Making a Construction Budget That Will Set You Up for Success
Hitting your targeted budget is important.
And planning your construction budget is a tremendous undertaking. But it’s the key to your financial success.
There’s no way to be 100% prepared for the financial realities of your construction project — but with a proper budget, you can be set up to deal with whatever nail is thrown into the job.
This construction guide helps set you up for success with your construction budget.
Table of Contents
- Flexbase: Cash Flow Management Is One Part of Our Construction Budgeting Solution
- What Is a Construction Budget?
- What Is Included in a Construction Budget?
- Stages of Building a Construction Budget
- 2 Types of Costs to Include in a Construction Budget
- Hidden Costs
- Contingency Construction Budget
- Budget and Plan for Success With Flexbase
Flexbase: Cash Flow Management Is One Part of Our Construction Budgeting Solution
Learning how to budget for a construction project can get complex — not to mention managing cash flow as a contractor.
Frankly, it can be a big pain.
Flexbase has streamlined and automated the paperwork involved — including construction budgets.
Contractors can use Flexbase to:
- Create invoices
- Send invoices
- Track projects
- Automate all documents
- And more
Flexbase is entirely free to use.
Say goodbye to subscriptions that you have to pay for even if you don’t get paid.
What Is a Construction Budget?
A construction budget is the amount of money that’s allocated for a building or remodeling project.
Construction budgets are used to anticipate all costs and expenses of the construction building process. A construction budget spreadsheet or form is usually used for planning the budget and tracking expenses.
Why Is a Construction Budget Necessary?
Wondering, “How many construction projects go over budget?”
It’s estimated that the percentage of construction projects over budget is at least 85%.
A construction budget is necessary because it can save you both time and money throughout the building project.
It boils down to a simple math equation:
A comprehensive construction budget = Staying on budget = More profit
With good planning comes the assurance that your construction project is more likely to stay within budget.
What Is Included in a Construction Budget?
A construction budget usually includes:
- Permits and design costs
- Blueprint drafting and review
- Interest and fees
- Site preparation
- Foundation issues
- Exterior considerations
- Interior considerations
- Contingency allowances
Stages of Building a Construction Budget
#1: Research and Analysis
Assemble your team. A good construction budget can’t be created alone.
Your funding for the construction project should be secure and well-established before meeting with your finance team.
Construction projects are expensive.
Being prepared to withstand going over budget without breaking the bank is crucial. Researching and analyzing the goals and requirements for this project will help you have a good foundation for your construction budget.
Before you start on the “how” of your project — you should know the “what” and “why.”
Once you have all of that planned out, you and your team can start on the specifics.
The final part of research and analysis includes:
- Evaluating the site conditions
- Evaluating any existing documentation
- Being aware of specific safety and code requirements
- Being aware of any permits you’ll need to proceed
#2: Project Design and Development
This is when you’ll need to determine the potential scope of your construction project.
You’ll first meet with your architects and design consultants.
All stakeholders and decision-makers need to be on the same page for the final design before the work begins.
For this meeting, you’ll:
- Come up with creative options
- Pitch drawings
- Pitch models (for certain projects)
Once there’s an agreement and sign off, create a list of required materials with an estimate from an experienced engineer.
This estimate will help you better evaluate bids from multiple subcontractors.
You can now finalize your construction budget and timeline and start seeking bids.
#3: Pre-Construction and Documentation
Before moving on with the construction budget, you’ll want to ensure that decision-makers understand the project and are prepared to move forward.
Now it’s time to secure final approval of the design and construction budget.
It’s a good idea to meet with all parties involved …
… to discuss the project and assess any potential issues.
Doing so will reduce the chance of going over your construction budget and will help keep your timeline on track.
It’s imperative to keep paperwork and important documents for planning and tracking when managing your construction projects.
That’s where FlexBase comes in.
Instead of wasting time finding paperwork, sending important documents, or worrying about cash flow problems for your construction budget, let Flexbase store and automate the process for you.
#4: Construction and Closing the Contract
You’ve reached the final (and longest) phase of the construction project. This will also be where you find out if your construction budget hit the mark.
Continue monitoring the build and ensure progress is staying on track with schedule and budget as much as possible.
Keeping a detailed construction budget throughout the process is key. Try to identify trouble spots ahead of time. But a well-done budget accounted for contingencies as even the best-laid plans can fall apart.
This is also the step when you’ll prepare:
- Punch lists
- Closeout checklists
- Warranties; and
- Necessary inspections
Using an automated process will help these steps run smoothly and on time.
2 Types of Costs to Include in a Construction Budget
#1: Hard Costs
When you’re creating a construction budget, hard costs (AKA “brick-and-mortar costs”) are costs directly related to the physical construction of the building and any equipment that is fixed.
This includes the cost for:
Hard costs are more tangible and therefore easier to estimate on a construction budget.
#2: Soft Costs
In your construction budget, soft costs are additional costs not directly related to the construction budget.
These can include:
- Architectural fees
- Engineering fees
- Site analysis
- Legal fees
- Administrative expenses
- Movable furniture and equipment
- LEED Certification
Soft costs can be harder to estimate accurately. That’s where having a good contingency budget comes in handy. Keep reading — we review contingencies in depth below.
Hidden costs such as …
- Incomplete designs
- Existing conditions
- Plan changes
- Biased specifications; and
- Completion time
… can derail your construction budget.
Keep reading as we review two (often overlooked) costs to consider while planning your construction budget.
ADA Laws and Regulations
The cost of incorporating accessibility features in new commercial construction is low — less than one percent of construction costs.
To adhere to the Americans With Disabilities Act of 1990, it’s a small price to pay. With full accessibility comes the economic benefits of increased employment and consumer spending.
The ADA may mandate certain accommodations — such as accessible drinking fountains or wheelchair ramps — so it’s crucial to ADA standards to ensure your designs are compliant.
Local Codes and Restrictions
It’s important to understand the applicable government building codes for your construction budget.
- Plumbing codes may dictate requirements for restrooms and water fountains.
- Fire codes may affect whether existing structures are sufficient or whether upgrades are needed.
- Environment restrictions can limit the type of HVAC system that can be installed.
Contingency Construction Budget
A contingency construction budget is money set aside to cover those unexpected costs that creep up during the construction process.
This money is on reserve and not allocated to any one area of the job. You can think of it as “insurance” against other costs.
To determine how much to allocate to a contingency construction budget, most construction projects use a rate of 5%-10% from the total budget. Without enough funds on reserve, budget issues can delay an entire project.
In construction, it’s best to plan for the worst:
- Weather delays
- Scheduling issues
- Material increases
- Paperwork delays
- Owner design modifications
And if you don’t use all of the contingency budget? Good news! You’re under budget.
Budget and Plan for Success With Flexbase
Flexbase has streamlined the payment process for contractors by automating every step.
Let us take care of all the construction payment management steps for you, including:
- Project tracking
- Construction budget
- Applications for payment
- Legal reminders
- And much, much more
The Flexbase platform integrates fully with the accounting and construction payment management software you already use. The transition is seamless.
Our resources are 100% free to use. You don’t pay unless you get paid.