swore to myself in my early twenties that I'd never be in this business. And here I am.

  Zack Kelly [00:03:44]:

  Like most of us, we end up just finding a way back.

  Mark Williams [00:03:46]:

  So that was, that was actually. That's funny you say that. That was. That's been my mo for 20 years. I, my mom and dad were builders and designers. And I knew growing up, just hearing the phone ring at like 02:00 in the morning when there was a. When it was raining, I'm like, why would anyone choose a career where people, you know, would call you in the middle of the night? Because it was raining. I was like, it rains a lot.

  Mark Williams [00:04:04]:

  It's like, that's a lot of phone calls to field. And so I was like, I'll never be a builder. That obviously I fell in love with it. So it is what it is. Yeah. 100% more than one of us out there, clearly.

  Zack Kelly [00:04:15]:

  Absolutely.

  Mark Williams [00:04:16]:

  So tell us a little bit about the background. You know, did you, did you start building? Were you in the trades? Like, how did you get into that? What you're doing now, which is obviously a financial partner. What was your backstory?

  Zack Kelly [00:04:28]:

  Yeah, so, like I said, you know, tried to get away from construction. Pretty much been in business for myself my whole life, and really was in the high end wealth management space in my early twenties, mid twenties, and really just had a friend of mine that was a builder that asked me to sit in on a meeting. He was really trying to downsize this overhead operation, cut some expenses, and Steve been building houses at this point for about 30 years and just wasn't very computer or tech savvy and was having a software pitch to him that was going to solve all his problems. And Steve just asked me to sit in on meeting to see if I could kind of vet for him because I'm a a little more technology for technology advanced than he was. And pretty much halfway through the meeting, I just told him, you know, the software would never work. And the reason being because the software person wasn't asking any questions. They weren't actually solving the problem that Steve and his business had. And by the end of the meeting, we kind of created some solution for the actual problems that we had, and the software wasn't the actual solution.

  Zack Kelly [00:05:29]:

  And I showed Steve a couple ways to do it. I said, all we got to do now is just find somebody to help put it in place for you. He laughed and he looked at me and he said, I already did. When are you going to start on this? And so the 13 years later, I've still this CFO, we just finished a two and a half hour phone call doing a billing for one of his major projects right now. So that's kind of how it just happens to start and slowly grown it over the years. Used to be just a very small consulting firm here in Charleston, South Carolina, with a couple of clients till Covid comes along, and I don't see my clients for a year. But as we know, this building in the southeast was taking off at a trajectory like this during COVID And after Covid, I realized, looked at myself, and I said, you know, I didn't see my builders for a year. I could probably do this for folks all over the place.

  Zack Kelly [00:06:19]:

  So we actually officially formed home Builders financial partners early 2021, and we went nationwide. So now we have an office in Denver, an office in Charleston, clients all over the 50 slits.

  Mark Williams [00:06:31]:

  Wow. Isn't it amazing how, you know, we're going to look back at Covid and not only all the technology that it produced, but the way we changed business? I mean, it's interesting. I'm a small, you know, builder in Minneapolis, Minnesota, and obviously with the curious builder, I'm, you know, talking to builders all over the country. But even when I'm not, it's I mean, I probably have, you know, two to three virtual meetings a day, which I know for, let's say, our corporate counterparts would be very normal. But you would think, being builders, you know, we're in the field, we're checking our job sites. Like, if you had told me ten or 15 years ago that as a small custom home builder, that I would be having multiple virtual meetings per day, I would have said, like, what is this, the Jetsons? I mean, are you, you know, it'd be funny we're dating ourselves because I bet a lot of people don't know who the Jetsons are anymore. And so it's like, my kids certainly don't. Anyway, you get my point.

  Mark Williams [00:07:23]:

  Like, but for you, it was a major opportunity. I mean, now that allowed you to go across the United States. Tell us a little bit about that journey. How did you decide, let's say, Denver, whatever, was your first satellite office? How did you knew that the concept work? What was the next step? Did you have a local present first? Did you go get, you know, did you just, how did you get those first clients or outside your state?

  Zack Kelly [00:07:45]:

  That's a great question. So, you know, pretty much I just had an idea, right? I knew because, you know, most builders hate the part of the business that I do. They just don't like the financial part. They don't like the, and they don't like that part. So I knew, I knew we had a need out there, and so I just started some instagram reaching out, indeed, as a great resource for us, right? Because guys are always hiring a construction bookkeeper accountant for their firm. So we used indeed, as a really a catapult into different spaces. So what we would do is we would just come indeed, and see people that were hiring and reach out to them and say, hey, maybe there's a different way. So our first couple of clients outside of the Charleston market, we worked with some hbas, like the Hilton head HPA, which is about two and a half hours away from us.

  Zack Kelly [00:08:32]:

  So that was really our first external from Charleston was in Hilton Head Market, which was kind of natural, right, not too far away. But then we landed clients in Denver. We landed clients in Mississippi, Rhode island, kind of all over the place, just from. Indeed. And then we started going to some trade shows, the National Home Builders show, a couple other shows in the northeast, and really just kind of catapulted from there. And then word of mouth kind of spread. We did open our first satellite office till last year, August of last year, with our first satellite office in Denver. And we really opened that because we had one of our builders, his operations director, had left the company.

  Zack Kelly [00:09:13]:

  We just thought the world of her and didn't know what she was going to do and reached out and gave her an opportunity to run our office out there. And so she's been running our office for almost a year now, doing great. Got a handful of clients there and really a good space. So that's kind of how it started. But it's. It's pretty, pretty funny how just organically, growth has been since the first couple of clocks that we've met.

  Mark Williams [00:09:37]:

  I mean, you've been around a lot of businesses, and obviously, you see, you know, you see the underpants, if you will. I mean, you see, you know, obviously on, let's call it Instagram, we talk about all the time. You know, of course, in marketing, we're putting our best foot forward, but financially, you know, I had someone the other day and I've talked about on the podcast, you know, I mean, it's been a slow year for us. We've had probably three projects cancel and not completely ideal. We've had to let a few people go just with the downturn for us, specifically in our region, and maybe it's across the country, I guess you can tell me more about that. But what was interesting is they were like, oh, man, every time I look on Instagram or social media, you guys are just killing it. You guys are just. And it's just funny.

  Mark Williams [00:10:14]:

  Like, the reality. The reality often is different, and it's fine. I mean, marketing, you know, it's not that we're being disingenuous. We're obviously having a very steady marketing presence. But, you know, numbers don't lie. There's really no way to sort of like market numbers. I mean. I mean, I suppose you could a little bit.

  Mark Williams [00:10:29]:

  I don't know how you would do that. You could speak to that better, but I. How long does it take you to look at someone's balance sheet and p and l to realize kind of their trajectory?

  Zack Kelly [00:10:39]:

  Not very long. Usually if I. If I get a true look at their, you know, accounting software, that's what we actually. We try to look at, because that gives us the true picture. Right. Because you're right. You can put some numbers, you can flip some deposits as income, and you can. You get into some creative things that make your sales look better than they are, right.

  Zack Kelly [00:10:57]:

  But if I really get into it, I'm telling you, within ten minutes, I can pretty much know exactly where you are and where you're going. And as I tell most of our folks, is most builders don't come to us because everything's perfect. Right. I wish that was the case, but most of the time there's been an issue, either a prior accountant, bookkeeper, or somebody retired. There's always usually an issue that occurs to. So we have to kind of get in there and really dig in and see what the problem is and then clean things up. So that's, that's usually step one.

  Mark Williams [00:11:27]:

  What would you're, you know, drilling down on that. What would your ideal client look like? Like talk about a few builders or, you know, in terms of maybe size, maybe gross revenue. I think what one of the things I really enjoy about having, you know, financial, especially in the home builder space on, like, I would never ask a builder, you know, what their gc percentage is or any of that stuff. But you can speak about across the whole country, like, we've had other people in your space on. And I actually find these episodes to be very helpful for those listening because you can speak like, hey, on average, across the country, you know, remodeling profit margin. Is this new home profit margin. Is that so? You know, even during this episode, any insights on that? You know, without naming names, but more of, like, the industry would be super helpful. But so bringing that in mind, like, what is it? What is a good fit range for a client that's coming to you? Because I have to imagine a lot of the builders that are coming to you probably have either had a one person bookkeeper for the majority of their career, and then either that person, they need a stopgap, they retired, they left, they.

