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After Income Taxes Are Paid!
This is a basic draw schedule explanation for an A-frame ranch model home. This article details the draw schedule format illustrated below. It details the approximate percentages for the respective phases of construction and explains how the draw schedule is laid out and works. In addition it details the respective four draws customarily taken on a basic small ranch model construction project.
This article is extremely detailed in nature and is used as the explanation to the actual spreadsheet available on this website at Estimating & Draw Schedule Work Book for a Ranch Model Home.
You may either use the presented format provided below or purchase the spreadsheet directly. The spreadsheet is $5.99. You are free to create your own spreadsheet using the information provided but I highly recommend purchasing the prefabricated spreadsheet and save yourself about 7 hours of work. The spreadsheet has an estimation page which is explained below. A second worksheet included is used to negotiate with the bank or mortgage company for the respective overall draw values. Then the spreadsheet has four separate worksheets for each draw during the construction process. Draw schedules 2 through 4 include a cumulative draws to date column to assist the user in keeping proper track of the allowed amounts.
This estimation/draw schedule work book is designed to illustrate the proper format for a basic ranch style home. This is really a simple formatted spreadsheet and helps the user to understand how the overall costs are tied together. To understand the spreadsheet the following are the basic elements of the house:
- 1296 square foot rectangular shaped home with a small garage at one end
- 3 bedrooms, two full baths, one of the baths is the master bath attached to the master bedroom
- One family room
- Kitchen and dining room are open air style, but no cathedral ceiling (standard 8’ walls throughout)
- Only the kitchen/dining area has hardwood floors
- A vinyl floor is in the hall bath
- The master bath has a tile floor
- Carpet in the remaining rooms and hall in the house
- All electric to reduce costs associated with installing other utilities
- Kitchen cabinets are the low end models usually on sale at Lowe’s or Home Depot
- Countertops are laminated
- Two sink deep well stainless wash basin with a simple water control valve
- Shower enclosures are the full 4 piece tub/shower types
- Master bath has a drawer style wide vanity/hall bath has a simple vanity
- The washer/dryer are in the garage to reduce interior costs of construction
- Windows are simple in design and are vinyl in nature to keep costs down
- There is a sliding exterior door off the dining room to the back deck
- Vinyl siding
- A frame roof with no hips/valleys or dormers; again focus is on simplicity
- Front porch is simple and has vinyl laminated pillars (4) for structure support
- Exterior shed is a basic 12’ X 10’ model with barn style doors
- Driveway is a short one car width concrete
- No sidewalks
- Well is in the front yard
- Septic is in the back yard
- No community requirements or lot restrictions
- Small ditch and no curbing along the front of the house
- Driveway apron is crush and run over an 8” culvert
- 40 gallon electric water heater
- Air handler is in the garage/AC compressor is just outside the garage on the side of the house
As you can see from the description, this is about as a simple of a design as one can get for a home. In addition there are no fancy extended costs.
The goal of this article along with the workbook is to teach a basic introduction to a draw schedule and estimating software. This particular workbook achieves this goal. It really can’t get any simpler than this example. More advanced workbooks designed for more complicated construction projects will be provided in the future.
Below is an Adobe example of the estimating worksheet from the program:
Please open in a separate tab or in PDF format and you can flip between this article and the worksheet image using your Alt-Tab key combination.
Overall, this workbook assumes you are building a 1296 square foot home at $134.71 per square foot after the purchase of the land. This is not an unreasonable dollar cost associated with a basic and simple residential construction project. However, the contractor needs to understand that once you back out the closing costs on the final sale, the real cost of construction per square equals $125.60.
Ranch Model – Basic Estimation Worksheet
Please notice that the upper section describes the project’s ownership and identification number. The left hand column divides the spreadsheet into the nine major phases of construction for a residential project. For more information about phases and phase accounting, see: Phase Accounting in Construction.
Each phase incorporates the basic elements of construction related to that building function; e.g. framing will not include flooring or site issues.
The spreadsheet has three separate column groups. The first column group is the estimated total value of the particular construction item (row). In addition, this column includes the percentage of value for that phase and the total dollar value of that phase.
The second column group is divided between hard costs and soft costs. Please see below for a detail description of these two items. In simple terms, hard costs equals the actual dollar costs of the materials or subcontractor’s bid to do the work. The soft costs are the estimated amounts to cover indirect costs (project management, transportation, equipment, payroll taxes, insurance, supplies and communications), overhead (office issues, marketing, and business compliance), income taxes and a reasonable profit. Soft costs are customarily referred to as overhead costs and are those non direct costs as describe in What is a reasonable profit in construction?.
One of the initial inputs that you should notice immediately is the dollar value associated with the respective costs, especially those costs in the ‘Hard Costs’ column. You will think I’m using 1990 prices to build this house. But the goal is for the user to understand two functional aspects of estimating. The first is the aggregated value of the line item (row) involved. This equals the estimated full cost in that column. The second functional aspect to understand is that each cost item should be divided into two distinct sub costs of ‘Hard’ and ‘Soft’.
Those direct costs of construction, mainly materials, labor and subcontractors. In addition, equipment rental costs are included.
