When planning to construct a new building or renovate your current facility, you will need to establish your education facility construction budget. While this may seem like a daunting task, here are a few tips to make sure your construction budget is complete.
Before any successful commercial construction project begins, an “A team” must be assembled: lender, architect, and contractor and, of course, the owner. The team will work together to ensure a successful project and support the owner in decision-making. A few critical elements of construction financing include a sufficient budget, timelines of the build-out, and the quality and strength of the contractor and architect.
With the help of your architect, you will want to establish your wants vs. needs list for your facility. Ask yourself these questions:
- What equipment will be required?
- How many classrooms will you need now as well as for future growth?
- What kind of building and style do you want?
The answers to these questions will influence the design of your building and ultimately your budget.
In addition to the actual construction costs, don’t forget to include architectural, electrical, mechanical, structural and civil engineering costs in your budget. A lender who is experienced in school construction projects will help ensure your budget includes all the necessary categories.
If you are building from the ground up, the site acquisition cost and site development cost will be included in your budget. Site development costs include grading, utilities, paving, storm water management and more. When selecting the commercial real estate, determine if the property is properly zoned or if it needs to be subdivided. What are the timelines on zoning and permits? What fees must be paid? Many municipalities require monies up front to review drawings, go through the planning process and issue permits.
When building your construction budget, don’t forget to account for things that are not always included in the previous categories. The cost of the following items can vary depending on the provider: IT cabling, security system, phone service, cabinetry, furniture and equipment. Be sure to talk to your lender and architect about what equipment you will need, so it can be included in your design and budget.
Talk to your lender about your construction contingency budget. These funds will help serve as a buffer in case unforeseen issues arise or there are cost overruns. By working closely with your lender, architect and contractor, or design/build firm, you can build an appropriate construction budget.
Now that you know what should be included in your budget, how do you know how much you can afford? If you are working with a cash flow lender, your lender will examine things like revenue trends and your cash flow. They will look to see if your revenues are maxed out due to limited space, if upgrades are needed to keep up with the competition and what new services you will be able to offer.
By learning about your business, examining the financials and your personal credit history, the bank will determine how much debt the business can reasonably support. You will want your new building to increase business, not stress your cash flow. That’s why it is important to work with a lender who understands both construction and educational services financing.