  Mark Williams [00:12:25]:

  Something bad happened, and now they're like, they don't know where to turn. And that can be good. I mean, my dad ran a company for 40 years, and she was a former title company executive, and she was incredible. I mean, she was a one woman powerhouse, and I thought I would model that. And I've had probably five office managers that have sort of run the bookkeeping. And then two years ago, we switched to, you know, a firm, and it just totally different. I sort of appreciate what a firm can be bring. So, anyway, that broad perspective, tell us a little bit about your clientele.

  Mark Williams [00:12:55]:

  When they come to you, what state do you often find them in?

  Zack Kelly [00:12:59]:

  You know, they're. They're all kind of. They're all over the place, right? So, like you said, it's usually an event, like, bookkeeper retired, got pregnant, and stopped coming back to work or some kind of issue, maybe not. Not living up to par things like that. So we find them kind of all over the place. You know, our ideal client is because we truly work in the luxury home space, right? So our ideal client is building anywhere between five and 15 home a year. You know, your average home build last year that we managed was about $2.7 million of the 500 million construction that we managed. So, you know, super high end luxury is our ideal client.

  Zack Kelly [00:13:36]:

  Now, that doesn't say that we don't have others that are building million dollar homes or $750,000 homes, but we look at more, you know, quality versus the quantity. So no production builders over here. The math doesn't make sense for us to do production type stuff for guys building 50 to 100 homes a year, semi production. So that's really our basis is high end luxury. Five to 15 homes a year, and, you know, a minimal. Most of our, most of our builders have a minimum staff, right. They have a couple project managers, maybe somebody in the office, but usually a minimal staff, because they're trying to cut overhead, right. One reason they usually come to us is we.

  Zack Kelly [00:14:18]:

  We cure so many seats with. With one invoice, right? Meaning general bookkeeping controller, accountant level, and then CFO level. We got to hit a bunch of different spaces for less than you traditionally pay one full time person in their office. So the space that they come to us in is so different. It varies from builder to builder to builder. Some builders have great processes in place. Um, they layer on top our process, which really gets them a good spot. And then I have some builders that have zero process at all.

  Zack Kelly [00:14:51]:

  They're riding around chucking a truck, because sometimes a builder will run into every once in a while. Um, that's just trying that he's gotten busy, right? He's got so busy that he's just outgrown, um, his footprint, what he's been able to do. So we then kind of put processes into place for them, not only on the financial side, but actually in the field with some project management and things like that as well, scheduling and stuff like that. Because the big thing, what a lot of builders want to know, it's all cash flow right there. They really want to know, when's my pitch going to come, cash flow wise? And they say, well, Zach, can't your firm do that? And I say, 100%. But the true great cash flow forecasting has to come with a construction schedule. If I don't know where the job is going to be, I can't really cash flow it accurately. I give you idea.

  Zack Kelly [00:15:37]:

  But truly, to get a good sense we need a true construction schedule to match with our cash flow. So kind of all over the place. I don't know if that answered your question exactly, but kind of a broad stroke.

  Mark Williams [00:15:47]:

  No, I think it does. I think it's also interesting that, you know, people would find themselves, like, for, you know, let's call it 15 years. You know, we ran a whip report before we even knew what a WIP report was. So we kind of just instinctively found a way. Like, how do you. How do you balance all these jobs that you have at different, you know, varying states? I think one thing, obviously speaking to the choir, most of the people listening to this would be builders. But, you know, unlike other businesses, you know, there's, you know, usually clear order delivery and end date. I mean, with building, you might not know any of those variables.

  Mark Williams [00:16:21]:

  Like, you don't know when it's going to start. You don't know what's going to end because you don't know what's going to change. It's like, you know, you could maybe solve an algebra equation if you have one number, but if you have no numbers, it's pretty hard. And so, you know, I mean, we often celebrate. You know, I think we have a very. I think our industry has a high figured out factor because without it, I don't think you would have this many builders. And it's kind of amazing at how building attracts so many people to it. Um, because it is hard.

  Mark Williams [00:16:45]:

  It is not an easy industry. In fact, I had a CPA once that told me he, you know, did book work for a lot of other companies. And he said that builders took the most amount of risk with the least amount of reward that he could see. The profit margins compared to other companies were much less. And, you know, at least in Minnesota, like, we have to warranty our houses for ten years now. We have probably one of the highest statutory warranties in the country, would be my guess. But even so, like, it's not for the faint of heart. And so, you know, we need good processes.

  Mark Williams [00:17:13]:

  And I, you know, we developed our own system because we needed to figure it out. And the last thing you want to do is use one, you know, the classic example of robbing Peter to pay Paul. But, you know, a lot of good builders, very talented builders, you know, obviously got caught up in zero 8910, you know, by commingling money. And I would. I don't know this to be the case, but I do think generally people are good. I think most of the time it's not. It was not done poorly. I think meaning with, you know, ill intent.

  Mark Williams [00:17:41]:

  I think a lot of it happens just because they don't know any better. And a lot of people just don't have any tears, say, you know, guardrails or safety nets or any sort of structure. And so if you don't know you're using money, you know, you hear this story all the time that as long as you keep getting sales, it works. It's like a Ponzi scheme, essentially, except they're running it on themselves. They're not deceiving anybody else. They're deceiving themselves. And then when the music stops on sales, man, you fail. You face a world of hurt.

  Mark Williams [00:18:07]:

  You know, maybe just speak a little bit to common mistakes that you see when you get into people's books. What are some things you've learned over the years that are just some general rules that people out there listening could apply to their business? Even at the end of this podcast.

  Zack Kelly [00:18:21]:

  I think one thing everybody should realize about their business and we try to do this, is actually show the builders what their money is in the month. What I mean by that is you got these large construction companies have all this cash in the bank. You don't take the times always to necessarily understand what's actually theirs. What I mean by what is theirs is you might get a giant customer deposit on the front end that you credit back throughout the build. But a lot of guys don't keep track of what this balance is. So you got five jobs going. You collected 250 grand from each one of those. You got $1.25 million sitting in the bank.

  Zack Kelly [00:19:00]:

  That's not necessarily your money. If we're not understanding what money is and how it should be allocated, then sometimes you can get upside down, because, like you said, if you don't have that, start when you've got a job closing and you got to pay back a big portion of that deposit, it can get a little hairy. So, really trying to make sure that builders understand what's actually there. So we look at bills that are due your ar, your apenna and then your customer deposits to give you kind of a true sense of how much money that you have in bank. And just a quick math lesson gives you, oh, I do have 500 grand in the bank, or, oh, I have five grand in the bank. So it's just something to be aware of so you can plan accordingly. You can also kind of plan distributions and, you know, capital purchases and things like that, really understanding what's yours. So, I would say the biggest thing that people get confused about is money in the bank versus what's actually their money.

  Mark Williams [00:20:03]:

  Yeah, and that's where you said, a schedule is so important if you're not running any sort of software, any sort of scheduling. You know, we used to do it back in the day. Let's just say you. I used to always do it based. I mean, it was very quick math, but it was very effective as long as you did it the same. But it was like, you know, if you were building and you were going to say, hey, I'm going to have $100,000 profit on this job, and I would just pick a percentage. I'm 10% done. Okay, well, 10% of 100 grand is ten grand.

  Mark Williams [00:20:24]:

  So $10,000 of the money in the bank is mine for that job. And I would have an excel spreadsheet. I mean, that was how I created my sort of my whip report of what I had. I mean, that was before I had any sort of formal instruction. And it worked. I mean, it was. It was. It was simple.

