Planning to start your own construction business?
Well, it’s an exciting and daunting prospect at the same time, as it offers freedom and control but also comes with significant responsibilities and complex financial aspects.
While you’re eager to raise funds or bank loans, it’s essential to have a solid financial plan in place to make sure your business thrives.
Do you need help writing one? This sample construction company financial plan serves you perfectly.
It helps you understand all the intricacies of financial planning and get valuable insights into a construction company’s profit and loss potential.
Sounds good? Let’s dive right in.
Key Takeaways
- A well-written financial plan includes all the key elements—startup costs, cash flow projections, income statements, and break-even analysis.
- Be practical and conservative about your revenue projections and cash flows to grab investor’s attention.
- Considering “what-if” scenarios is an excellent method to analyze the potential risks and opportunities you may have in business operations.
- Realistic test assumptions, thorough research, and clear market understanding will enhance the accuracy of your plan.
- Creating a financial plan is much easier and faster when you utilize a robust financial forecasting tool.
Construction Company Financial Outlook
Before diving right into financial planning, it’s essential to explore the financial landscape of the construction sector.
The construction industry is experiencing a significant transition with a rise in infrastructure development, urbanization, and high demand for residential & commercial properties.
Here are a few key facts and trends that you may consider:
- The global construction market was valued at $13.57 trillion in 2023 and is expected to reach around $23.92 trillion by 2032, with a CAGR of 6.5%.
- The market size of the USA’s construction industry reached a value of $1.8 trillion in 2022, contributing 4% to the GDP of the total economy.
- With a planned construction development in the USA, the non-residential sector is projected to reach around $646 billion by 2027.
- In 2023, there were a whopping 4 million construction companies in the United States, with collectively 11 million employees.
- The construction robot market trend is predicted to grow from $1.26 billion in 2023 to $3.81 billion by 2032, with a CAGR of 14.80% during the forecast period.
So, this optimistic outlook indicates ample opportunities for construction businesses to succeed in today’s competitive market.
Now, without further ado; let’s get started on how to create a successful financial plan.
How to Prepare a Construction Company Financial Plan
1. Calculate Business Startup Costs
Once you’ve decided to start your own construction company, it’s very crucial to have a clear understanding of your finances. Right? So, you’ll need to calculate the startup costs very first!
You may start by identifying all the initial expenses associated with your construction company, including office space, equipment purchases or rentals, insurance coverage, business insurance & licensing fees, marketing, and staffing costs.
You can also research local market conditions and industry benchmarks to evaluate the typical costs of starting a construction business. This will help you get accurate estimates.
Try to be clear and comprise every potential cost, no matter how small it is. You can make a specific list of all the expenses, as shown in the below table:
| Expense Category | Average costs |
|---|---|
| Office setup | $30,000 to $50,000 |
| Construction tools & equipment | $50,000 to $150,000 |
| Marketing and branding | $5,000 to $10,000 |
| Annual insurance fees | $2,000 to $10,000 |
| Material inventory | $20,000 to $25,000 |
| Business licenses and permits | $5,000 to $20,000 |
So, having a clear understanding of construction company startup costs will help you create an accurate budget and determine the necessary capital to launch your business successfully.
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2. Determine Financing Requirements & Strategy
Sometimes, people don’t have enough money to start their own business. So, they might need to ask for help from others to get the initial investment.
For your construction company, you may evaluate the current monetary position and determine how much startup capital you’ll require to fund your business. Also, assess various financing options and develop a clear strategy to secure funding.
Here are a few funding options you may consider:
- Traditional bank loans
- Small Business Administration (SBA) loans
- Angel investors
- Crowdfunding
- Venture Capital (VC) firms
- Commercial construction loans
For each option, you have to evaluate the terms, interest rates, and repayment methods. This will let you devise a financing strategy that aligns with your investment goals and risk tolerance.
Then, you can decide which funding option is the most appropriate for your construction business.
