Construction Accounting: What is an Estimate?



An estimate is a document that the contractor gives to a customer, showing how much they would like to charge for services they are going to provide. In the estimate, the contractor separates the project into stages and considers the cost of each one. Estimates could be used in many different types of construction projects, from remodeling to building a brand-new structure.

Contractors can make an estimate manually by Excel file, which is quite comfortable, or use accounting software which has the estimate feature. When you start to work, you should keep good records of any cost over-runs, along with how and why they occur. Then, you can track whether you make money or not.

In common, people prefer to send estimates to quotations. Why? The construction industry is much more different from product manufacturing or retailing in assembly lines: each building is unique, even for groups of buildings that look similar to each other. Therefore, you can not use just 1 estimated cost for all projects.

So, what is included in an estimate?

When you are preparing an estimate, it is a good idea to give the customer a hard copy, including a full breakdown of costs.

An estimate usually includes:

  • The date of the estimate (when it was created).

  • The type of project (what kind it is, remodel, build a new house, fixing, etc.).

  • The location of the project (where it is).

  • An estimated price for each item of the project (how much money each aspect of the project costs).

  • The total of all estimated amounts (how much money the contractor expects to earn).

You must also include:

  • Your full business contact details.

  • Customer contact details.

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