  Mark Williams [00:20:38]:

  I heard something actually, just yesterday that I love that simple scales and fancy fails. I think sometimes we get really carried away with, you know, and I think it's really cool, the analytics and what you guys can create for us and show us, and I love graphs, but, I mean, you can also do it very simple. And I remember some very early lessons, you know, listening to other builders, and one of the. One of the key concepts was, it's not, again, it's not rocket science. It was, you know, if you make $100 and you spend 99, you will be successful. If you spend $101, you will go bankrupt. And that's something a child can understand, frankly. But I wonder, I mean, all of us, myself included, I'm 43.

  Mark Williams [00:21:16]:

  I mean, it's. It's like a lesson that never stops needing to be learned, because sometimes you get carried away with success or you get carried away with, like, a big job or a big deposit, as you already said. And if you don't have things that are sort of helping you keep track, you could see how you could lose your way in the woods pretty quick.

  Zack Kelly [00:21:33]:

  And what I agree, simple, is, especially in our business, it's not that complicated, right? It is. I tell people all the time, it's what we do or our team does, is not hard. It's not hard at all. But if you're not organized in detail, worried, it will eat you up and spit you out, not harp. And so we've created these processes and this system in which if you follow the system from e to z, our program really, really works. When you try to follow it from a to k and then go to z, it doesn't necessarily, which happens all the time. So what we have just developed over the last couple of years is when it's not just me, I run a whole team. It's a team of folks that help our builders.

  Zack Kelly [00:22:20]:

  Now, what we developed was what we call our four principal for principles really consist of. Number one is our weekly reports. I think weekly reports in construction are so helpful and so useful. And what our weekly reports consist of, its job cost reports every single week on actual or so, that's. Where are you? Where are you with the job? What that shows everybody is what I want my builders to understand is if they have a problem, they underestimated a phase code that they understand it way before it actually comes to fruition of being problem. So if we know about it in advance, we can let them know and they can let their client know, or they can make a decision on what they're going to do. Let's say you're building a spec house, right? Your framing package is going to be over where you might be making selections that you need to change, because now I know I'm going to have a problem. So really trying to get those problems in the beginning.

  Zack Kelly [00:23:16]:

  Weekly reports consisting of invoices, actual versus estimates, who you owe what money to. You know, I think that's a huge factor is who do I owe money to and how much money? We look at that on a weekly basis. All of our clients.

  Mark Williams [00:23:30]:

  Do you send them, out of curiosity, is that like a dedicated call that you have with them? Is that a set report you send to them? How does that information get conveyed in effective ways? And how long did those weekly check ins take?

  Zack Kelly [00:23:42]:

  Yeah. So what we do is once a week, we send a set a report about the same time. So we try, we try to do everything on the schedule. Right. So if you're a Gordon, you pay people on Thursday. We want to get you all this information on a Tuesday, say around 10:00 right? So you're going to get an email every Tuesday around ten. It's going to have all of your jobs broken down, actual worship estimates, job cost reports to back them up, and then an unpaid bill report to kind of support who you're going to pay that week, if you got to take such. And then we schedule a call, traditionally a Zoom call, to go over.

  Zack Kelly [00:24:14]:

  What questions do you have? Sometimes those calls are super quick, right? 30 minutes or less, we knock it out sometimes. This call, the one I was just on with c was two and a half hours long. Because we're gonna have bill of client. Right. It's a very complicated bill. It's a very complicated bill. So we're gonna go over that stuff for a very long period of time. So it's always an email and usually always a zoom, because, again, we're spending a lot of money for our folks, and we want to make sure that they're approving all the invoices that we're paying.

  Zack Kelly [00:24:44]:

  So that's part of the call. Builders are all like, Zach, how do you know how the job costs? I'm like, well, you know, a framing invoice isn't hard to know that. It's a framing invoice. A framing labor invoice isn't hard to know what it is. But I have no idea if Steve Smith framing is really 50% done unless I'm on the job, you know, as the builder, can we pay them 50%? No, Steve Smith's only really 25% done. Let's. Let's cut that. Draw back real big part of the call.

  Mark Williams [00:25:14]:

  You know, you had mentioned earlier about asking, you know, one of the, I imagine the intake forms that you get when a builder is onboarded is asking them what software they use. And obviously, I'd be curious to know how many, what percentage of your clients are using adaptive. And when I say that is like, you know, that's obviously capturing a lot of the information for us specifically. And, you know, we, we write, you know, it obviously auto calculates it against our sworn construction statement saying, like, hey, this is framing labor. This is trim labor. You know, this is trim material. And internally, we, you know, my office manager or my project manager weekly would go in there and modify it if it needs to be modified. How do on these companies that you're working with? Because they've outsourced a lot of this to you.

  Mark Williams [00:25:57]:

  Who is pushing this information to you? Is it just going to like some auto email that is set up, you know, like HBFP, you know, that whatever, and they just send you everything, or does there still someone have to be, did they still, does people still need an office manager to like, what responsibilities do you now have the builder still do that you don't like? What don't you do that they need to do?

  Zack Kelly [00:26:20]:

  That's a great question. Pretty much for the office component, what we don't do, we don't answer the phone and we don't estimate. That's pretty much our office component that we don't do. Now we have builders that hire us to do levels and builders that don't let us do, don't have us do things. But the, the main way we get in invoice or any info is we set up a dedicated email address on our builders URL. So, you know, Solaris, invoices, Alaris calm. And so everything that's going to go to your office manager, accounting team should all go to that email, invoices, certificates of insurance, you know, whatever's coming in there. And then we, we manage that email account.

  Zack Kelly [00:27:01]:

  The big part, mark, is why I don't have to go to like an HBFP email address or something like that, is I am fortunate enough to work for my builders at a period of time. I have no idea how long that period of time is going to be. So what I want my builders to always know is, and this is what I tell them on day one, I'm going to prepare everything that we're going to do for you to fire me. I don't ever expect to be fired, but I want you to know, this is your information. I'm never going to hold it hostage. I'm going to make sure you always have all of your data. So throughout the course of our relationship, let's take Solaris. I've been working for those guys for 13 years.

  Zack Kelly [00:27:40]:

  Everything is theirs. Now, I don't ever anticipate going anywhere, but if I do, it's still all their information. So their email accounts offset on their server, so therefore they have all the access if they need. Now we manage it on a day, in a day basis. So you actually, if you hire HBFP, you don't need anybody in your office because we can handle it all. Some guys still do, some guys don't. It just depends.

  Mark Williams [00:28:05]:

  So, I mean, that's a great answer. I mean, it's very reassuring. I love that. I think that's a great, I love that we're setting you up so that you can fire us, but you never will. I think that's amazing. That's amazing sales line as well. Not only is it true, because you can see how genuine you are about it, but it's also reassuring to know because there is turnover. I mean, one of the reasons why we elected to go, you know, for about a two year period, you know, we had someone handle all our books is, you know, we had some turnover, we had some pretty green people.

  Mark Williams [00:28:32]:

  I tend to trust people until they prove me they can't be trusted. And, you know, again, seeing that, you know, again, you model what you see, you know, I happened to see my parents run a business for 30 years with one woman running all the books. I mean, I just thought, man, her name was Margaret Hansen. Shout out to her. She's amazing. And I just thought there was lots of Margaret Hansen. There are not a lot of market HAnsen. Let me tell you right now, that is a rare, that is a rare unicorn right there.

  Mark Williams [00:28:59]:

  And so I thought, man, I was like, man, am I doing something wrong? I could just not find, you know, that person. And so what I really appreciate about hiring an organization like yours is it gives me a lot of peace and comfort knowing that even if there's turnover within you, let's say you retired, let's say you sold your business, you know, there's other people within your industry, within your office that can also step in. There's, there's a. A process in place. It's no longer a person in place. And that gave me a lot of comfort as a business owner, that I was not going to be held hostage by someone just leaving or, it's never happened to me personally. But I have heard stories where, you know, obviously the formal term is embezzlement or you hear about dishonesty or things because obviously the office manager and or your bookkeeper have a ton of responsibility. And if they're the only person, and usually, like, I would imagine most builders, you get to a point where you're just comfortable.

