Does your construction company have an annual budget? Owning and operating a construction business is not easy and requires expertise in your craft, as well as in-depth knowledge of your company’s finances. According to data from IBISWorld reports, one of the top success factors for a construction company is effective cost controls and budgeting.
- Supports planning and financial goals
- Assists with managing your money
- Helps keep costs under control
- Aids with the decision-making process
Here are six tips to help you create and maintain a budget for your construction business:
1. Develop or refine your business plan.
Your budget is a financial representation of your business plan. Creating a budget should not be attempted until you have a developed and refined business plan.
2. Look at the market.
You should regularly monitor construction industry trends and your business market(s). You should also study local economic projections and census data. A rise in population and a thriving economy may lead to increased residential and commercial building spending. After studying your market trends, connect this with your business plan to develop a realistic idea of potential revenue.
3. Evaluate your expenses.
The next step is to evaluate your expenses:
- Start with your direct costs, which are expenses related to a specific project and include materials, labor and subcontractor services.
- Next, assess your monthly fixed costs like rent and salaries.
- Finally, review how your remaining costs vary month to month.
This will help determine cash flow needs at various times throughout the year.
4. Determine if your rates are reasonable.
Once you have evaluated your revenue potential and your actual expenses, you will need to determine the amount of revenue needed to pay your expenses while also leaving enough to show a profit at year end. Your project rates may need to be adjusted accordingly.
5. Create a spreadsheet.
Organize this information in a spreadsheet or online budgeting software. Choose a tool that is convenient and easy for you to continue to use going forward.
6. Track your progress.
Compare actual results against your budget and adjust your budgeted numbers as needed. You should review your income statement and cash flow statement monthly. These reports can be created by your internal accountant or CPA firm, and should be shared with other members of your management team.
Maintaining a realistic budget will allow you to make informed business decisions that will lead to continued success. Use these tips to create a budget and keep your financial progress on-track as your year unfolds. Need help? Our Construction & Real Estate Group, comprised of numerous professionals, is committed to serving over 800 Minnesota construction and real estate entities. Contact us today to learn business strategies that will help you grow and save you money.