Essential Budget Tips for Small Contractors

Creating a budget is perhaps one of the most important parts of working as a contractor, and keeping up with your budget becomes an even bigger deal the smaller your operation is. Small contracting firms and solo contractors must keep a close eye on construction costs because margins are often slim due to the amount of work a small crew or solo contractor can complete.

The good news is that, as you grow your operation, budgeting often becomes easier since you can take on larger and more plentiful jobs. Until then, however, paying close attention to your budget is essential. To help you make the most of every dollar, below are some simple budgeting tips for small contractors:

Look for Alternative Materials

The cost of construction, repair, installation materials, tools, and products is often a top concern among contractors. Drywall, roofing materials, piping, nuts, and bolts can quickly eat into a small contractor’s budget.

To alleviate some of this stress, consider alternative materials when possible. For example, eco-friendly construction materials are sometimes less expensive than their manmade counterparts. As an added bonus, you get to do something good for the environment by using eco-friendly products.

Although eco-friendly materials are included in this list of budgeting tips for small contractors, don’t forgo quality to save money. Remember that your reputation is on the line, so if a job calls for a specific type of material or product, use that instead of a lower-cost alternative and then build that cost into the budget you present to the customer.

Don’t Forget to Include Taxes

Whether you love or hate them, taxes are a fact of life for everyone, including small contractors. You’re likely responsible for collecting, reporting, and paying taxes when you run your show. Different states have tax laws, but federal income taxes on self-employed individuals and small businesses are universal.

When budgeting, you must keep your personal and business finances separate. In some cases, including those involving limited-liability corporations (LLCs), tax liability passes through the company to the individual. The LLC offers certain legal protections for the company's owner, but taxes for the business usually get reported along with the owner’s personal income.

As such, it’s a good idea to include taxes in your budgeting for various real estate construction projects. You should keep separate bank accounts for your personal and business finances and avoid commingling these funds. This will make it easier to deduct business expenses and other eligible expenses from your taxable income when it’s time to file your annual return. Keeping up with this information may also help you lower your tax bill.

Lean on Accounting Resources

With all that’s required of you as a small contractor, it can be difficult to find the time to fully devote to budgeting and accounting. This is where relying on accounting resources like software or a dedicated accountant can come in handy.

Accounting or budgeting software usually includes easy-to-use interfaces to input your costs and revenue. The software may automatically complete conversions to show you your cash flow, tax liability, and profit. The ability to see income and expenses can be helpful as you create and manage your budget throughout the year.

Hiring a dedicated accountant can also be very helpful in keeping up with a budget. Although you might think accountants are reserved for big contracting firms, plenty of affordable small business accountants can provide monthly or even yearly services to help you keep your budget on track.

Factor in Contingencies

Contingency funds and planning for contingencies can make it easier to budget and avoid surprises for your business and its clients. There’s no hard-and-fast rule regarding contingency funds for construction companies. Still, many in the construction industry plan for around 15-20% over costs to be set aside or included in a project’s budget.

These contingencies can help cover the cost of materials, mistakes that require extra labor to correct, last-minute changes to project details, and any other unforeseen changes to a project’s costs. Many contractors build these contingencies into their pricing.

If the contingency funds are not used, you can keep them or offer a discount to the customer. While the latter approach may sound like you’re doing a favor for the customer, some customers prefer to know exactly how much they will spend, so even a last-minute discount may make it look like you aren’t sure what you’re doing. Proceed with caution.

Use Credit Cards Wisely

Business credit cards can be very helpful when you need to make large purchases quickly, but you're advised to use them with caution when budgeting tips for small contractors. As with consumer credit cards, business credit cards usually carry interest. This means that you will end up paying more for items purchased with these cards unless you pay off the balance within the allotted time period, usually a month.

Credit cards can bust your budget because they’re easy to use, and you may not feel the pain of spending when using a credit card. This may result in overspending, which can spiral out of control.

Finding yourself unable to pay the full balance each month means that interest adds up, and fees for missed or late payments can be quite high. As your budget gets tighter from mounting credit card debt, you risk hurting your business credit from missed or late payments.

Contact West Coast Decking & Waterproofing to See How We Can Improve Project Budgeting

West Coast Decking & Waterproofing specializes in deck waterproofing, deck repair, concrete coatings, and more in Southern California. Our team is committed to providing expert service with your budget in mind. Contact our team today to discuss your project's needs online.