Construction projects can come with a lot of costs, and some of those costs might not always be forecast or catered for without careful planning.
Budgeting for a business construction project of any kind requires the creation of comprehensive financial plans. All of which should be accounting for direct and indirect costs, professional fees, and contingency funds to help cover unexpected expenses.
With that being said, here are a few ways in which you can budget for your construction project as a business this year.
The Key Components of a Construction Budget
There are key components that make up a construction budget. These are direct costs and indirect costs.
Direct costs are hard costs that are related to building, including labor, equipment, and materials. The indirect costs are considered the soft costs, and therefore, non-physical expenses like permits or site surveys would be categorized into this type of cost.
Having a contingency fund is important as a safety net for the project. Generally, 10-15% of the total budget helps manage unforeseen issues or any price fluctuations that occur.
Administrative expenses, as well as the company’s profit margin, are often calculated as a percentage of the total project cost.
It’s good to be mindful of interest payments on loans and relevant taxes, such as VAT, which needs to be considered too.
Steps to Build and Manage Your Budget
When it comes to building and managing the budget for the construction project, there are a number of steps to take.
1. Define scope and requirements
Clearly defining project goals, conducting site investigations, and analyzing architectural drawings help to provide accuracy for the timeline.
2. Break down tasks
Dividing projects into smaller and manageable phases makes tracking a lot easier, too. Whether that’s site prep, foundation, and framing.
3. Estimate accuracy
Using historical data from previous projects, as well as consulting suppliers, is helpful to get realistic material prices.
4. Add contingency
A contingency fund, as mentioned, is good to have available at this point to handle those costs that crop up and are unexpected. For example, you might need to explore access equipment hire if suddenly some of the current equipment you have breaks down and becomes unusable.
5. Track and adjust
At this point, it’s good to keep track of your expenses in real-time. Using software like Excel or Smartsheet, for example, can help to compare your expenses to the original budget and to find ways to prevent overspending before it occurs.
6. Manage subcontractors
Clearly defining the scope of contracts is useful to help avoid excessive change orders. That’s why it’s important to manage your subcontractors effectively.
Pro Tips for Businesses and Their Construction Projects
For businesses managing construction projects, there are some pro tips to round off this guide. Firstly, don’t just take the lowest bid when selecting your contractors. Base it on value and reliability to minimize delays and problems.
It’s also important to account for inflation, so factor this into your estimates as well. Finally, ensure you have a cash reserve available for large-scale issues that are unexpected.
Budgeting for construction projects is important to get right to ensure business success.
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