Running a construction business is no small task. With tight margins, fluctuating material costs, and labour expenses, keeping projects profitable requires close attention to detail. One of the most effective ways to stay on top of finances is by implementing robust cost tracking and analysis. Accurate records, regular reviews and cost tracking for construction companies ensures that projects stay on budget and profitability isn’t compromised.

Why cost tracking matters in construction

Construction projects are often unpredictable. Unexpected delays, price increases, and changes in scope can significantly impact budgets. By tracking costs in real time, businesses can react swiftly, reducing the risk of overruns and protecting their bottom line. Proper cost analysis can also help identify patterns, allowing for better estimates and planning on future projects.

Rising material costs remain a concern in 2024. According to the Office for National Statistics (ONS), construction material prices increased 3.5% over the past year. Without accurate tracking, these cost fluctuations can easily eat into profit margins.

Implementing effective cost-tracking systems

Cost tracking doesn’t need to be complicated, but it does need to be consistent. Here are some steps to help ensure your system works effectively:

  1. Break projects into phases: Separating a project into smaller phases allows for detailed stage tracking. This makes it easier to pinpoint where costs are higher than expected.
  2. Use dedicated software: Tools like QuickBooks, Xero, or construction-specific platforms can simplify cost entry and reporting. They also integrate with other accounting systems, ensuring nothing is overlooked.
  3. Track labour separately: Labour costs can fluctuate depending on project length and complexity. Keeping these expenses distinct from material and equipment costs gives a clearer spending picture.
  4. Regular site reports: Encouraging site managers to submit daily or weekly reports helps track costs on an ongoing basis. This provides early warnings if budgets start to slip.
  5. Review contracts and suppliers: Supplier price changes or subcontractor fees can sometimes raise costs. Regularly reviewing these agreements helps ensure you’re getting the best value.

Analysing costs for better profitability

Cost analysis goes hand-in-hand with tracking. By reviewing data regularly, construction firms can identify areas where efficiencies can be made.

  • Compare estimates with actuals: Comparing initial estimates with actual costs highlights discrepancies. This can reveal areas where estimates need to be adjusted or managed differently.
  • Benchmark against industry standards: Understanding how your costs compare with industry averages can reveal if your pricing is in line or if savings can be made.
  • Focus on high-cost areas: By identifying which aspects of a project contribute the most to overall costs, businesses can find ways to cut spending without sacrificing quality.
  • Monitor overheads: Overheads such as equipment hire, transportation, and administrative costs can accumulate. Keeping these in check prevents them from impacting project profitability.

Benefits of better cost tracking

Investing time and effort into cost tracking and analysis provides several benefits for construction firms:

  • Improved cashflow: Knowing exactly where money is spent helps forecast and manage cashflow more effectively.
  • Increased profitability: Understanding where costs can be cut or optimised leads to better margins.
  • Accurate project pricing: Better data from past projects can make future quotes and tenders more precise, increasing the chance of winning contracts.
  • Reduced risk of overruns: Early identification of cost issues means they can be addressed before they impact the entire project.

Staying compliant and tax-efficient

Tracking costs accurately isn’t just about profitability – it also ensures compliance with tax regulations. In the UK, the Construction Industry Scheme (CIS) requires contractors to deduct tax from subcontractors’ payments, which must be accurately recorded.

For 2024/25, the basic rate for CIS deductions remains at 20% for registered subcontractors and 30% for those not registered. Ensuring deductions are correctly applied can prevent issues with HMRC and avoid penalties.

Additionally, VAT considerations are essential. From April 2024, the VAT reverse charge for construction services continues to apply, shifting VAT responsibility from the supplier to the customer. Proper cost tracking ensures VAT is correctly recorded and applied.

Common pitfalls to avoid

Even with a sound system in place, some common mistakes can derail cost-tracking efforts:

  • Not updating records regularly: Delayed data entry can lead to missed costs or inaccurate reporting.
  • Failing to involve site teams: Without input from those on the ground, crucial spending data may be missed.
  • Ignoring small costs: Small purchases or expenses can add up. Tracking everything, no matter how minor, prevents budget surprises.
  • Over-reliance on estimates: Relying too heavily on estimates without cross-checking actuals can lead to inaccuracies.

What we can do to help

At Coveney Nicholls, we understand construction firms’ challenges when managing project costs. Our team can help set up effective cost-tracking systems, provide advice on tax-efficient project management, and ensure your business remains compliant with the latest regulations. By working with us, you can focus on delivering quality projects while we take care of the numbers.

Get in touch and let us help with cost tracking for construction companies.