  Mark Williams [00:29:47]:

  They're signing your checks. They're, you know, you might vet it and check it, but there's a lot of opportunity, you know, for fraud to happen if it, you know, and hopefully that doesn't happen, but it obviously does because it exists where I think if you have a, um, you know, a team and find that highly unlikely that someone that, you know, even within their own team, you'd have to have an entire team, you know, complicit, which is highly unlikely. And so then all of a sudden, now you've got people checking. And that gave me a lot of peace personally, just to know that, like, okay, that is kind of like a backup for myself because I, for my own personality. Like, I want to report. I want to see it quick. I mean, all vet stuff and check stuff. But ultimately, and I'll get a sense.

  Mark Williams [00:30:25]:

  I mean, I think most business owners, you get kind of a temperature setting. Like, you can almost, even if you aren't doing a whip report, you kind of have a pretty good idea, like, am I doing okay? Am I not? You feel it almost emotionally when you have been in business long enough you know, I would imagine business owners get a pretty keen, you know, $0.06 on where they're at, and then the numbers are really just justifying or altering their perception of where they're at. But, um, you know, I tend to see, like, that seems wrong. Like, I'll get a report sometimes and I'm not even in deep in the numbers, and I'll just be like, that seems off. I can't tell you how I know that. It's just off. And then sure, shooting someone will say, yeah, you know what? We made a data entry. You're right, that's wrong.

  Mark Williams [00:31:01]:

  And, like, I don't have any issue with that. Like, I'm glad it comes up, but I don't think people out there should also discount their own instincts because I think instincts are pretty strong. And if they've been developed for, you know, quite a bit of years of building or any business, frankly, I think you should trust your instincts. And if you feel like something is off, like, figure it out and it's not a comfortable feeling like we went through. One of my next questions to you is like, how long does it often take to sort of fix a company? I mean, for me personally, I would say it almost took a year. It between I had a bad off, and I remember thinking like, you, of course you want a quick fix. And I remember talking to other builders that have gone through it and they're like, it takes about a year.

  Zack Kelly [00:31:37]:

  I'm like, a year?

  Mark Williams [00:31:38]:

  How can it take a year? It took a year. And it was pretty painful and pretty brutal and nothing was wrong. A lot of it was just going to your comment, I would imagine a lot of your clients are like this, but you, you find, you know, systems and reporting and just getting all that information out. I remember, you know, we actually let a company go, and I don't know how much of it was them not doing what they needed to do versus us just having bad systems. I suspect it was a little bit of both. But either way, it's like, I was like, man, I gave him like six months and we, it was, I think we were worse off than we were in the beginning. And so when we moved on, it was actually better, but it took a year. I mean, is that, is that pretty normal? I felt like it was a pretty rough awakening at year 18 or whatever.

  Zack Kelly [00:32:22]:

  Year I went through it at, yeah, 100% mark. I mean, if things are a mess, it can, it can be a year. It can be longer than that. We actually had a client that came to us two aprils ago, and they had two sets of Quickbooks, one for one division, their company, one for the other division or company. But they shared a checking account. And I'm like, you can't reconcile anything because you got half of it here and half of it I was. And it was such a mess. We actually ended up almost the end of last year.

  Zack Kelly [00:32:52]:

  We couldn't trust any. Anything. So what we did is we actually got the. What we thought the balance sheet should be, and we just started fresh. We started with a brand new Quickbooks file. We. We kind of. We wanted all the jobs to be accurate and then get the back end financials, because it was the only way to fix it.

  Zack Kelly [00:33:09]:

  The only other way to fix it would have been. I mean, I would have taken years to go through each transaction because the company wasn't, you know, they weren't a spring chicken. They'd been around for a long time. They just had to. Somebody that got in there and was trying to do things simple and just made it super confusing. So that's what happens with a lot of. A lot of builders, is they'll hire somebody to do this job, but the builder doesn't necessarily have to do this job. And so they.

  Zack Kelly [00:33:33]:

  They hire somebody that either says they do know how to do it or don't, and then they train them in a way that it doesn't actually work. So then another part of our services, we don't care if you hire us full service or not. I mean, we love for you to. That's what we're here for. But I do a lot of consulting where I go out and I train the staff to do it our way, because a lot of guys just need somebody in their office or used to touching somebody, having somebody in that office next door, they can always go there. So a lot of times we'll go in and just train a staff on how to actually implement the right construction accounting processes so they understand, then they have a support system that actually knows the industry. We train those folks. But, yeah, it's.

  Zack Kelly [00:34:15]:

  It's. It can be super painful at times to really undo what's been happening in the past. And sometimes the undoing of what somebody may be working on for three, four months might take double that amount of time to actually clean it up and fix it. So I would say your year was probably super painful, but it's probably average for folks getting that situation. What we try to do is when we first get into a company, we try to make sure the current jobs are running right. Right. That's our number one priority. If we can get the current jobs in a good spot, we can go back and work on the actual financials at a time when it makes sense.

  Zack Kelly [00:34:54]:

  But because you're worried those jobs are moving forward every single day with invoices and estimates and things like that are coming in, we want to make sure those are right as fast as possible, then you can. Things are well.

  Mark Williams [00:35:06]:

  And I was just laughing because I'm just thinking, like, it's not the greatest sales line to be like, you know, sign up. Sign up with us, you're in for a world and a year of pain. It's. It'd be a little bit like, you know, when people, I'm a runner, but when people sign up, you know, to run a marathon, they know the first month or two, but then eventually you acclimate to the mileage and you're fine. But if you were like, it's going to take you a year to get your body in shape, you're like, oh, man, a lot of people would bail on that. And so I think, I think, honestly, I think a lot of people are probably forced into your arms, into the industry's arms, because they, they obviously have a need. So my question is how, like, on a, like, on a. From zero to ten, from a number standpoint, as a percentile, what percent of people are coming to you because they have, quote, an urgent need, you know, and it's like, basically they're being forced.

  Mark Williams [00:35:49]:

  They're like, something's wrong, I need to fix it, and it needs to be fixed now. Versus someone being like, you know, really taking their time and being like, you know what? I think it's time we create some great systems. I think we're just going to kind of, you know, ease into this. And I'd love to know a number, like how many of them, if those are your two clients, one that's like, we are a hot burning, you know, dumpster fire. We need help. And, oh, by the way, tax season's right around the corner. Can you do all this before tax season? I guess that comes up a lot. Versus the second one where it's a little bit more like, I think we could use a better, better system.

  Mark Williams [00:36:19]:

  And, you know, why don't you on board with us?

  Zack Kelly [00:36:22]:

  75 25, probably.

  Mark Williams [00:36:25]:

  This episode is brought to you by Pella Northland. For 19 and a half years, I've been building homes, and 95% of all my homes have used Pella windows. I couldn't be happier to call them a partner in our builds and our remodels whether you're an architect, a designer, or a remodeler, I'd highly recommend Pella windows. They can fit old homes, new homes, reclaimed, commercial, and really everything in between. Pella is a company that we trust and that we recommend to our clients. Additionally, in management, Peter and Ed have just been absolutely fantastic people to work with as well as mentors to me personally. So when it comes time to look for a window, I'd highly recommend Pella windows. Find more@pellanorthland.com also, if you're interested, you can hear episode one where I interview Peter and Ed together for a great lesson on business and Pella windows.

  Mark Williams [00:37:11]:

  This episode is brought to you by Helmuth and Johnson, a top Minnesota law firm ranging from individuals to emerging startups to multinational Fortune 500 companies focusing on transactional law, litigation and appeals, Helmuth and Johnson attorneys are leaders in their field. David Helmuth and Chad Johnson joined forces 30 years ago in 1994 with the goal of creating a premier law firm capable of handling complex and challenging cases efficiently and effectively. Today, Helmuth and Johnson rank among the top 15 largest law firms in Minnesota, with more than 70 twin city lawyers serving clients in more than 30 legal practice areas. They offer a full suite of legal services to clients without sacrificing their original commitment to providing responsible and affordable legal representation. To learn more, go to their website, www.hjlawfirm.com.

