Budgeting for a Remodeling Project

Budget Worksheet
Budget Worksheet
Staying on budget in a remodeling project is pretty much like staying on budget in any other venture — whether it’s your personal budget or your business budget. The more planning that goes into it the more accurately you can estimate the costs and stay within the projected cost.
I develop a detailed spreadsheet for my clients long before construction begins. During construction, we review the spreadsheet together as often as needed to make sure that we stay on budget. Sometimes that’s more than once a week at the beginning of the project. You can do the same thing yourself or with your contractor even if your contractor usually budgets a different way. This is can be a time-consuming process but the more you know, the more likely that you’ll stay on-track.
In the first image, you can see that I track line-by-line expenses and keep a running total of the current project estimate, the cash expended and the cash remaining. Not shown is the line that shows the original budget. But you do see that I track a variance against that original budget — in this case, at essentially the end of the job, we were 1.8% over-budget.
I included this image, above, just to reinforce the level of detail of the spreadsheet. There are separate line items for things like cabinet pulls and cabinet knobs. While this might seem excessive, the individual $100 or $150 dollar items can add up quickly to thousands of dollars.
I included this next image to demonstrate the level of detail that’s included in the spreadsheet regarding cost assumptions. Notice that I list the cost of each cabinet pull as $5.00. Even at wholesale, I can spend considerably more than this or if we want to save some money here, I can go considerably lower. By including the unit price, I can give the client greater control over the individual costs as she shops by internet or in the stores. It also means that we can easily figure out whether we can absorb increases in costs in some line-items by reducing costs in other line-items.
Not shown are the line items for sales tax& shipping, miscellaneous and contingency. Since we’re used to thinking about the price of a refrigerator or towel bar as the retail or wholesale price, I include 6% (or the appropriate sales tax rate) of the total materials costs in a sales tax & shipping line item. In general, the shipping costs can fit within the sale tax line-item. No matter how much we plan, there will always be little extras that we don’t think to put in the budget. I include 2-3% of the total materials cost as Miscellaneous. And I always include a contingency line-item.The size of the contingency depends on the age of the house we’re remodeling, the uncertainties we’ve identified going in, and what I know about the clients. The costs in the contingency category are meant to include surprises and problems encountered as well as some level of new requests from the owners. Absolutely every client I’ve ever worked with asks for some changes as the job goes along. It’s often phrased as “while you’re here, ….[fill in the blank]. But it also happens because clients just can’t visualize how dramatically a remodel can change their lives for the better. And things that we suggested that they dismissed before work started now becomes a good idea after they realize the opportunity it will present. The lowest contingency I ever use is 10% for a small job that has few uncertainties. 20% to 25% is a more typical contingency figure that I’ll use for a major remodel. Clients usually go in believing that even 10% is excessive but they soon realize that I’ve saved them a lot of problems by making them budget to the higher number. If you’re doing this for the first time, you should seriously consider an even higher contingency number since you’re likely to miss cost categories as your work out the budget.
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