Lincoln Logs, Legos, K'Nex, Erector Sets—remember how fun it was to create the structure of your dreams with any one of these building toys? As long as you had enough pieces, the possibilities seemed endless. And the best part was that you didn't need to create a construction budget or put anything down in order to bring your dream to life...just a vivid imagination!
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But in the adult world, planning a new construction project is both exciting and challenging. It’s fun to plan and design a project and see it take shape—even if it’s only in the form of a graphic model during the beginning stages. But unlike when you were a kid, you have to create a budget before you dive into any construction project.
Construction budgeting is an important part of any project, especially since the industry is known for throwing its share of curveballs.
Construction projects are dependent on material resources and manual labor, making it easy to exceed the budget if it’s not well thought-out. And falling short of resources, labor, or both when you’re only halfway through construction isn’t exactly ideal. Any of those can bring your project to a grinding halt, just like when you were a kid and realized you were missing the second roof support for your dream Lincoln Log cabin. Shoot!
To ensure your construction project is completed on time and on budget, plan to plan. Creating a construction budget may seem intimidating at first, but with a structured approach, and the right construction accounting software, the process can be relatively simple.
Our guide to planning and creating a construction budgeting analysis will help build your confidence in building the project of your dreams. Let’s dive in.
What is Construction Budget Analysis in Accounting?
A construction budgeting analysis helps set clear expectations for the total projected costs likely to occur during construction.
These costs include things like:
So…do you really need one? In short, yes. A construction budgeting analysis helps map out the overall execution of the project. It helps define goals and ensure the project stays on track.
It can also mitigate the frustration that comes with delays and unforeseen challenges, since these can be factored in ahead of time to identify where the budget might need some wiggle room.
While it’s impossible to be 100% prepared for every curveball that comes your way, planning and creating a construction budget analysis helps manage hiccups better and faster by staying as close as possible to the established budget, timeline, and overall scope.
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How To: Creating a Construction Budget Analysis
There are different ways to create a construction budget analysis, but we recommend using a structured approach. Divide the planning into the four sequential steps below, and tackle them one by one.
1. Planning & Analysis Stage
Having the team meet at this stage ensures that everyone is aligned and that the project’s goals are clearly defined. The appropriate team members can give the necessary approvals for all budget-related items, and any potential challenges can be addressed or factored into the construction budget analysis.
2. Design & Development Stage
Determining the scope of the construction project comes next. Typically, this involves meeting with the team of architects and design consultants to craft drawings and models before presenting them to any decision makers, board members, and stakeholders.
Getting the final design approved is worthy of celebration, but don’t get comfy just yet—there's still plenty to do!
3. Documentation Stage
Documentation is one of the most important parts of any construction project. Keeping contracts, deliverables, permits, and regulations documented and organized is key to keeping the project on schedule. It’s also an important part of staying on budget—so make sure invoices, financial statements such as P&L statements and charts of accounts, and any other expenses are accurately documented.
Documentation will ultimately ensure that the specified budget is in accordance with the allocated funds.
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4. Construction Stage
Now what you’ve been waiting for…it’s time to begin construction! This is where all the hard work you’ve put into crafting your construction budgeting analysis will shine. It’s also where your hard work will be put to the test.
That’s because even the most detailed construction budgeting analysis can be challenged by inevitable delays and other hurdles. But you can counter this by keeping a change order log to track anything that may pop up and alter your scope (and likely your budget).
During this stage, it’s important to track the quantities of used materials on an ongoing basis. This will help ensure you stay on budget and will make it easy to identify which items need to be replenished before they’re out of stock.
Calculating and tracking the expenses of used inventory and labor costs, marking important milestones, and checking if they align with the scheduled timeline should all be part of your day-to-day.
And since contractors and suppliers are the backbone of any construction project, make sure they receive payments in a timely manner.
Automate Your Construction Bookkeeping With Botkeeper
A carefully planned construction budget is key to the successful completion of any project. But sticking to the established budget can be tough, even for experienced contractors and project managers.
Construction professionals are up against a handful of industry-specific challenges. You’re busy tracking what clients owe and how much is owed to contractors and suppliers—it can quickly become overwhelming!
Your team is likely mobile and providing services in new locations all the time. On top of that, monitoring each and every cost and entering transactions daily is a huge pain.
Fortunately, there’s a better way.
The right automated software can relieve you of the headaches that come with construction bookkeeping. Botkeeper’s construction accounting solutions are designed to streamline the most complex budgeting responsibilities. Botkeeper seamlessly manages your day-to-day accounts, taking care of billing, expenses, and invoices.
Using the power of AI, Botkeeper learns your bookkeeping processes and saves you time by recording your projects for you, so you can say goodbye to mundane tasks. If you’re already using accounting software like QuickBooks Online, take advantage of our easy integration and helpful QuickBooks tutorials.
Best of all, Botkeeper does all of the above with 99.97% accuracy, making it a powerful tool when it comes to effective job costing and beyond.
While automated bookkeeping won't make real-life construction projects as fun or easy as when you were a kid, Botkeeper can help you stay on budget with 24/7 accounting, support, and complete bookkeeping accuracy.
If you haven’t considered automation, what are you waiting for? Learn more about our construction accounting solutions, and reach out to a Botkeeper rep to see how you can save time and money by Botkeeping.