What a CFO Sees in Your Books: Financial Mistakes Home Builders Make

I coach business owners for a living, and when I start with a new builder, the number side is almost always the struggle. Not because they are not smart. Nobody ever walked them through it. So for the final part of the Know Your Numbers series, I invited my longtime friend Mark Whitmire, a CFO with more than 35 years in finance and accounting, to tell us what he sees when he looks at a set of books for the first time.

Part one was the mindset. Part two was the math. This is the practitioner. His verdict after decades of counselling owners is the line I built the episode around: there has never been an instance where somebody was doing better than they thought. Never.

Why do business owners struggle with their numbers?

Mark says entrepreneurs tend to be outgoing, idea-driven or engineering minded, and accounting-wired people tend to be the opposite. The people who start businesses often lack the numbers instinct, and that gap is where trouble comes from. A good idea is not enough. You have to understand the engine that drives your business.

He also pointed out that accounting has not changed in hundreds of years: money comes in, money goes out, and the difference is whether you are profitable. It is the simplicity that overwhelms people. They assume there must be more to it. There is not. Most owners simply do not know what they do not know.

How much money should you raise for a business?

Mark's advice to a new owner was blunt: raise three times as much money as you think you need. It always takes longer and costs more than you expect, so triple your estimate for both time and money. His second point matters just as much: it is easier to raise money when you do not need it. Asking when you are eighty percent of the way across the Grand Canyon and will not survive without the last twenty percent is a terrible position to negotiate from.

It is easier to raise money when you don't need it.

Why your tax return is not a good way to read your business

This was the part I most want builders to hear. Mark said home builders often do not know how much money they made until the tax return comes back, six to eight months after year end. Some of that data can be eighteen months old. That is not a dashboard. It is a history book. And the results it shows tend to overstate your success, because of what they leave out: the house that did not sell.

What should a home builder be looking at every month?

When I asked Mark what tool owners need, his answer was not software. It was regular reporting, and the discipline to look at it. The information is not that hard to get. Mark also teaches a class on key performance indicators, and his point is that every business has its own. His cabinet shop runs a four week cycle. A house might take ninety days or twelve months, and a community might take three years. The longer the project, the more you need indicators that tell you what is happening in the middle, so you do not arrive at the end and find out you are not making any money.

Why do builders think they are doing fine when they are not?

Mark's answer: they cannot be specific, they are looking at a tax return, and they have not accounted for warranty. So much of a builder's negative cash flow happens after the closing. You get your final payment, and then the appliance, flooring, final cleaning and paint touch-up bills still arrive, and warranty work is still ahead. His questions are simple:

1. Did you hold back money for the bills that arrive after closing?
2. Have you made a provision for the warranty expense still ahead of you?
3. Can you get specific about your results? If not, it is usually because you do not know them.

I have seen owners feel great because there was money in the bank and the crew was busy. Money in the bank is not profit.

What if you are not a numbers person? Hire to your weakness.

Charles Schwab is dyslexic and works with numbers. Mark's point is that he recognized his weakness and hired to it, and Richard Branson did the same. The first step is humbling: say out loud that you are not good at this, then find the resource that shores you up. Otherwise you flounder. The same goes for partners and teams. Effective partners tend not to be friends, but you need to get along, and you need someone strong where you are weak. In Mark's words, engineers will build something nobody wants, and salespeople will sell something they cannot produce. So do not hire your best buddy. Hire someone better than you at something.

Why most business plans are simply “more”

Mark's first question for any owner is what they actually want to accomplish. Most people's business plan is simply more. But there are points of diminishing return in every business, and you can end up with more business next year and make less money. His fix is a finish line: describe your idea of success, whether it is money, hours worked in a day or a production number, then make sure your plan lines up with where you want to land. Mark built his own around being present for his son's performances and field trips.

He also shared a personal habit. Busyness is his stress behavior, so when he catches himself working hard it is a warning. And his to-do list tends to be one item: the one thing he can accomplish today. Then he makes sure everyone around him has what they need to move.

Your three assignments this week

1. Ask how old your numbers are when you actually use them. If your main source is a tax return, ask your CPA what you can get monthly.
2. List the houses you are holding or sold in the last year. For each, write what it cost you after closing, including warranty, and ask whether your reports show any of it.
3. Write your finish line in one paragraph: what does enough look like? Compare your business plan to it.

Mark closed with advice I will pass along: write your eulogy, do a mission statement, and know where you are headed, so you can go in that direction. You may fail at it, but at least you were headed toward a destination you chose.