How to Improve Construction Expense Management
Construction projects, no matter the scope, involve countless expenses.
And for a project to be successful, those expenses must be planned and accounted for.
The task of construction expense management can be overwhelming — but not getting it right can result in wasted time, lost profit, and even a damaged reputation.
In this article, you’ll learn why streamlined expense management is important and how you can do it successfully.
Table of Contents
- Flexbase: Streamlining Construction Expense Management Is One Part of Our Cash Flow Solution
- What Is Construction Expense Management?
- How Do You Manage Costs in a Construction Project?
- 3 Reasons Managing Job-Related Expenses Gets Challenging
- 7 Ways to Improve Expense Management in Construction
- Construction Expense Manager Apps Make Managing Expenses Easier: Flexbase Can Help
Flexbase: Streamlining Construction Expense Management Is One Part of Our Cash Flow Solution
Many factors can make cash flow management a struggle …
- Late or partial payments
- Unexpected costs
- Inflated costs for materials
- Tardy invoicing
… just to name a few.
Managing construction expenses from the beginning of a project through its completion helps a project stay on budget. And it keeps cash flowing — so it’s there when you need it.
Streamlining all of those processes is what Flexbase does, allowing you to focus on the construction work at hand.
Not only do our tools allow you to integrate expense and project management, but with Flexbase, you’ll also be equipped to:
Send paperwork to clients
Send invoices to customers
Generate compliance documents including:
- Payment apps with AIA forms
- Lien waivers
- Schedule of values
- Prevailing wage
- Insurance documents
What Is Construction Expense Management?
Staying on budget can be a challenge, especially in the construction industry. And that’s what construction expense management — also known as construction cost management — is all about.
Effective construction expense management is essential to keep a project on budget.
Construction cost management is a way to make sure that spending on construction stays on track — from the beginning to the end.
Managing the expenses of a construction project involves every aspect of the job.
Though not limited to this list, the following phases should be considered in expense management:
- Design and planning
- Cost estimations
- Contractors and subcontractors
- Change orders
When done well, construction cost management will result in efficient and accurate cost estimates as well as actual spending. This further puts a construction company in the position to grow based on its experience and reputation.
How Do You Manage Costs in a Construction Project?
Managing construction costs should involve some, if not all, of the following suggestions:
- Start with precise estimates.
- Revisit and update the cost plan regularly.
- Review contingency plans often.
- Assess risk management.
- Urge the design team to stay within budget constraints
- Merge expense management tools with contracts.
- Use construction expense management software.
Flexbase is the only construction expense manager you need.
When you take advantage of all the tools Flexbase has to offer, you’ll be able to integrate everything:
- Construction ERP
- Project management software
- Accounting software
We make it easy to keep everything together without entering data multiple times.
What Are the Results of Poor Expense Management?
Poor expense management costs you both time and money.
Many contractors may turn to spreadsheets like those that can be created with Excel or another type of program. This strategy may work for very small and simple projects. But for larger and more complex projects, you need something more versatile.
The problem with Excel spreadsheets is that the data is siloed — which means it stands alone and can’t be integrated with other data.
You may start with an accurate budget, but if your accounting system doesn’t allow you to integrate all other parts of the project, you may find yourself out of money or overspending when it could be avoided.
Excel systems also increase the chance of error because of:
- Information and effort that are duplicated
- Data that is passed to and from different accounting systems; and
- The inability of team members to access the data in real-time
Accurate expense management in construction can help you avoid all of these pitfalls.
3 Reasons Managing Job-Related Expenses Gets Challenging
It’s no secret that construction expense management involves a variety of moving parts. And keeping up with all of the moving parts while at the same time considering all of the financial accounting involved can be a complex and overwhelming endeavor.
Consider a few situations that make expense management a bear of a task:
- Multiple visits to buy materials
- Mileage remuneration
- Employee receipts for job-related expenses
Without a centralized and integrated expense management system in place, tracking these types of expenses (and many others) can be a nearly impossible task and may result in extra expenses that weren’t considered in the budget.
#1: Unique Projects Have Unique Needs
No construction project is exactly the same as the next one, so estimating costs accurately — both direct and indirect costs — can be a struggle.
In any construction project, a contractor needs to consider both materials and labor costs.
Material costs tend to be easier to price unless material prices suddenly spike (like the recent lumber dilemma.)
But estimating labor costs is another story and is more difficult.
To precisely estimate hours for labor, a contractor needs to consider the type of work being done and put a cost per hour on that particular task.