Furthermore, while seeking credit from banks or investors, you’ll need a professional document that projects how your construction financial modeling works. It will assist potential lenders to have a better idea of your business.
3. Understand Your Business Model
Developing a scalable business model is a crucial aspect of a financial plan. This is something you have to decide before you start running your business.
It is a strategic framework that defines how you generate income, manage expenses, and reach your financial objectives.
Here is a list of different construction business models you should consider:
- Residential construction
- Commercial or non-residential construction
- Specialty contracting
While deciding on any of the above models, you have to understand their financial considerations, including project startup costs, revenue potential, operating expenses, and scalability.
This will help you make well-informed decisions and achieve your financial goals in the long run.
4. Identify Revenue Streams
Identifying your business revenue streams is an essential part of maximizing profitability. So, try to diversify your income sources within the construction landscape and create a robust portfolio.
It will help potential investors or lenders determine how much revenue your business intends to generate over the next few years.
For instance, you may include the following revenue streams in your construction company’s financial projections:
- Construction projects
- Maintenance & repair contracts
- Property development or management fees
- Project management consulting
Well, using Upmetrics could be a great help here. It will not just calculate financial projections but also help you identify relevant revenue streams.
For better understanding, you may consider the following example prepared using Upmetrics:
Furthermore, it allows you to make informed decisions about your revenue by using different ways to forecast income streams, such as unit sales, the charge per service, recurring/hourly charges, or fixed amounts.
So, this can be an effective and accurate way of estimating your income potential.
5. Market Analysis and Pre-Assumptions
A successful business requires a comprehensive market analysis to gain valuable insights into the local business landscape.
While writing a construction business plan, you’ve already conducted thorough market research and had a better understanding of the target clients, construction trends, regulatory requirements, and competitor offerings.
So, it’s time to use that knowledge to prepare a financial forecast and make realistic assumptions about project expenses, interest rates, subcontractor fees, and labor costs.
Here are a few key components that you should include in your plan:
Pricing Strategy
When it comes to devising a pricing strategy, there’s no bound law. Yet, you’ll need to analyze a few factors, such as your project complexity, materials costs, labor rates, and profit margins to develop optimal pricing.
You may conduct a competitive market analysis to comprehend the general market prices and set competitive yet profitable sales prices.
Remember, your prices should reflect the value of your construction projects and still help you generate sufficient returns on your investment.
Sales Forecast
A sales forecast is a primary element of any business, as sales are the very basis for a company’s profit and growth.
It helps you estimate the future sales volume of your construction company based on seasonality, economic conditions, pricing strategy, industry trends, or other relevant factors.
You can analyze historical sales data and industry trends to predict future demand for your target market. Also, include your marketing efforts and pricing strategy to forecast the sales number you expect within a specific timeframe.
Business Expenses
Generally, business expenses are operating costs or day-to-day expenses that will keep your business running smoothly.
For your construction venture, you may conduct a detailed analysis of your anticipated expenses, such as labor, materials, utilities & equipment, permits, insurance, overhead, and administrative costs.
Apart from that, you may consider a few factors, like construction trends, inflation rates, and industry standards, while estimating your business expenses.
Here, you should note one thing—you must account for probable cost overruns or unexpected expenses during business operations. So, be conservative in your financial projections.
6. Make Financial Projections
If you want to attract investors, let the numbers do the talking. This is so because potential investors or stakeholders will look at the financial reports once and decide whether or not to invest in your business.
So, ensure that your key reports give a clear picture of your construction business’s financial health and viability.
Here’s a list of several financial projections and statements you should include in your plan:
Cash flow statement
A cash flow statement helps you track the cash flow in and out of your construction company over a specific timeframe, generally monthly, quarterly, or annually.
It provides a detailed explanation of how much cash your business brings in, pays out, and ends with the cash balance. Typically, it’s an illustration of how well your business is generating cash.
You may take into account the cash flows,including client payments, subcontractor fees, material purchases, equipment rentals, labor costs, loan repayments, borrowing, or equity.