  Zack Kelly [00:37:57]:

  It'S funny, when we first kind of started, we went nationwide. I was expecting December to be just kind of a very slow month between November and, you know, between Thanksgiving and Christmas. Every year that we've been in business, it's like the busiest time of the year. Everybody's like, freaking out. They want to bring us all, they want us to start, like, yesterday, and they want everything done right by the end of the year, due taxes. And I'm like, I actually had one of the little ladies in the office, Zach. I don't think we should take any clients the last quarter of the year anymore. I'm like, well, that's not going to happen.

  Mark Williams [00:38:32]:

  But I mean, what is your process? Do you have a set number of onboarding? Like, how do you, how do you handle the influx and the inflow of prospects so that they don't overwhelm your own internal team? Because I have to imagine, you know, if I've been working, like, you know, Solaris, that you'd been with, what, 20 years, 19 years, 13 years, 13 years? You know, I mean, obviously, for, at this point, they're running smoothly. They're in your system, they're getting regular oil changes. Like that's, you know, the values there. But you're, you're really set up for success there because you're looking at your own work. You're like, ah, we do great work, you know, pat on your own back. But like, you know, you get a you. I imagine resources for adopting a new company are much greater, let's call it that, first year, year and a half. How do you, how do you not burn out your own team?

  Zack Kelly [00:39:14]:

  It's a delicate balance. It really is. So what we do is we really slow our cadence of onboarding depending on the availability of account manager and the training level of an account manager. Right. So if we have the space and we'll tell clients, unfortunately, I know you need me yesterday, but I can't take you for two months because I don't have the capacity to take you for two months. We've gotten in that space, Mark, where we're really, one, we're very selective on the clients that we take now. Two, we are super slow to onboard, meaning we won't start the onboarding process until we know we can handle it because we've learned just like everybody else, right before we would take anybody to fog of the year, they'd come and, hey, you want to pay our fee? Great, let's go. And it just doesn't work, doesn't work for our staff.

  Zack Kelly [00:40:05]:

  It doesn't work for the builder. And so we want to make sure that it's a win win. Right. So our depending on staffing. Right. So if I've got. And we try to staff ahead, meaning I hire folks before they have work to do. So we could train them and then we could feed them clients.

  Zack Kelly [00:40:23]:

  And if I've got a person that's been trained, they don't have any clients.

  Mark Williams [00:40:26]:

  Yeah.

  Zack Kelly [00:40:26]:

  We can onboard a couple at a time and that would be fine. That's rare. Right. So we really try to, to slow our, our growth out based on staffing and based on the client. Right. So if I've got a guy that's a $25 million builder, right. Let's build as a 15 homes a year that onboarding is going to be a lot different than the guy that's doing 5 million a year that's building three houses. Right.

  Zack Kelly [00:40:51]:

  So it all depends on the client. It all depends on what they're doing. And it also depends on our staffing situation where we are as a team.

  Mark Williams [00:40:58]:

  You had mentioned earlier in the podcast that you really cater to higher end luxury custom builders. If you will. And lets leave production out of this just because thats too high. But numbers are numbers. And if theyre willing to pay you whatever your fee structure is, why would it matter what their volume is? Because when it would just be another job, lets say someone did 2 million, lets say theyre a remodeler that does $2 million a year or 3 million, why would they note, why would that company not be attracted to what you have to offer, or would you not be attracted to them? And if so, why you?

  Zack Kelly [00:41:32]:

  Usually, our fee structure doesn't necessarily work on a lower end builder. Now, it, a lot of it depends on the profitability, right. So if they're a $2 million builder and they're building it a 40% margin, right. They're going to afford a lot different than that $2 million builder that's working on an 18% margin. Right. So, so it all depends. And I just try to give the, the ideal client, right. Because what we've seen over time is the guy that's doing, you know, seven and a half million dollars is our sweet spot.

  Zack Kelly [00:42:01]:

  That's kind of where they feel good about what we charge, that they can easily handle the fee that we're going to charge them, but also the workload is proper for us. Some of these guys that might be doing, you know, remodels that are doing 2 million, $2 million of work, their workflow, their invoice total is a lot more than that seven and a half million dollar builder. So it's all based on transaction volume, which sometimes makes the numbers different. Right. So I had an accounting firm tell me one time that I priced my fee structure wrong. And I said, that's interesting. I said, why? How should I do this as I'm doing it wrong? I said, well, Zach, you should price your fee based on top line revenue. I said, okay, but if I have a $10 million builder who built two houses last year versus a $10 million builder that built 100 houses last year, I got a lot more work with the hundred hundred homes I do with it, too.

  Zack Kelly [00:43:03]:

  And they, because like you said earlier, construction, bookkeeping, and accounting is so different than anything else out there, right. It's just a different animal. Right. So if you own a clothing store, all your stuff in your retail is cost of goods sold. It just goes one line on your, in your quickbooks, it's costing goods sold where ours go to like 132 lines, right. Because you're a Costco. Every single invoice that ready at each line. So it really is specific to the builder.

  Zack Kelly [00:43:33]:

  We have tons of guys in the past that have been a smaller builder. Still do. I mean, I have a, I have a couple guys issued one house. Love this guy. Those guys are great. Which is not the ideal client.

  Mark Williams [00:43:44]:

  Yeah. I mean, that's fair. That makes sense. Speaking of, you work with clients all over the country. What is, and you could speak to this on a high level, but what do you see across the country in terms of variability in margin for new home builders and remodelers? And do you see it vary across the country in different, in different states? And then my second part to that question will be, what do you think a healthy margin is for a business to run on gross or net? I'll let you answer that.

  Zack Kelly [00:44:18]:

  Okay. So, and that question kind of back into a couple ways on how you job costs things. But. So I'm also a national analyst for National Home Builders Association. I help run builder 20 meetings, too. And so when I look at, when they present their financials, they were looking at them. Them. I tell every builder that I see, if you're above 20% on your gross margin, you're a rock star, right? I mean, that's just, you're, you're doing a bang up job in this industry.

  Zack Kelly [00:44:46]:

  If you're getting over 20 points, guys that are doing 25, I mean, I've seen a couple almost to the 30. They're mainly remodels like you, like you say. I mean, that's just a tremendous, tremendous job. Well done. Anything at seven, you know, 15 to 20, I think you're doing a good job.

  Mark Williams [00:45:03]:

  Right.

  Zack Kelly [00:45:04]:

  So over 2020 and over Rockstar, 15 to 20, you're doing, you're doing it. You're doing a lot of things right. If you're between, you know, let's say twelve and 15, you've probably got a lot of really good pieces there. Maybe you had a hiccup or something on a job or two, but your processes are probably good. Anything below twelve, it's a real struggle to make money. It's really, it's really a struggle. You're probably working way too hard and not make. So that's kind of the parameters that I kind of throw out there for folks, for your gross margin.

  Mark Williams [00:45:36]:

  And what would you say, what would you say, net after overhead, after overhead?

  Zack Kelly [00:45:42]:

  Again, if you're above 8%, you're setting the world on fire for the most part. You know, that's a really good, healthy business. Five day, you're doing a lot of things. Good guy. There's probably a couple of things you're missing to get you to that eight plus. And then if you're not making, you're not making five, 5%, you gotta kind of take a hard look and say, what am I doing this for? Right? How, what can I do better if you're doing less than two, probably something else is probably a good idea. And I mean, you know, we're talking consistently, right? Year over year, everybody's gonna have a bad year, right? Everybody's gonna have. I am trying to grow, staff up for growth.

  Zack Kelly [00:46:27]:

  So I'm going to take a dip that year. I might not make any money, might be that 2% number, but I'm gearing up for growth.

  Mark Williams [00:46:32]:

  But I know, I think those benchmarks, I'm thinking red, yellow, green. In terms of different. I think it's helpful for the listeners out there sometimes. I think when we're in a specific market, we think, oh, we hear, I have builders in my builder 20 group, they're getting in the high twenties. I'm like, wow, that's an progressive. And you think, oh, you know, I think it's very common that wherever you are in the country, you think, well, that's great for them, but I think in our market we couldn't get it. But what's interesting about that is when you talk to people like yourselves that maybe work with other builders, even in your own market, wherever it is, whether it's Atlanta or, you know, South Carolina, Florida, Minnesota, and, you know, wherever is that there are builders that are getting that number, it's just, you're not. And I think, I think it starts with education first.

