Happy Tuesday to you Reader,
As the subject line of this email implies, you have entered into an Agreement with me. I send you educational information about the homebuilding industry. As a result, you owe me your time to read it.
In other words, you've agreed to a Liability on your part. You've agreed to give something in return for something else.
Sounds kind of harsh, doesn't it?? (And I sure hope it doesn't scare you into hitting Unsubscribe - but - that's a risk I'm willing to take!)
This scenario is much like the LIABILITIES that you'll see in a homebuilding business (though, admittedly, homebuilding liabilities are a little higher stakes than just taking your time to read something each week).
A Liability in homebuilding is best defined as: Something your Company owes to Other People/Other Companies.
Most of these are obvious:
- Bank Operating Loans/Lines of Credit
- Construction Loans in your Company's Name
- Amounts due to your Owners/Investors
- Notes Payable
In all of the above, there was an Agreement made between your Company and the folks who lent you money. You are liable to pay it back.
But there's one line item on your financial reports that doesn't inherently seem like a liability - Customer Deposits/Payments.
This was a hard concept for me to grasp for some time. I figured - money paid to our Company by a Customer was ours as soon as we received it.
But - as you get more sophisticated in understanding homebuilding accounting - you'll soon realize that a Deposit/Payment from a Customer is most always a Liability.
Why? Because - until you deliver "the goods" (aka the house) - there's a possibility that something could go wrong and the customer could back out. And - depending on your Agreement of Sale/Local Laws - you may be LIABLE to give all or part of that money back.
What other Liabilities do you have on your books?
Happy Building, my friends!
-Brad