Building custom ordered sailboats takes money. You first need a large building. You need skilled laminators. You need skilled carpenters. You need skilled mechanical installers and skilled helpers. You need large amounts of raw materials like gel coat, fiberglass, teak wood, custom stainless steel parts, engines and their associated parts, like shafts, props, fuel tanks, etc. You need custom made bronze parts like Portlites, Rudder hardware, Boom gallows etc. You need a steady supply of Masts and Booms, Cruising Sails and rigging. (and much more) Lots of money for parts and materials.

Building these boats take time. Lots of time. In the boat building business time if critical if any profit is to be made. The profit margin is low on a custom boat, mainly because the time it takes will eat up profits. You have to build in a timely manner without delays.

Consider the DAILY cost to run a boat factory. Factor in the large building, materials, payroll, advertising, utility bills and other expenses and you can see that an average of $3000 per day is what it can cost to just open the door.  With that in mind, consider that a simple one day delay in production can cost big money.

So the goal is to build these boats in a timely manner, without any delays. Delays cost money and one missed progress payment from a buyer not only delays his boat, but effects the boats behind him and down the line. This is because on a line of boats under construction, some will be almost finished, some halfway finished and some just started. If an expected payment is not made, then parts for that boat are lacking, payroll for the people working on that boat is under funded and the daily overhead of $3000 adds to the cost of finishing the boat. Considering the small profit margins in boat building (5%) it doesn't take many days of a missed progress payment before the boat will be a LOST CAUSE.

A "Lost Cause" boat is one that no matter what, you will never make a single dollar building this boat. In fact, you won't even break even on this boat.  A buyer is several weeks behind (for whatever reason) in giving you a progress payment and while you can continue building the boat for a while, eventually you have to cancel the ordered parts like an expensive Engine or a costly Mast and Boom. This cancellation adds to the building time and the daily overhead expenses continue. Also for a while, you may be able to re-assign some of the skilled workers to another project, but most of those boats already have other people working on them. So you end up paying 4 skilled people to do the job of 2. This adds more labor costs to the project.

This type of delay effects the entire shop. People have to be paid every week and you just can't lay-off workers when a buyer misses a payment. Most of the time the buyer does finally make his progress payment and work resumes. But the time lost ends up costing more money than most people realize.

A 2 week delay can cost big money. Payroll and overhead for those 2 people for 2 weeks will cost $4180.  On a boat that costs $100,000 that represents 4%. When your lucky to make a 5% net profit it gets costly to keep things rolling.

But there are more costs besides the 2 week delay. The delay effects the next boat. Those 2 employees will be two weeks behind in completing their work and therefore two weeks late starting work on the next boat. And therefore two weeks late on the 3rd boat and so on and so on....

So delivery dates start to slip. Customers get understandably anxious.

So you can see that a boat can become a LOST CAUSE in a matter of several weeks. Eventually if the delay becomes months we are in a serious negative cash flow situation. This is because the factory has lost so much money waiting, its really doesn't matter when the buyer finally comes up with the payment.  We will never catch up.

We will have to  build and complete this boat at a tremendous loss. (perhaps a $40,000 loss)

If a buyer is several months behind the boat is truly a LOST CAUSE.

If the factory spends its own money to catch up this Lost Cause boat it only adds to the problems. Money that should be used for current customers ends up paying for the slow-pay, can't-pay, no-pay boats (I learned this the hard way. Never again.)

It reaches a point where you have to throw a tarp over the boat, move it to the back row and re-negotiate a new purchase agreement with Mr. Slow Pay.

What would you do?
Would you pay someone money so you could build them a house?

It is a fact that when someone's orders a custom Nor'Sea 27 from our factory, they intend to pay in a timely manner. No one plans to run out of money or have financial difficulties.

Generally from experience over 21 years of boat building I have experienced a number of these people.

Slow pay people are the ones that are the most prevalent. These people are a week or more late. While we can probably wait a week or 10 days for a progress payment, anymore time than that causes us to lose serious time and money. How much money depends on how many boats are under construction.

An example of a Slow Pay customer (and sometimes a Can't Pay) would be Whit Gilman. If you think a month late is excessive and costly, try being up to a year late on progress payments and a total of 36 months late! This was not really Whit's fault according to him, and I believed him when he said that Ronald Reagan had put a damper on SBA building loans and Whit had to tie up his cash. But who suffered in that set-back? Yep. Us. (His boat was a Lost Cause for years)

For custom  builders like the Sam L. Morse Co. who sometimes build one  boat at a time, a Slow Pay customer can be very harmful. Indeed when our factory has only one Nor'Sea 27 under construction at a time, any delays at all, will cause serious harm and cause a boat to be labeled a Lost Cause.

The other problem is a "Can't Pay". A  Can't Pay customer usually was a Slow Pay before finally running out of money. A Can't Pay is someone who wants to pay us for their boat but has serious financial difficulties that have suddenly cropped up.

An example would be Gene Bleasdale who ordered a custom Nor'Sea 27, became a Slow Pay, was audited by the State and IRS, owed some horrendous tax bills. Went personally bankrupt. Became a Can't Pay. Maybe the correct label would be a never pay. We had to finish his boat ourselves, get a loan on it to get paid, made the payments for 30 months (at $650 per month). We lost a lot of money.

Then there are the "No Pays". These people decide to not pay. One such No Pay decided not to pay us a $100,000 progress payment that was due on 9-1-91. Now that was a real setback. (more on this one in another section)

So these are some basic boat building facts that people are now aware of.

Own a boat? Is the builder of your boat still in business? Probably not. 99% of every boat builder has gone out of business. Some twice. Some three times. When Pacific Seacraft went Bankrupt everyone was surprised. A good product, a backlog of orders don't help when you have slow pay, no pay dealers or customers ordering boats.

There is also a 'Bell Curve' in the boat construction business. Its a fine line between making a small profit with the orders you have that flow thru the boat shop and its relationship with the overhead. (number of employees, size and monthly cost of your building).

You need a certain amount of skilled people. Laminators that are able to keep up with the schedule, Carpenters that can do the interior and exterior teak work without getting behind, and mechanical installers who can do the electrical, hardware, systems and engine installations while the carpenters are on the boat. It all has to harmonize. A fine balance. A boat is shipped out the door and another fresh hull is being pulled out of the mold.

Then come more orders than you can believe. So you now have double the boat orders that you present number of employees are used to. Your about to meet the end of the 'Bell Curve'.

The laminating shop falls behind because skilled laminators are in short supply. This adds to production delays which cost money. The teak trim carpenters are overwhelmed with work. You hire some more but they have to be trained. They make mistakes that cost more time to re-do. More production delays. More money going out. You think that if you can build 10 boats a year with 10 employees you could build 20 boats a year with 20 employees. Payroll doubles. But you only build 12 boats, not the 20 expected. Your working more hours, actually making less money. Then really not making any money.

Meet Mr. Bell Curve.

Every company and every business has a Bell Curve.

Boeing Aircraft hit one when their business doubled.

The same thing could happen to any business that has a significant increase in business. Not enough skilled, trained employees to keep up. They fall behind in delivery times. Time is money. Money goes out. The product is late. More work less efficient. Some customers can't pay, slow pays abound, borrowing from Peter to pay Paul. Delivery dates slip and people start complaining. Future customers hear the complaints, decide not to buy, orders dry up, cash flow stops, company goes broke.

(owner goes broke trying to save company)

The success of having too many orders cause many companies to go broke.

Only in America.

Thanks for reading.

Bob
Building boats one at a time now.