  Mark Williams [00:47:17]:

  I mean, the one thing I really try to do, even with this podcast, is be very open about a, the struggles that all of us have as business owners, hear people's stories, but also just kind of like, you know, bringing the light on it, like shine, you know, because if you don't know, I mean, you just don't know what you don't know. And I love having individuals like yourself on that can speak holistically to the industry because most builders that we have on, or architecture designers, not gonna be able to discuss this to the level in the breadth that you would have. And I think it's really helpful for people to either, because sometimes it's like if you adjust a marker, you know, it might take a year. I mean, whether you're redoing your contracts, redoing your books, you know, like, you know, that year struggle or resetting your sights on, you know, on margin expectations. And honestly, a big part of it is like what do you believe as a builder? And I found this out in my own career, that, you know, when you are confident in your value proposition, your clients don't really hesitate. But if you hesitate on your own value proposition you guarantee that your client is too. And I think the biggest thing is people have to look in the mirror and say I'm good enough, you know, I deserve to make money. And you know, I don't know any single, I've never even heard of a builder that, you know, sort of quote, rips off someone because they, if anything, I feel like for my entire career I have undercharged my clients.

  Mark Williams [00:48:32]:

  I think for 20 years I have been well under what for the quality of work that we do. I feel like we, and in some ways I feel like you're constantly behind what you should be. And it's, I'm not sure how to feel about it necessarily because I just, I don't think I'm alone. I think it's just more the realization like, like we're really good at what we do, we deserve to be compensated for it. And I think understanding like your value statement and just saying, I think finally getting to the point where you can say no and say no, this is what it costs to deliver the expectations that you want. But unless I know that as the builder, unless I know my own value and unless I know, cause I think a lot of times it's easy to look around at other builders and it's not that you can't be competitive to your own market, you have to be. But I mean honestly if a client is coming to you, they've already crossed the biggest hurdle. Like it's really, it's your fish to lose and you know, and some, you're not going to win everyone and that's okay.

  Mark Williams [00:49:28]:

  And I think once people, but I know for myself, like once I understood that wow did sort of that the shackles and the weight sort of come off because you realize, you know, everyone has, in fact I just had a conversation today about value proposition. Everyone values things differently. And we had a, we had it, we were speaking, you know, about demographic and the people wanted really big homes. And I had just said, you know, I don't, I actually would much rather have a house that's a couple thousand square feet smaller in much higher detail for me personally and the real estate agent I was talking to said actually I would rather have a bigger house that's not as quality because I just want a bigger house and I want more room to move around. I want to entertain people. And, like, neither one of us are right or wrong. That's just my value proposition. That's his.

  Zack Kelly [00:50:12]:

  And.

  Mark Williams [00:50:12]:

  And anyway, we make, I think we make hundreds of value propositions daily without even recognizing it. So I guess. I guess this random tangent is brought to you by value plus. Consider, look in the mirror and figure out what your value statement is. And I think the clearer all of us can be on our own value statement, the better off we're going to be. But honestly, the better you're going to be with your clients as well. And that goes, I would imagine, for you. I mean, the services that you provide, Zach, are the same thing.

  Mark Williams [00:50:37]:

  I mean, as you show your clients the value that you're bringing, I mean, you'd be silly not to be like, yes, sign me up.

  Zack Kelly [00:50:44]:

  Up. Yeah. Somebody told me a long time ago, Mark said, if you're, if you're ever, if every proposal you send out, you get a yes. You've underpriced yourself. You should have people that can't afford what you're doing, or you've got a price yourself where it's. It makes sense. And so he says, if every deal you propose to somebody you sell, you're not pricing it right. And I've really taken that.

  Zack Kelly [00:51:12]:

  I've really taken that kind of the heart, really. It's okay to lose deals sometimes because my other favorite saying that people kind of chuckle with is you can't take break even of the bank. Right? I can't deposit.

  Mark Williams [00:51:25]:

  So that's funny.

  Zack Kelly [00:51:27]:

  One of the big things we try to really help our builders with is you got to understand what your break even is. What does it cost you to operate your business, and what does that look like? How much do you have to sell to just break even? And you've got to get above that threshold. And so that's really one of the things where we help folks see how to get to that 8% net margin. Right. This is how you get there because your break even is here, and you got to sell above that. It also helps them sell that other house when you've got everything covered. If you could sell one more house, just like all of that goes to the bottom line, and now you're in a really, really good spot. And once we've educated some builders on that, they really kind of push for that one more sale, the past, they would be like, well, I'm good.

  Zack Kelly [00:52:17]:

  I mean, this is, I'm going to make good money this year. And then we show them, well, if you add one more look at what it really does it really ramps this number up? So really understanding your kind of break even your cost is truly important. And not just your cost on, you know, your actual job, it's your overhead cost. It's a huge, it's a huge suck. I mean, we're, we've done this, this summer, we were going to try to relocate our office and look at some real estate and, wow. Like, that's a lot, that's a lot of money. Like, just to have a better looking office space. And we just really kind of pumped the brakes on and said, you know, maybe that's not what we need to do, because, because, again, that's, that doesn't really make sense.

  Zack Kelly [00:52:56]:

  So a lot of our builders have gotten to the point where they have an office because they've got us. They've kind of stepped back from having an actual presence of an office space. It all depends on the build, right? You're selling to what you're trying to do. So understand that overhead is a huge component in our business. I think.

  Mark Williams [00:53:16]:

  Well, I think it goes, I think understanding your overhead is extremely important, but I also think that. But everyone, I think you even did this. You mentioned earlier on in the podcast about growing organically. And I think of as a builder, like, it sounds, one of the things that is sort of nice about how we personally build homes now is it used to be, let's say I met you, Zach, and you're like, oh, I want to build a house. The old mark ten years ago. Be like, how fast can we get you in the ground? Can I get you in the ground in 60 days, 30 days, 45 days? Faster is better. And now I'm exactly opposite. I want to slow this thing down.

  Mark Williams [00:53:47]:

  I want to get into design. I want to make every single one of your selections, especially, you know, we're speaking obviously not at semi customers. We get full custom level, you know, the days. And I look back now and I'm like, what an idiot I was. I had no idea. But it's like, you know, we were literally building an airplane while we were flying it. And like, how clients went along for that and thought that was normal. And us in the industry, how we thought that was normal, it's like taxing down the Runway with no wings.

  Mark Williams [00:54:15]:

  You got like one engine and like, you know, maybe you got a wheel and it's like a few seats, and you're like, find your seat. We'll build it while we're flying. Buying. It's like. And it's crazy. And so, and yet, and that all starts with essentially the owners of the company, with leadership. Like, if we are selling that message to our clients, if we're telling that to our team, then guess what? It takes a year, year and a half to undo that message. And then, you know, it takes a podcast, it takes someone, you know, evidently experienced to not teach that to me because I just kept flying airplanes with no wings on them and, you know, we kept landing them.

  Mark Williams [00:54:47]:

  And, you know, I guess that's a testament to the fixed figure it out factor. But now you actually have that time to onboard. And guess what? The client has a better experience. You make more money. The job actually takes less time overall because you actually have a clear plan. It's just, I know I'm speaking, I think, to obvious things, but, you know, for, you know, we'll call it 1517 years. It wasn't obvious to me and I was in it. And it's like, I suspect that a lot.

  Mark Williams [00:55:09]:

  I mean, we all need better systems. I think in some ways I'm envious of young builders or any age builders, but actually young in their careers. If you were to start a building company right now, well, obviously it's maybe a bit of a challenging time, but let's just say you did. I mean, the tools that are available to help you that did not exist when I started are amazing. I mean, the technology, the AI, you know, we already talked about adaptive. But companies like yourselves, you know, all of these things and, you know, podcasts, social media, you know, there's a lot of cons to it because there's just a lot of noise and a lot of information. But there's so much information that you can get educated on that you could have these tools from day one. And we've seen people that didn't have a building background.

