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Planning and Budgeting for construction businesses

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Planning and budgeting is a critical step for businesses. But most small to medium construction companies leave this out of their business process.

The 3 most common reasons businesses don’t plan and budget

  • They don’t see it as important because it doesn’t hit their pockets immediately. It is something they see as a process that can be easily dismissed for a different day, week, or month.
  • They have this assumption that their business is doing well and therefore they don’t need to plan or budget their finances.
  • Some businesses can’t see the link between planning and budgeting with success.

4 Common challenges to planning

  • One of the common challenges businesses encounter in developing business plans and budgets, is time. They are too occupied running tasks IN their business so, they forego running tasks ON their business. 
  • Organizations don’t know where to start. This is especially a behemoth type of task for businesses that have never budgeted or planned their finances.
  • It is difficult to put down on paper the information needed. This is particularly true if all the data is caged inside the mind of one specific group or person.
  • For small to medium organizations it is common to find that their financial data is unorganized. A lot more effort is needed to gather, structure, and transpose the information on a spreadsheet. Although it is eventually completed for taxation purposes, it does take a while.

But why should construction companies plan and budget their finances?

  • Planning and budgeting are important for your business to review its current position and for you to develop projections against your own business goals.
  • If you decided to prepare a budget now, you could look at your entire calendar of 2021 and you would be able to balance and financially prepare for that year based on your company’s current performance.
  • You can determine where your business will finish by the end of the year and if you will be able to achieve your business goals.
  • It allows you to manage your risks proactively. If a project is being delayed, you would be able to see the impact on your finances immediately.
  • It can help you make better investment decisions. If you can proactively see the expenses and revenues of your company, then you can create a plan for investing in other businesses, or even invest in upgrading your company depending on the status of your current finances and your finances at the end of the year.
  • You can clearly see if there is a need for you to cut costs to meet your company’s required numbers.
  • You can be smart with your long-term opportunities. When you plan and budget you will know what you should do with the money. Whether save or invest it. It also allows you to know what’s missing and it can remove any nasty surprises.
  • You can configure if your business should explore different strategic moves such as diversification to add a new avenue of revenue.

How do you start?

  • Look at the revenue and list down all your projects. List down the amount of money it will generate and when all the payments are due.
  • Put down on the same file all your business’s fixed expenses such as rent and salaries. Continue this for every month and include when they should be paid.
  • List as well all the variable expenses such as equipment for hire.
  • Include the insurances and possible raise in salaries.
  • When you have all the information evaluate and analyze your financial status against your business’s financial goals.
    There are many more challenges and possible obstacles to budgeting and planning but that doesn’t mean your business should not partake in this activity. There are more benefits to planning than what I have listed above. Your business can prepare itself for possible monthly losses and thus, planning and forecasting that possibility can help you create a strategy to avoid a total loss at the end of the year. There is no harm in creating plans for your business, but it has all the possible benefits. So, take this time and start planning with your team.

Shivendra helps construction companies and contractors win more projects and grow profitably. Regarded as a master of practical implementation, Shivendra has guided organizations such as Downer and Siemens as well as smaller contractors to achieve double-digit improvements to their bottom line. Underpinning his extensive industry experience are qualifications in engineering and a Ph.D. focused on rapid cost improvement techniques. He is the author of two books, The Competitive Contractor and From Paper to Profit, host of the Competitive Contractor podcast, and the founder of Shivendra & Co and The Constructors Network. You can find more about Shivendra & Co on