Here are some financial planning tips for construction managers that can help optimize your oversight.
Make Informed Bids Based on a Realistic Budget
When you’re first bidding on a construction project, set yourself up for successful financial planning. Use data and information from previous projects to inform your bid. Stay underbid, as it can leave you short on money, which may require you to request more later. This negatively impacts your business and puts undue pressure on the project.
Analyze the Construction Site to Understand Difficulties
Anything that could delay a construction project or make it difficult to build will likely involve increased costs. Conduct a thorough site discovery to identify such characteristics. At the same time, municipal rules should be checked to see how the land is zoned, soil quality should be tested, and existing utilities should be looked into. The more you know your site, the more profitable a project can be.
Use Construction Software for Cost Tracking
Implement cost-tracking measures so that you stay updated on your costs. Enter invoices, record expenses, and compare the reality to your budget. Cost tracking can get complex, so using construction accounting software as your best tool makes sense. With this, you can anticipate project costs and automate cost tracking.
Develop a Comprehensive Project Budget
Create a project budget that details labor, materials, equipment, and overhead. Include contingencies as well for unforeseen expenses. If your construction management software provides you with the ability to calculate and administrate a budget, use it. Ensure you maintain a clear understanding of fixed and variable costs so that you can adapt the budget later if needed.
Set Up Risk Management and Predetermined Responses
Many risks exist in a construction project. Mitigate disaster by having risk responses written out. Financially speaking, this involves maintaining a cash-flow reserve and being willing to dip into it when needed. Here are some of the more common potential risks construction projects face.
A weather-related event or storm damages materials, equipment, or the work site. A dispute over a change order leads to a complete breakdown in work.
A delay in material delivery brings construction to a standstill. Regulatory changes occur mid-project that require a new construction plan in response. A late contractor payment puts project finances at risk.
A Contingency Fund Is Important in Construction
Allocate 5-10% of your total budget for contingencies because unforeseen expenses come up in construction. There may be work delays or material shortages. There may be patterns of unexpected costs due to several factors. A contingency fund you can pull from reduces the chances of your project encountering financial strain.
Monitor Cash Flow Carefully to Keep It Steady
Healthy cash flow is a must on a construction project. Implement a weekly or bi-weekly cash flow forecast, including predictions on potential cash shortages. Regularly review inflows and outflows to ensure steady cash flow. Suppose clients’ late payments threaten project timelines. If so, pivot and act. It doesn’t hurt to have liquid assets in reserve if needed.
Use Your Buying Power for Better Terms
As a construction company, you have some financial influence. This can be used to avoid contract terms that strain project finances or leverage bulk purchases for discounts. Look for where savings can occur. Talk to your suppliers to ensure clear payment terms align with your cash flow cycles. Be as smart as you can be when structuring your finances.
Renting or Buying Outright
Many recommend renting specialized equipment that only receives minimal construction project use. You may buy it outright for more valuable equipment that sees regular use. Schedule maintenance for any owned equipment at the right time to avoid unexpected repairs and project delays.
Reassess Your Budget to Align with Project Goals
Break down the financial objectives for your construction project. Use construction management software to monitor profit margins, return on investment, and progress tracking. Be ready to reassess and reform your budget based on changing conditions or unexpected challenges. The more flexible your budget is, the better.
Automate Your Financial Monitoring As Much As Possible
Your construction management software can automate integrated financial planning and cost tracking. This means you get real-time updates on spending, can automate invoicing and payroll processes, and more. Reduce errors and save time. Automation in financial planning ensures you remain ingrained in management decision-making rather than performing necessary grunt work.