Construction Draw Schedule

Minimum Bottom Line Profit Should Average 9.4%!
For Trades & Subcontractors, at Least 11%
After Income Taxes Are Paid!

A construction draw schedule is a financial tool used by contractors with identifying percentage of completion points in the project for the bank to advance proceeds to the contractor. The construction draw schedule is instrumental in keeping the project moving along. Without good points in the schedule to draw funds, the contractor can run out of funding and the project could grind to a halt. It is essential to negotiate with the buyer and the bank for proper release points in the construction draw schedule.

This article identifies some common points of draws, issues and concerns a contractor should identify to obtain an appropriate construction draw schedule.

Points of Draw

A typical draw schedule for new construction (residential and light commercial) breaks at 20% increments. The bank’s goal is to create a reasonable set of completion points in order to minimize the paperwork. A higher frequency of construction completion points generates more draws and exaggerates the documentation process. Furthermore, it increases the fees associated with a project. Typically, a bank uses an outside inspector to identify the respective completed elements of the contract (trades, materials, subcontractor work etc.). The inspector will charge between $75 and $200 for an inspection. Then the bank charges a deposit fee of $35 to wire the funds to your account. The contractor pays these fees. Some residential contracts for construction have the fee passed to the buyer thereby avoiding a reduction in the draw from the bank for the fees. As a contractor, you want to keep the total number of draws to a minimum in order to reduce your cost of construction. 

A detail example of a construction draw schedule process and the associated spreadsheet is covered in the following article: 

Ranch Model Home Construction Draw Schedule

If you are interested in purchasing a basic estimating and draw schedule spreadsheet program (Excel Format), please go to:  Customized Products and click on the ranch model home. The price is $15.99 and has 6 separate worksheets. This includes an estimating worksheet, a bank draw schedule based on the estimating worksheet, and four separate draw schedules for use in the construction of a ranch model home. This spreadsheet program works in conjunction with the Ranch Model Home Construction Draw Schedule article which covers the process of using this spreadsheet.

The following is a typical timeline for a draw on a residential project:

 Goal:  Get a draw deposit on the following Thursday to pay subcontractors and material providers.

* Friday a week before draw – contractor tries to reach an allowed percentage of completion point authorized by the bank.
* Monday (3 Days to Go) – A phone call is made to the banker requesting a draw. Local government inspectors requested.
*Tuesday (2 Days to Go) – Inspectors pass the items and the draw inspector reviews the status and faxes a completed itemized list.
*Wednesday (1 Day to Go) – Bank documents, authorizes, and the buyer signs the documents.
*Thursday – Deposit is made into the contractor’s account.

The above works in the perfect world, however, your subcontractors, the material suppliers or the local inspectors don’t have mental telepathy and therefore it never unfolds as desired. Usually the construction project is at some point whereby four subs are working the project at the same time. One of them doesn’t have money to buy the materials needed or didn’t do his paperwork and isn’t authorized to call in an inspection from the local codes and compliance department. Or a subcontractor decided to not complete his portion of the work on the project for some oddball reason. I once saw the mechanical guy not complete his step because the electrician had not run the wiring to the junction box to feed the HVAC system. The electrician told me he couldn’t run the wires because the HVAC guy didn’t mount the box for the feed. It is as if these guys didn’t have a clue to work together to get this done. It took another week before the draw was issued holding up funds for about 10 other subcontractors and material suppliers.

A typical draw schedule follows a % of completion as follows:

  • 20%  – site development, septic, water feed (main installed), footer and foundation laid, garage concrete pad completed.
  • 20% – house framed, roof on, windows installed, exterior doors installed.
  • 20% – trades have completed the rough ins, exterior siding completed, insulation, sheetrock, trim installed, hardwood floors laid, base coat of paint inside, exterior paint completed.
  • 20% – kitchen cabinets and countertops installed, plumbing fixtures installed, interior painting done, trades have trimmed out the house, exterior building completed, driveway installed, drainage completed, hand rails installed.
  • Final 20% – flooring completed, tile work done, house fully trimmed out, appliances installed, garage doors and lifts completed, landscaping done, Certificate of Occupancy issued.

