“B
udget” is a somewhat precarious term to use for what a construction project is actually going to cost. The future financial suc- cess of your investment can hinge on this number. moreover, it is essential to remember that this is your biggest cost. as such, you can see how imperative an accurate number plugged into a comprehensive proforma becomes.
Also keep in mind, there are many other costs involved that will not be reflected as a part of the construction budget. land cost, legal costs, due diligence, environmental testing, and impact studies are just a few of the possible “pre-construction” expenses. computers, copiers, phone systems, office furniture, and office supplies are some of the costs that need to be considered after construction is completed.
Then there is a manager’s salary, a maintenance person, benefits, insurance, loan interest, and other “soft costs” to be considered. The vital question that a good proforma can answer is not only, “Will this work?” but just as important, “how long and at what occupancy level will this facility begin to cash flow?” The construction budget is a key component in the answer to each of these questions.
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