  Mark Williams [00:55:51]:

  You know, I talked to someone the other day that, you know, they left the tech world to start a building company, and you're like, what? And they're extremely successful because they're not governed by their passions of, like, I grew up as a builder. I love wood. I love windows. I love all these wonderful things that you grow up that most builders would say if they grew up in the industry. They're like, no, I'm running a business here. I just happen to build homes. And I think at some point when you realize that, like, your perspective changes a lot. And to me that was, oh, hey, let's build this airplane on the ground before we fly it.

  Zack Kelly [00:56:22]:

  No, you're 100% right. And actually, like you said, you won't. You want your client come and make all their selections, get in a good spot, because if you've got all that done on the front end, you can have a production meeting with your team, your, your team of subs, and you can let them know we've got everything. Here's the schedule. Of course, you're gonna have delays, weather permit, you know, things like that, but things you can't control. But if you've made all the decisions on what you can control, how much happier is everybody through the process, right? You know, know, you don't have, you know, mechanical guys fighting over chases and all these things that, you know, we all have deal with plumbers and electricians and h vac guys all trying to be in the same space at the same time because we got to get done. We got to get done. Right.

  Zack Kelly [00:57:03]:

  So you're right. If you get it done to the front end, you kind of space it out.

  Mark Williams [00:57:06]:

  And everybody has their experience, and I think it's, you know, we're chasing the dollars a little bit. And, you know, even what we talked about, I mean, if, again, going back to financials, if you don't understand where you're at, where your overhead is at, you're chasing the next sale, the next deposit, you're really running like, I guess for, like, you're running your own Ponzi scheme on yourself, right? You have to keep filling the meter, and all businesses have that. It's not, you know, exclusive to building, obviously, but I heard a quote the other day that I really liked, and we were talking about investing in your own health. And it was basically, if you think wellness is expensive, so I'm thinking, like, you know, chiropractic massage, you know, you know, maybe a trip to go running or whatever you're into. And then the con was, well, think of the cost of the medical system. If you have to be medicated, you have to have surgery, you have to have, you know, and the point was is that, you know, the ounce of prevention is the pound of cure. You know, if there are people out there that are considering, you know, you know, we'd love that 25% to grow to a much bigger number than 75%, right? You have 75%. Dumpster fires are coming to you that need help.

  Mark Williams [00:58:07]:

  How great would it be if that number was 50 50? If 25% of the people are like, you know what? I'm going to invest in my financial systems. I'm gonna invest in my financial understanding so that my company is just a. It's gonna cost you money. I mean, I don't think that, but it's going to long term, that investment will pay itself, you know, how many times over. And so I would love, you know, this specific episode, obviously, you know, whether it's you or just getting people to think more about, because very few people think about investing in financial systems. Right. We think about investing in an office. We think about investing in trucks and people, and all those things are fine and dandy.

  Mark Williams [00:58:42]:

  But, you know, a system of financial security with systems would probably be a pretty good place to start, especially for a young business or any business.

  Zack Kelly [00:58:51]:

  Yeah. And, you know, sometimes, you know, builders come to us, and they're a little surprised with what our fee structure is. We're pretty, we're pretty cut and dry with it. It's, it's, you pay one fee, and that's just a monthly fee. You know, we don't nickel and dime you. We don't charge by the hour. We don't deal with that. We.

  Zack Kelly [00:59:05]:

  We kind of look at your business and tell you what it's going to cost you to hire an employee. So some people get taken aback by that. And what I tell them is, you know, we are one of your most valuable subcontractors. We're the ones that keep all the money coming in. So if you look at it a little different perspective, it changes what they do. We've also shown our cost plus guys how to charge for our fee, because we'll charge our fee based on your project, and our team can just be like anybody else that's doing your job, and it can be a job cost expense, because it is. That's all we do is manage your jobs for you. So there's lots of different ways to look at it.

  Zack Kelly [00:59:45]:

  But you're right. If people with me step back and go, like, I want to invest in my, my financial team, it's a little bit different. I mean, one of my first clients came to me, and they were, they needed some help with some, some cash flow management. They just didn't, they have a great business, always had a great business, but they were always dipping in their own pockets to kind of, of float along. They would get repaid when client invoice would come, and I just showed them a different way to do it. And so as long as we've been working together, they've never, ever had to dip back into their personal pocket because we know how to forecast and we know how to plan where you are building your clients houses with their money. You should never build your clients house with your money, especially if you're a cost plus builder, that should just never be the case. We've all gotten there.

  Zack Kelly [01:00:32]:

  We all, you know, had to do some things to make ends meet at times. But I really, our system shows guys how not to do that. And if you follow some of our, our systems, leveraging credit cards and things like that really gives you the way to cash flow your business in a much better way.

  Mark Williams [01:00:52]:

  I mean, I think the biggest thing that changed for us is taking a much larger deposit.

  Zack Kelly [01:00:55]:

  It.

  Mark Williams [01:00:56]:

  Yep. You know, and we, we do it now. I've been speaking about it on the podcast for the last year, but in a shout out to the contractor coalition and some of the stuff that they taught there. But this particular lesson was something Brad Levitt talks about all the time. And it was, you know, you do have to feed the meter, but, you know, this is your car park there. To be clear, I think sometimes as builders, we have to remind the client that we're building their home. You know, this is a for profit business, at least mine is, or seeks to be. And so the point is, but, you know, we take this large deposit, and the comment was that payment goes to the last payment because it's very common that you would take a large payment and then you would, you would get reimbursed throughout the project.

  Mark Williams [01:01:36]:

  But really taking that first payment and then, you know, it applies to the last payment allows you a cash flow. If, you know, people are, you know, between draws, you need to pay some of your subcontractors, things like that. I think what you really have to be careful with that, though, is as the builder, that you're not using those deposits, you know, to pay overhead or something else. I mean, you can take, as you said, know, your wiP. I mean, if 10% of that, you know, deposit is yours, like, obviously that's yours, but don't take 70% when only 10% of it is yours. And I personally have combated that. I know it's a little over the top, but I set up separate bank accounts for every single client, and then I keep it in there as a completely separate item. And then, you know, this is a Michael Michalowicz hack.

  Mark Williams [01:02:15]:

  You know, the profit first model, I don't follow it 100%, but basically, you know, take a portion of that and put it in a separate bank account. You know, that is your, that is your profit. So it's very clear. I mean, I know accounting, you guys can, you know, modify all the numbers and it all flows through on the summary sheets and your p and L. But I like to visually see it, you know, separate bank account. It's just easier for me to process that way. You know, how, how often do you run into scenarios like that? Or how often do you recommend your builders sort of silo off some of their money?

  Zack Kelly [01:02:46]:

  We're not a firm that recommends siloing off into different bank accounts. It creates other problems, creates a little bit more time consuming work on other things. We don't have a problem with folks that do. We totally understand. Again, it's a visual. Some people are very visually like to see it. It's easy. We don't have a problem doing it.

  Zack Kelly [01:03:04]:

  That's just not our recommendation. Our recommendation is, you know, maybe two, two accounts, that operating account, payroll account or something like that. Maybe a deposit account. But you're right. You're 100% right. I mean, the joke always, you know, I just got a deposit on the house and I'm gonna go buy boat. Right. That's, that's not what you're supposed to do.

  Zack Kelly [01:03:22]:

  It's not the sub you're supposed to do. Um, we also, our recommendation is, you know, that last invoice, like you said, that last invoice you're going to send the client should be pretty much whatever you owe them, right. You want it to be pretty much where they don't owe you any money, and it pretty much wipes things clean. It's a better spot for you to be in as a builder. That means you can't get kind of strung out. That's a, that's a really important thing for us. Us. But again, you've got to be prepared.

  Zack Kelly [01:03:51]:

  If you're not having a start, if you're playing that game, you got to really know what's yours. Exactly. Back to the point. Know that the year at a good spot.

  Mark Williams [01:03:59]:

  Yep. Maybe a last question before we go into some personal stuff as we kind of close the podcast is, you know, where do you see the industry going in general over the next 510 years? What are you seeing in terms of either technology trends or just people's maybe financial acuity? Or do you think people are getting a. Are people becoming more aware? What are you seeing on your side of the table?