Be realistic about your financial assumptions and measure your business’s liquidity, capability to meet financial obligations, and sufficiency of cash flow to fund future investments and expense outlays.
Balance sheet
A balance sheet provides a quick overview of your business’s financial position at a specific time.
It clearly demonstrates what you own, what you owe to vendors or other debtors, and what’s left over for you. After all, it has three main elements:
- Assets: Cash, construction materials, supplies & equipment, property, plant, and accounts receivable
- Liabilities: Debts, wages & taxes, loan repayments, and accounts payable
- Equity: Owners’ equity & other investments, common stocks, and retained earnings
Ideally, it is formulated as, assets = liabilities + equity
By looking at your balance sheet, anyone can get the exact idea of how financially stable your business is, how much cash you hold, and where your money is tied up.
Income statement
The income statement is also known as a profit and loss statement(P&L), explaining how your business made a profit or incurred a loss over a specific period, typically monthly, quarterly, or annually.
Depending on the structure and type of your business, consider adding these factors—revenue or sales, operating expenses, and gross margin to your profit and loss statement.
You may calculate the gross margin by subtracting the cost of sales or COGS from revenue. It enables you to determine your business’s efficiency in utilizing resources.
Further, the P&L statement should also include operating income, which is equivalent to EBITDA. The net income is the ultimate goal of any business, found at the end by deducting the operational expenses from EBITDA.
Overall, the income statement helps you gauge your business’s profitability, financial performance, and feasibility in the long run.
Break-even Analysis
The break-even analysis allows you to determine the point at which your business’s total revenue matches its total expenses, causing no profit or loss.
It helps you evaluate the level of sales or revenue needed to cover your construction company’s fixed and variable costs.
This analysis provides valuable insights into your financial sustainability and helps you set sales targets, pricing strategies, and cost-control criteria.
What is the average break-even period for a construction company?
Generally, the break-even period for a construction company may range anywhere from 1 to 3 years of operation. However, it can vary widely depending on a few factors, such as project size, scalability, market condition, overhead expenses, pricing strategies, and project management efficiency to reach break-even and start generating profits.
7. Test Assumptions and Scenario Analysis
As your entire plan is prepared based on assumptions, you’ll need to regularly review and stress-test your financial projections to check their relevance with market realities and business performance.
In this stage, you may consider various “what-if” situations and think about scenarios where things go well or don’t.
For instance, you’ll need to consider the changes in interest rates, material costs, labor availability, or economic downturns to measure the stability of your construction financial plan.
By performing test assumptions and sensitivity analysis, you can adjust your strategies accordingly to mitigate risks, optimize returns, and make well-informed business decisions.
8. Monitor and Update Your Plan
Once your plan is ready, continuously evaluate and monitor your construction company’s financial performance closely against your financial projections and key performance indicators(KPIs).
You can compare the actual financial results with the projected income streams, expenses, and ROI to take note of any variances or deviations from the plan.
If some factors are remarkably different from projections, recognize the causes behind them. This will help you understand which areas need improvement and which works as anticipated.
Also, review and update your strategies accordingly to optimize financial results and achieve long-term success.
Now that you know how to create a solid construction company financial plan, it’s time to explore an example for easy understanding.
Construction Company Financial Plan Example
Creating a construction company financial plan from scratch can be a daunting task, right? But not to worry; we’re here to help you with a realistic financial plan example prepared using Upmetrics.
It includes all the key elements of a construction company’s financial projection, including the sales forecast, income statement, balance sheet, cash flow statement, and break-even point. This will streamline the entire planning process and help you get started.
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Start Preparing Your Construction Company Financial Plan
And that’s a wrap—we’ve discussed all the fundamental aspects of financial planning.
But, still overwhelmed by the thought of creating a financial plan for your construction company? Don’t worry; Upmetrics’ robust financial forecasting feature can help make this process a breeze.
You’ll have to simply enter the projected assumptions and let us figure out the rest.
So, delay no longer and start planning now for your construction venture!
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