This is a lot more complicated as this includes all other types of costs for the company including indirect costs, overhead, depreciation, amortization, taxation and a final profit to the business net of taxes. Many of you will look at the formula and think that there is no way a project will have a greater than 80% markup required. But the truth is that over time, construction costs have increased the most in compliance, overhead, and the spreading of management costs to the projects. It is not like the old days back in the early 80’s where an owner received the costs for a project and added 18%. New laws, higher standards, compliance issues, and the sharing of indirect costs have complicated the formula quite a bit. Therefore, the owner of a small construction company needs to be realistic and understand the totality of these costs. Please read this article for a better understanding of this aspect of costs: How to Calculate the Best Markup for a Construction Project
The best method to approach preparation of your own estimate is to get the direct costs of the line item first. As an example, if your local government charges around $55 to $65 for a building permit, insert this number in that cell (row spot). Your local framing materials supplier will get you a materials take-off worksheet for you to determine the final direct costs of framing materials. Get your quotes from subcontractors but clarify who is providing what particular materials. Often the subs will try to exclude costs via materials to reduce their overall direct costs yet charge you the industry going rate per square foot. Avoid this issue by using the techniques described in Methods to Reduce Costs in New Home Construction. Furthermore, this estimating worksheet assumes that you use your own in-house labor to perform many of the required steps in construction.
The final column is the percentage of the entire contract value. This is the basis for the draw schedule located on the second worksheet of this workbook. This section is a simple function of the item’s estimated cost as a percentage of the total cost. Each phase is summed as a percentage of the whole.
Master Draw Schedule
This report is an exact duplicate of the estimation worksheet except it does not include the ‘Full Costing of Contract’ column section. The bank has no interest in your direct and indirect costs of construction. Actually, if they saw that grouping in your report, they would most likely try to exaggerate or extend the draw schedule payment format in order to reduce their respective risk in the construction of the home. Remember the key elements of business. Value is a function of risk(s). The estimation worksheet is designed to allow you to formulate and cover all costs of construction plus the associated indirect costs, overhead and taxation elements of owning a business. The bank is more interested in the direct costs of construction and would prefer that you defer your profit and overhead costs to the end of the project. Do not allow them to see the estimation worksheet.
The Master Draw Schedule is presented to the bank as a first step in determining the respective draw points in the contract. For a small home project like this, they will only be interested in four draw points of about 25% each. This schedule allows you to have more detail line items to work with and it further allows you to use a percentage formula as illustrated in the respective draw sheets – as explained below.
For the bank, they are interested in getting two reports. One comes from you using this schedule format and the other comes from an independent third party inspector confirming the respective line items have been completed in accordance with your draw request percentages.
Draw # 1 Worksheet
This worksheet is laid out to calculate the dollar value of the first draw. It is relatively simple, in the percentage completion column, insert the actual percentage completed for each of the respective costs. I would use increments of 25% to keep the overall workbook and other draws in a simple but easy to review format. The workbook allows you to insert a single number in the respective cell to determine the actual dollar value for the respective phase and the construction project overall.
Once the final dollar value exceeds 25% of the total contract value, you may print and turn into the bank for a draw request. Please do not forget that the bank will need to conduct an inspection of the property to confirm the respective percentages of completion.
Draw # 2 Worksheet
Similar to the Draw # 1 Worksheet except for the cumulative effect is calculated. In addition, draw number one is automatically carried over as information for the section associated with draw number one. This is true for each draw worksheet. Once you insert information into the draw # 2 percentage column, the spreadsheet automatically populates with the draw dollar value and the cumulative dollar value for the project. It is important to note that the cumulative draw for each line item should not exceed the estimated dollar value for that line item.
You will notice that you are only allowed to insert data into column H on the spreadsheet. This is critical because you do not want to change or insert data into any other cell as it will create errors in the remaining 2 spreadsheets. Again, once your data is inserted, the spreadsheet automatically calculates the dollar value for the respective draw and you print the final report for processing with the bank.
Draw # 3 Worksheet
The sections associated with draws # 1 and # 2 are automatically populated to the spreadsheet. Notice that the cumulative column also combines the two dollar values and identifies the cumulative dollar draws to date prior to any new information being inserted. Again, it is important for you to only insert data into the Draw # 3 percentage column (Column J). The draw value is calculated and the cumulative also updates automatically.
Once completed, print the draw schedule and forward to the bank for a draw inspection and draw request.
Draw # 4 Worksheet
The final spreadsheet is similar in nature to the preceding draw spreadsheets. However, the final draw request will most likely be significantly less than 25% of the value of the project. All data automatically populates the respective cells for the columns associated with the individual draw worksheets. For draw # 4, it is important to only insert data into Column L.
If the final total dollar value is more than the contracted amount, then you have exceeded the respective allowed dollar value in one of the rows. Compare the final dollar value for the respective phase against its initial estimated dollar value to locate the error. From here, go line by line to locate the error. In almost all errors, the problem is charging more than 100% in the aggregate for the respective line item. Make your adjustments in Column L for the final draw request.
Summation – Contractor’s Draw Schedule
This article explains how to use the Construction Draw Schedule for a Ranch Model Home. There are six separate worksheets in the workbook and each worksheet has a distinct purpose. Stay focused on what the bank will allow for a draw request minimum prior to requesting a draw on the project. You may use the spreadsheet to determine the percentage of completion for the project on a month to month basis. I encourage you to save the workbook as the Master Model and the copy the workbook for each ranch model (project) you generate. With good input for direct costs, you can evaluate the project as it progresses and compare the actual outcomes from your accounting software to the project estimates. With this information, you can identify the problem areas and make corrections for the future. Act on Knowledge.