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.
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. It also keeps cash flowing — so it’s there when you need it.
Streamlining all of those processes is what the Flexbase card does, allowing you to focus on the construction work.
Keep your expenses in order with the only card designed specifically for construction companies. The Flexbase card offers:
- 0% interest for 60 days
- 10x the credit limit compared to traditional credit cards
- Receipt tracking built into the app so you don’t have to hold on to dozens of receipts
- Unlimited employee cards so your team can easily manage their own expenses
- Spending limits and controls per employee
If you’re ready to ditch the clunky expense tracking spreadsheets and manual tracking processes, then you’re ready for the Flexbase card.
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 ensure that construction spending 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 expense 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?
Construction expense management 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.
Expense Management Through Effective Estimating
Since 2020, supply volatility and inflation have become major concerns for the construction industry.
Construction companies were forced to:
- Source materials that were reliably in stock
- Learn to manage the supply chain by ordering materials earlier in the process
- Reduce customer options to include only what was readily available
With a typical build taking a year or more, and much of that time is spent waiting for permits, inflation can seriously impact the initial estimates made by construction companies. As a result, many clients were forced to back out of projects simply because they could not meet the inflation demands.
One effective way to mitigate the inflation issue is to offer a price guarantee.
After conducting an initial feasibility study and accounting for projected inflation costs, price guarantees can reduce the number of projects that are stopped due to client financing issues.
Price guarantees also help:
- Increase predictability for the client so they feel more confident in moving forward
- Save time and resources for the construction company to do another evaluation based on inflation
- Increase customer satisfaction
- Streamline construction expense management processes
Contractors can start by asking the majority of vendors for fixed pricing, even if it’s slightly higher than what they’re paying now. Fixed pricing allows contractors to implement a standard cost catalog.
Using project management software is essential as updates are done instantly and across all projects, eliminating the need for manual estimating practices.
What Are the Results of Poor Expense Management?
Poor construction 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 efforts 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 Construction Expense Management Can Get Complicated
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.
Here’s an 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 general contractor 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 general contractor 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 contractor 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, the Flexbase card has the features 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 — especially if contractors implement a price guarantee based on fixed costs, as mentioned above.
Unfortunately, inaccurate or constantly changing estimates can result in:
- Losing bids
- Dropped projects
- Fewer profits; and
- A damaged reputation
#2: Use a Construction Management Software
Construction management software that integrates everything is a must for streamlined and accurate accounting.
Good software should integrate everything, including:
- Contracts
- Payments
- 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 stay 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 can be beneficial in both the present and the future.
Seeing real-time financial data is essential to keeping the budget on track throughout the project's life.
In addition, accurate management can also set a business up for precise and helpful financial forecasting for future jobs.
#4: Choose the Right Tools to Streamline the Change Order Process
Change orders affect construction jobs in unexpected ways — making 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.
Streamlining 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, labor, 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 ...
- Generate
- View; and
- Edit
… contracts and keep expense and contract data organized and easily accessible for every team member.
#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:
- Costs
- Quality
- Safety; and
- Schedules
You understand the importance of expense management in construction, but you don’t know where to start or where to turn for help.
Enter Flexbase.
With our credit card, you can instantly track every receipt across all projects within our app.
And when the markets are volatile, supply is down, and inflation is skyrocketing, Flexbase offers construction companies 10x the normal credit limit, so you don’t have to worry.
Click here to get pre-approved today.
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