The process of creating a budget for a new ground up project is a lengthy and complicated process. But remember, the journey of a thousand miles begins with one step. One of the first steps in the budgeting process is creating a draft budget. Let’s look at the process and then determine how to create a draft budget very early on.

The goal of the budget is, of course, to determine the total cost of your new facility. But what will it take to get there? A meeting or two with an architect and then a general contractor? Getting advice from a  builder you know and asking him an opinion of price based on your description of the building and a layout of the space? Maybe the creation of a nice color rendering and a sketch provided by a civil engineer of the site plan? Actually, none of these will get you anything more than a subjective, speculative cost estimate, and it can be very misleading to base your decisions on such a budget. 

The only way to develop an accurate budget is to create a full set of permit ready plans (site plans, shell building plans, and interior finish out plans), send those plans to subcontractors for bids, and then assemble those well-vetted bids into a line items construction budget. There is a lot packed into that sentence, as there is a lot packed into that process. A full set of plans means you have hired and paid, in full, a civil engineer, architect, structural engineer, mechanical/electrical/plumbing engineer, interior designer, and more. Only then do you have a set of plans that can be accurately bid by subs. If this is your first project, you will likely be surprised to discover the cost of those services. Take a 5,000 sf ground up vet clinic as an example. The full set of civil and architectural plans, ready for bidding and permitting, can easily exceed $100,000. 

Now you may be doing more than just scratching your head, wondering “am I supposed to be OK with spending in excess of $100,000 for plans before I even know what my project will cost?”. That seems like a scary “chicken-or-the-egg” gamble, doesn’t it? You are not completely wrong. There is always risk in real estate development and construction. However, having the right team including an experienced engineer, developer, architect, designer, banker, and more go a long way toward mitigating these risks. 

One of those early phase drills is the draft budget. A draft budget is an educated estimate of a facility’s cost based on the information available long before a final set of plans and hard bids are completed. It uses such components as current building costs, historical costs for similar construction projects, special pricing estimates for unique features of a project, and estimates of soft costs like permits, city impact fees, and loan interest. This process is not for the real estate rookie. Only the most experienced professionals in the necessary fields should be entrusted with developing a draft budget, as so many of the proceeding steps (all of which require money and time) depend on this very important draft budget. Be wary of anyone not experienced in commercial real estate development and construction attempting to put such a budget together. While there are some highly skilled individuals in fields such as architecture, brokerage, and banking, a developer/builder team is who normally has the responsibility of combining all of the costs from all of the many disciplines into one single budget. Even then, there will likely be some surprises along the way. 

It's about getting as close as possible to your project cost very early in the game. This will save you headaches, setbacks, and cost overruns. Find the right team from the very earliest stages and let them guide you to success.