A construction draw schedule is a financial tool used by contractors in 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.
The following articles identify and illustrate the use of a construction draw schedule. These are articles are located in the construction industry section of this website.
Almost every residential contractor I had as a client had no clue of their financial position as it related to any one of their residential contracts. None of them knew whether the project was fully funded, over funded or unfunded at any point in the construction process.
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 construction accounting, the percentage of completion method is the preferred tool to account for revenues and direct costs of construction. If you are an owner of a contracting business, this is the best method of accounting.
The completed contract method of accounting recognizes revenue and the associated costs once the project is complete. This is one of the two popular accounting methods used in the construction industry. For residential contractors, the completed contract method may have a slight tax advantage by deferring revenue recognition but is generally not considered the best method of accounting in the construction industry.
Bankrolling any startup business is difficult enough. Capitalizing a new home builder operation is a leap forward in required funds. Typically, small businesses can be capitalized on a shoestring budget, for a new home contractor, just a little bit isn’t going to work.
A construction draw schedule is a financial tool used by contractors in 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.