For example …
For a kitchen renovation, a contractor will need to estimate how long a demolition will take. To make that assessment, the contractor must take many variables into account, like:
- The square size of the kitchen
- The age of the home (demo in a 100-year old home will probably be more difficult than a newer home)
- Underlying problems (for example, asbestos glue used in old flooring)
And these assessments need to be made for each project. This can overload even the most experienced contractor.
#2: Subcontractors Generate Lots of Receipts
One of the necessary tasks of construction expense management is keeping track of every single expense.
And if a GC uses multiple subcontractors on a job, he’ll have a plethora of receipts and labor expenses to keep up with — especially if they need to be reimbursed.
But even if the subcontractor is paid a flat fee, a wise GC will want to track all receipts to know if he priced the job accurately. Without this important knowledge, estimating costs in the future is just a shot in the dark.
#3: Most Contractors Didn’t Get Into Business to Be a CFO
General contractors who start small may be able to handle their expense management while things are simple and straightforward.
But as their business grows and as they take on multiple jobs at once, expense management becomes extremely complex.
At that point, a GC may be forced to develop a cost management plan to handle the complexity involved or risk cash-flow complications.
And chances are, contractors or construction company owners got into the construction industry to build things, not to run a business as the Chief Financial Officer.
If you’re struggling to keep up with all the expenses involved in your growing business, Flexbase has the resources you need to make expense management easy, economical, and efficient.
The Flexbase credit card not only provides needed credit, but also tracks receipts and automatically assigns the expense to the appropriate project.
7 Ways to Improve Expense Management in Construction
#1: Begin With Accurate Cost Estimates
Accurate estimation is crucial as the first step to success with any type of construction project.
Taking the time on the front end of a job to precisely calculate …
- Materials costs
- Labor costs; and
- Contingency costs
… can save a vast amount of time and money in the long run.
Not only that, inaccurate estimates can result in:
- Losing bids
- Less profit; and
- A damaged reputation
#2: Use a Construction Management Software
Construction management software that integrates everything is a must for streamlined and accurate accounting.
Flexbase integrates everything:
- Change orders
- And more
Having these integrated processes available throughout the life of a project is essential.
With everything streamlined in one location:
- Team members can all keep on the same page whether they are in the office or onsite.
- All data is in one place and is easy to access.
#3: Monitor Budgets in Real-Time
Construction expense management is beneficial in both the present and the future.
Being able to see real-time financial data is essential to keeping the budget on track throughout the life of the project.
In addition …
Accurate management can also set a business up for accurate and helpful financial forecasting for future jobs.
#4: Choose the Right Tools to Streamline the Change Order Process
Change orders affect construction jobs in unplanned ways — which makes the accompanying changing costs difficult to manage.
To better manage construction expenses that come with change orders, streamlining the change order process with other construction processes is a necessity.
Streamling comes with the following benefits:
- Your team will have the information they need to make decisions.
- Communication and collaboration are improved.
- Costs are more easily controlled.
- Risk is minimized.
#5: Create Favorable Payment Schedules
Any construction job (whether grand or simple) will inevitably involve time, laborers, and money.
Knowing how to plan the timing of receiving income and paying expenses is critical for the success of the job. Planning payment schedules well can also position you to not rely on credit or borrow other types of working capital.
With the right construction expense management platform in place, you can decide how to spread out payments across a job.
You can do this by:
- Making progress payments after certain milestones; or
- Frontloading costs by receiving an initial deposit
#6: Integrate Contracts With Expense Management Tools
Integrating contracts and expense tools means you can access all documents and data in one location.
With an expense management tool, you can …
- View; and
… contracts and keep expense and contract data organized and easily accessible for every member of the team.
#7: Do a Risk Management Assessment
Identifying risks before they occur is key to managing expenses throughout a construction project.
Knowing the risks and planning for them affects:
- Safety; and
Construction Expense Manager Apps Make Managing Expenses Easier: Flexbase Can Help
You understand the importance of expense management in construction, but you don’t know where to start or where to turn for help.
With our integrated systems, you’ll have access to everything you need to keep contracts, expense management, and project management in one place that’s easy to access.
And when things don’t go as planned, and your cash flow diminishes, Flexbase offers two ways to help you with working capital:
- Flexbase credit cards
- Flexbase capital
With Flexbase, there are no subscriptions or licenses, and our full platform is available to use immediately. And starting at 0.5% per payout, it’s essentially free to use — you don’t pay us until your clients pay you.
Schedule a demo to get started.