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The 3 biggest mistakes small builders and construction companies make when estimating and the 2 things you can do to fix this.

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Don’t let rookie financial mistakes derail your construction business. After a decade of experience with small builders and construction companies, I have pinpointed the top three financial miscalculations that can cause them to lose money on their projects – plus two things you can do to avoid them!

Construction projects are a huge undertaking, and estimating is one of the most difficult tasks to get right. Unfortunately, many small building companies don’t have the time, proper knowledge or resources to make precise estimates and as a result, they leave money on the table and suffer financial loss on the project that could have otherwise delivered a healthy profit. To ensure accuracy and precision, building companies must take the time to carefully assess all factors that influence construction costs.

#1 – Project Management Time is not charged.

The owner fails to charge their time to the job. Let’s get serious, project management time is the most critical task for project success. If you don’t value your time and incorporate that into your quotes, you’re underestimating the true cost of doing business and limiting the growth potential of your business, as project management is a free service.

Many builders mistakenly believe project management time is a business overhead, and a cost their business must bear. If this is you, you need to change your mindset. By treating your own effort as a valuable and essential for project success, you begin providing your clients with professional level construction estimates that properly reflect the true costs and because you are being paid properly for your time, this allows you to deliver the very highest level of service possible.

#2 – Underestimating Materials.

Oftentimes, estimates in the construction industry are miscalculated and this affects 8 out of 10 small construction companies. The unlucky majority suffer from imprecise cost estimates and wind up facing costly overruns and delays that can result in financial loss – Even the most skilled builders are prone to making mistakes such as not budgeting appropriately for materials wastage, neglecting to incorporate a timeline for material procurement and not utilising current market prices – all of which can cause major problems when it comes to cost estimation.

#3 – Underestimating labour

Without properly accounting for labour costs when undertaking a building project, there is a potential financial problem lurking around the corner. The most common mistake made is neglecting to plan for unpredictable elements, such as delays due to bad weather or material supply issues.

Failure to anticipate these realities can prove incredibly costly; if teams are unable to work on-site due to inclement weather conditions, production stops, and you start losing money at an alarming rate. Don’t let this be you – factor in all possible problems ahead of time!

Now here are my 2 top tips to improve your estimates on your next quotes.

TIP #1: Stop working for free

Your skill as the project manager is the most important skill in ensuring your business delivers what your customer is paying you for. What would it cost you to employ a project manager? What is the hourly charge-out rate for a skilled project manager? How many hours of project management are required on the project? Charge this fee on your next estimate.

TIP #2: Stop doing your own estimates

Outsource this task to a qualified quantity surveyor. Using an experienced and skilled quantity surveyor will not only allow you to have an accurate projection of the costs involved on the project, but also will allow you to have an effective cost strategist on your team to help lower costs with ideas, options, and experienced advice. Furthermore, this service fee is charged to the customer.

I hope that you’ve enjoyed this article on building construction estimating, please share this with someone you think would get value from it.  Next Level Accountants is dedicated to enabling small business owners to understand their business numbers for financial prosperity.

Written by Lyndon Russell FIPA FFA
Next Level Accountants
Managing Director

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