Issues and Concerns

As the contractor, your job is to organize and coordinate the communication between the subcontractors to achieve incremental steps towards completion of the project. An example of a significant step in the percentage of completion process is the ‘drying in’ section of the home. Typically banks consider this a very important step towards creating value in a home. Drying in means the house is framed, roof is on, doors and windows installed. Well, in order to have the roof shingled, it is wise to have the plumber do the cuts through the roof for the venting of the sewage lines. Thus, the plumber needs to get into the home too before the house is considered ‘dried in’. Generally, the trades go into the house once the house is dried in and then begins the next draw phase on the home. Thus, there is a little bleed over from one draw phase to another.

Another example is the facial board along the roof line. It is so much easier for the carpenter to have completed this step prior to having the overhang from the shingles in his way. You can see there is a lot of coordination required to get the house completed and obtain draws in reasonable steps.

When negotiating the draw schedule focus on the most expensive steps in the construction of the project. In new home construction, the most expensive step is the materials and labor cost associated with the framing of the home. These two items run over 16% of the entire project. Add in the windows and roof shingles and you can easily top 27% of the project costs. Because these are so closely tied together in the timeline, it is best to request a draw once the house is ‘dried in’. This way the funds are used to replenish your used funds to cover these costs. A proper tool is for you to advance these costs from your capital and then be reimbursed for expended capital. 

Almost every contractor I have provided services to in the past did not use their own capital to fund the project. They relied on the draws to pay the bills. This is not the proper way to handle the financial affairs of your company. This is why it is important to have plenty of cash available to fund the project as you proceed. It eliminates subcontractor pay issues, allows for greater confidence from the bank that you have the available equity to handle construction and the best part, cash allows for discounts from subcontractors and suppliers thereby saving you money.

Reduce your costs of handling the affairs of the project by drawing in accordance with the expensive phases of construction. Draw less frequently and fund the project with your own capital. The benefits far outweigh the frustration and heartache you have to deal with from suppliers and subcontractors. In addition, your overall stress will be less if you do not have to rush to get a draw in order to pay the subcontractors. Use the construction draw schedule to your advantage. Act on Knowledge.

Value Investing

Do you want to learn how to get returns like this?

Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.

There are four key principles used with value investing. Each is required. They are:

  1. Risk Reduction – Buy only high quality stocks;
  2. Intrinsic Value – The underlying assets and operations are of good quality and performance;
  3. Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
  4. Patience – Allow time to work for the investor.

If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above. 

Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:

  1. Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
  2. Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
  3. Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.

Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:

  • Lessons about value investing and the principles involved;
  • Free webinars from the author following up the lessons;
  • Charts, graphs, tutorials, templates and resources to use when you create your own pool;
  • Access to existing pools and their respective data models along with buy/sell triggers;
  • Follow along with the investment fund and its weekly updates;
  • White papers addressing financial principles and proper interpretation methods; AND
  • Some simple good advice.

Value Investment Club

Please Signup
Username can not be left blank.
Please enter valid data.
This username is already registered, please choose another one.
This username is invalid. Please enter a valid username.
First Name
First Name can not be left blank.
Please enter valid data.
This first name is invalid. Please enter a valid first name.
Last Name
Last Name can not be left blank.
Please enter valid data.
This last name is invalid. Please enter a valid last name.
Website (URL)
Website (URL) can not be left blank.
Invalid URL
Invalid URL
Email Address
Email Address can not be left blank.
Please enter valid email address.
Please enter valid email address.
This email is already registered, please choose another one.
Password can not be left blank.
Please enter valid data.
Please enter at least 6 characters.
    Strength: Very Weak
    Select Your Payment Gateway
    How you want to pay?
    Payment Summary

    Your currently selected plan : , Plan Amount :
    , Final Payable Amount: