Budgeting and Forecasting For Your Construction Company

Construction companies face a challenging financial landscape, marked by material price fluctuations, shifting project timelines, and vulnerability to unforeseen delays. Without disciplined budgeting and forecasting, these difficulties can disrupt even the most well-run businesses. 

To avoid this, you’ll need a financial structure that helps you maintain stronger margins while reducing risk. But that means more than developing KPIs and tracking performance, as the following tips show.

Core Features of a Strong Construction Budget

First, what features does every construction budget need? The strongest financial plans feature the following elements:

• Job costing accuracy: In construction, labor, equipment, and materials must all be allocated with extreme precision. Poorly estimated costs early on can destroy margins by project close.
• Labor planning and variability: Construction labor can be unpredictable. A strong budget will account for potential overtime costs, labor shortages, and weather-related downtime.
• Material and equipment forecasting: The price and availability of construction materials are constantly in flux. Your budget should feature built-in contingencies to anticipate delays and protect margins.
• Overhead and compliance costs: A strong construction budget will also incorporate the true costs of insurance, bonding, permitting, safety programs, and other administrative overhead.

Maintaining accuracy while budgeting for the unexpected isn’t always easy. Even if you have the internal financial expertise to do it, the process could take away senior leaders from more important work around growth and relationship development.

That’s why many construction brands partner with fractional CFOs. They provide on-demand access to senior-level financial expertise. It’s a resource you can use to get an expert’s help without having to add another full-time salary to your books.

Forecasting Strategies for Construction Companies

Forecasting prepares construction leaders to anticipate future conditions and plan accordingly, rather than reacting after the fact. Some of the most important forms of financial forecasting in this industry include:

• Cash flow forecasting: This includes forecasting vendor payments, payroll cycles, retainage, and draw schedules to provide insight into future cash flow.
• Project forecasting: Comparing your actual costs to your estimated costs at each project stage will help your team maintain profitability. Real-time forecasts can trigger adjustments to staffing, purchasing, or subcontractor schedules to minimize your costs.
• Pipeline and backlog forecasting: Projecting your pipeline and backlog trends into the future will help you understand what future revenue will be like before it arrives. You can use this information to make more informed decisions around hiring, bidding, and equipment.

The construction industry is subject to a lot of variability that leaders don’t always have direct control over. Forecasting your cash flow, projects, and pipelines into the future helps teams make better decisions today. That can be the difference between shifting strategy before being impacted by a bottleneck or scrambling to adjust after it arrives.

How Fractional Financial Leadership Helps Construction Companies

Budgeting and forecasting for your construction company can be difficult as a growing company. Hiring a fractional CFO could be the solution. At CFO Hub, we can provide your business with a flexible, cost-effective financial expert to help with:

•  Building accurate job-costing and budgeting systems
• Implementing forecasting models for cash flow, backlog, and projects
• Creating KPI dashboards
• Preparing financials for loans
• Improving profitability through stronger cost controls
• And much more

But don’t take our word for it. Contact us today to learn how a fractional CFO could transform your construction business.