  Zack Kelly [01:04:25]:

  One of the things that I tell builders, and I'll get 100% to your answer, but what builders do for a living, I like for every builder to realize this and to kind of think about this. So let's just say, mark, you build five homes a year. You've been in business for 20 years. So that's a hundred houses. Right. Mark, can you tell me every address you've ever lived in your life.

  Mark Williams [01:04:49]:

  My own personal addresses? Yeah.

  Zack Kelly [01:04:51]:

  All of them.

  Mark Williams [01:04:53]:

  Maybe 70% of them. 60% of them.

  Zack Kelly [01:04:55]:

  You always remember where you live, right?

  Mark Williams [01:04:57]:

  Yeah.

  Zack Kelly [01:04:57]:

  So that hundred homes that you've built over your career, again, I'm making up a number. Let's say five families have lived in those hundred homes. Okay. And let's say it's a family of four. If you do the math on how many lives you impact on over a course of the houses that you've built, you should take tremendous pride in what you do for a living because nobody ever forgets where they live and everybody's got to live somewhere. So one thing that I always try to tell builders is take pride in what you do know with the impact that you have on people's lives. Not just your client that you're building the house for today, but the other four families are going to come after that house is sold. Right.

  Zack Kelly [01:05:39]:

  So that's one thing. So where's the industry going? Right. We're always going to have to have a place to live right now. Interest rates I don't ever think will be at two and a half percent ever again, probably. I don't think it probably ever should have been there. Right. But I do think interest rates will ease up probably in the next 18 months. Some things that the Fed said the other day kind of alluded to that rates need to come down.

  Zack Kelly [01:06:02]:

  So I think we're going to get into a better spot. I think it's probably going to take us 18 months to get to some more normalcy of what we, what we expect to see. Fortunately for the folks that most of my clients built houses for, the trajectory, especially in the southeast, is still, it might not be like it was, but it's still at a pretty good, pretty good clip. People are still moving to the area, moving to the south. It's just they enjoy the lifestyle here. So I think in our, our area, still a pretty good place to be five or ten years. Technology is crazy, right? AI, concrete 3d homes, also super interesting. I don't think they've really taken off how the technology was expecting them to, but I think there's so many things that are coming down the road that's going to change what we do, how we do things right.

  Zack Kelly [01:06:56]:

  From 3d homes, from homes being manufactured elsewhere than brought in. And it's a safe and secure. So the times are going to change. But I do think it's still, if not the best industry to be into. It's definitely one of them because you always have to have a place to live, and somebody's going to have to build that place to live. So I take great pride in what we do because people enjoy building a home. Right. It might be painful through the process for some folks, but at the end of the day, people really look back and are super happy that they got to create what they wanted as their home.

  Zack Kelly [01:07:30]:

  As a cusp working for custom home.

  Mark Williams [01:07:32]:

  Builders, I love what you said. That really hit home about, you know, obviously, I have a relationship with the people we built for, and I often don't think of a house as the house I built, but I think of the people I built it for. And I often tell our clients, you know, you have the architect, the designer, but the client is in, obviously, ours, our team as well. But the client has a huge impact on the home that you create. Is actually, in some ways, I think doing spec homes are hard because, you know, you're missing. You're missing the person you're actually building for. You're trying to take a guess at a lot of the things that you think will attract somebody, and it doesn't mean they're not beautiful, you know, a spec home and all those things. But I really gravitate towards people, and so I love that, you know, I'm just coming to mind.

  Mark Williams [01:08:12]:

  Tim and Mary Goltz, I think they bought one of my first homes in 2006 or 2007. And anyway, I can still remember them sitting on the front porch, sending me a picture on their Christmas present. And the house by no means was spectacular compared to what I built today.

  Zack Kelly [01:08:26]:

  But.

  Mark Williams [01:08:27]:

  But I'm no less proud of that home than I am of a $5 million home that I build because it was a home that someone had their memories in their child. And I haven't, I've actually heard it as articulated as well as you just did about that. It's not just that family. Tim and Mary Goltz, I'm assuming, have sold their house and they've moved on again and again and again. And so how that home continues to impact people is very gratifying, I think. You know, I remember as a kid, my dad putting me in the, in the car, the truck, and driving to homes that he had built in his career and just driving him and be like, I built that house. I built that community. I built this whole cul de sac, and just, it's still there.

  Mark Williams [01:09:05]:

  And then you hear about people like, you know, years later, decades later, you run into people and like, oh, I live on, you know, deer run. It's a golf course that my dad built a lot of homes on. And I was like, oh, really? Who built your home? And it's always really fun when they're like, oh, I think it was, you know, David Williams. And it's always like, well, I'm his son. And, you know, we're still building. It's just there is something, there's this legacy effect. That's not why I build, but it is very gratifying when that comes out. And I think.

  Mark Williams [01:09:30]:

  I think when we can talk about it and celebrate that you're 100% right, that it's a wonderful thing.

  Zack Kelly [01:09:36]:

  Yeah. And I just encourage all of builders to celebrate them. And it's because, Mark, nobody thinks of it that way. I mean, I haven't met anybody. When I say, when I do this, and I do this often, it's like I never thought of. I never thought about the five other families that have lived in the house. House that I know. And it's just.

  Zack Kelly [01:09:54]:

  It's awesome. It's an awesome feeling.

  Mark Williams [01:09:57]:

  No, it's very cool. Well, thank you for your time today. People that want to reach out to you will have your, you know, everything in the show notes. Maybe just a website or an Instagram handle that people can listen to that. Maybe they'll quick check right now.

  Zack Kelly [01:10:12]:

  Sure. Your website's hbfplllc.com or you can find us at homebuilder financial partners at on Instagram. Really appreciate the time, Mark. It's been great. Love talking about our industry and I just love helping the side of the business. It's a lot of fun. It's a lot of stress free nights for a lot of our builders that utilize our services.

  Mark Williams [01:10:34]:

  Sounds great. Thanks again for all your wisdom and the time coming on, and we'll chat with you down the road.

  Zack Kelly [01:10:40]:

  Thanks again.

  Mark Williams [01:10:41]:

  Y'all take care. All right, thanks, Zach. We are happy to announce that we have a one to one coaching session that can be found on our curious builder podcast platform. So you can book a time with me and it'll be 1 hour to ask any sort of questions that you want. Talk about business, talk about life. Maybe you're dealing with a difficult client and you just want to maybe shop with another builder and say, hey, how do I handle this? Or maybe you're looking to rebrand your company, whatever it might be. You can head to our website and book a time, and I'd be happy to sit down and give you that hour and we can talk about whatever's on your mind. The podcast has now been running for the last two years.

  Mark Williams [01:11:15]:

  And it's because of people like you that are listening to the podcast, spreading the word that our audience continues to grow. One of the ways that you as listeners can help support the show is head to our merch page, our shop page on thecuriousbuilderpodcast.com. you'll see that we have three different offerings now. We have a shirt that we partnered with harnish on. We have a hat from Bogo that I use for ultra running. It's also just incredibly sweat resistant. So for any you guys are outside in the sun working, the hat looks great, but it's also extremely resilient to sweat. And then, of course, our hive notebooks.

  Mark Williams [01:11:44]:

  These notebooks are amazing. I was given one a couple years ago and I've fallen in love with it. The paper is made out of stone. It's waterproof, it's tear proof. It's amazing. So if you like what you listen to, if you appreciate the show and the content that we're producing, please head to the shop page. You know, buy a notebook, buy two, give some to your employees, give some to the guys in the field. We'd really appreciate it.

  Mark Williams [01:12:02]:

  Mmm. Thanks for listening to the curious Builder podcast. If you like what you listen to, please give us a five star rating and write us a review. It really means a lot. It's a great way for us to just understand what you like about the podcast and what we can keep doing. So like and review. And please share with your friends and family. Find out more@curiousbuilderpodcast.com.

  Mark Williams [01:12:22]:

  dot.

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