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Development-Project-Budgets

Understanding Project Budgets for Real Estate Developers

As a real estate developer, having a clear understanding of your project budget is crucial for ensuring its success.

In order to ensure a successful outcome, it is critical to accurately estimate project costs and maintain financial visibility throughout the process. Underestimating costs can lead to cash flow problems, delays in completion, and even project failure. On the other hand, overestimating costs can result in lost opportunities and reduced profits.

Managing this process can be challenging, but there is software available to help. In this article, we will explore project budgets to better understand some key elements, recommend some best practices and explain how modern software technology – like our real estate development accounting solution can assist your project budget accuracy and overall profitability.

 

Identify all Components of the Budget

 

It’s important to understand what makes up a project budget. Soft costs and hard costs are two important components of the budget for a real estate development project. Soft costs refer to indirect costs that are not physically incorporated into the building but are necessary for the completion of the project. Some common examples of soft costs include:

  • Land acquisition costs
  • Architectural and engineering fees
  • Permits and fees
  • Legal and accounting fees
  • Project management and consulting fees

 

Hard costs refer to direct costs associated with the physical construction of the building, most of which are performed by a subcontractor under a contract with the developer. Some common examples of hard costs include:

  • Site preparation and excavation expenses
  • Building materials and labor costs
  • Equipment rental
  • Utilities and infrastructure costs

 

It is important to accurately estimate both soft and hard costs when planning a real estate development project, as they can have a significant impact on the overall budget and the feasibility of the project. Over or under-estimating either type of cost can result in financial problems down the line, so it is important to ensure accurate budgeting and project cost control.

 

Plan for Contingencies

 

Unexpected expenses, known as contingencies, can arise during the development process. It’s essential to plan for these costs by budgeting a certain percentage of the overall budget for contingencies. This will help ensure that you have the funds necessary to handle unexpected expenses.

 

Regularly Review and Update the Budget

 

A project budget is not a set-it-and-forget-it document. Instead, it should be regularly reviewed and updated to reflect changes in the project or in the market. This will help ensure that the budget remains accurate and relevant, and that you are making informed financial decisions throughout the development process.

 

Collaborate With Your Team

 

A project budget affects everyone involved in the project, from the construction team to the financing partners. It’s important to involve everyone in the budgeting process to ensure that everyone is aware of the costs and is working towards the same financial goals.

 

Managing the Process for Better Outcomes

 

Our Real Estate Development and Accounting Solution powered by Acumatica offers a comprehensive suite of tools for real estate development professionals. It provides powerful functionality for managing all aspects of a real estate development project. This includes project cost management, financial accounting, job costing along with financial loan draw management. This allows real estate professionals to manage all aspects of their business and project budgets in one unified platform, providing a complete view of their operations.

With our solution, developers can accurately estimate project costs, track expenses, and maintain financial visibility throughout the project lifecycle. The solution was developed specifically for project-oriented accounting. All accounting functions are “project-aware”—that is, each function can supply the necessary project information to complement the general ledger information in real-time.

Our software solution understands that maintaining coordinated project budgets and ledger perspectives is the key to fully implementing real estate developer solutions. The project perspective provides visibility and control, whereas the accounting perspective assures compliance with necessary reporting standards and lending requirements.

By utilizing modern software technology, real estate professionals can streamline their project budgets, increase accuracy, and maximize their profits.

If you would like to learn more about our Real Estate Development and Accounting Solution on the Acumatica Cloud please contact us today or use the link to schedule a demonstration.

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