Imagine you’re building a house, but no one’s checking the plans, tracking the budget, or making sure the materials fit the design. Sounds like a recipe for disaster, right? You may be surprised to hear that when your company doesn’t have proper construction expense management, it can be just as disastrous. Inaccurate and unorganized construction expense tracking can lead to project delays, budget overruns, and even legal trouble. Let’s dive into the 8 biggest mistakes construction companies make when tracking expenses, and how to solve them.

1. Budget Blindness

Have you ever found yourself midway through a project wondering, "Where has all the money gone?" Inaccurate bill tracking is often the culprit. Without real-time visibility into your spending, you won’t realize you’re over budget until it’s too late. Lack of proper expense tracking means that you could easily underestimate your expenses, blowing past your budget with no idea how to course-correct. By the time you notice, it might be too late to salvage the financial health of the project.

2. Poor Communication

Did you know that communication is a crucial aspect of expense and financial tracking? One major issue in construction expense tracking is the disconnect between the people making purchases and the team managing the finances. The workers on-site often make critical budget decisions. This could be anything from additional materials to labor overages.

However, without clear communication, these expenses can go untracked or incorrectly categorized. This lack of coordination leads to confusion, unexpected budget overruns, and difficulty reconciling financials later.

3. Not Tracking Committed Values

One of the most common mistakes in construction is not tracking "committed values"—the costs you’ve committed to but haven’t yet paid. This leaves you in the dark about what’s going on at both a financial and material level. By effectively tracking committed costs, you can have better budget control. You can know exactly what money has already been allocated, and what remains in the budget. Doing this prevents costly budget overages.

In addition, tracking committed values can help you to accurately predict cash flow and ensure contractual compliance. Many times, tracking committed values and Purchase Orders reflect contractual agreements between contractors and subcontractors or vendors. Tracking these values fosters positive relationships and protects your company in case legal issues were to arise.

4. Improper Planning

Improper planning in construction expense tracking can lead to serious financial issues. When costs like materials, labor, and subcontractor fees aren’t categorized separately, it becomes nearly impossible to identify where the budget is being drained. Failing to leave room for contingencies—such as unexpected material price hikes or delays—can push a project well beyond its planned budget. 

Poor scheduling, without a clear plan to avoid overtime, can cause inflated labor costs. This can quickly turn a manageable project into a financial headache.

5. Missing the “Little” Things

One major pitfall of construction expense tracking is overlooking seemingly insignificant costs like a quick trip to the store for extra supplies and overhead expenses. These small, untracked expenses may seem harmless in isolation, but they add up quickly over the course of a project. Overheads like fuel, office supplies, and even administrative costs, when untracked, silently eat into profits.

Additionally, mixing personal and business expenses further complicates accounting, especially during tax time. It is easy to use a personal account to cover small expenses like fuel or an additional can of paint as needed, but not segmenting these things can quickly add up. Failing to record them can distort the budget– leaving you scrambling to figure out where the extra money went. 

6. Not Utilizing Change Orders

Changes in the project scope, materials, and more are incredibly common in construction. However, a common mistake when completing a construction project is not using change orders every time a change is needed. Change orders are sometimes seen as only a requirement when the associated dollar amount is significant. This is not the case.

Similarly to the previous point, even small changes like one added workday or changes in tile preference can quickly add up. A small change in the project may seem initially like it could easily be covered by the project’s budget. Without proper tracking, you are not protecting your bottom line.

7. Getting too Comfortable

When working with the same subcontractors or vendors project after project, it’s a common mistake for contractors to get comfortable with these relationships. Over time, documentation of purchase orders and detailed records can slip. While it’s always great to have strong connections in the industry, failing to document detailed purchase orders is extremely risky.  Without proper tracking, you might not have the receipts to prove a transaction, putting you at a disadvantage if a dispute arises. 

Vendors, on the other hand, are likely tracking every sale for tax purposes, and without your own records, you’ll be in a tight spot if the deal goes south. Plus, if that handshake turns into a disagreement, you could find yourself in court with little documentation to back you up. Save yourself the stress and always keep a paper trail.

8. Not Documenting Receipts

One major risk of not documenting receipts is the potential for inaccuracies and unverified expenses. Without proper records, there’s no way to confirm if the reported costs are correct, leading to possible overpayment or unapproved purchases. 

Lack of receipts can also become a serious issue during audits, where proof of transactions is essential to justify expenses. This leaves you vulnerable to financial mismanagement, potential disputes with vendors, and challenges from tax authorities. In short, keeping receipts is crucial for maintaining budget control and ensuring accountability.

The Solution

The solution is simple: track everything. Spreadsheets are great, but they can only take you so far and are prone to errors. Invest in construction management software that allows real-time tracking of expenses, change orders, and budgets. By using expense tracking software, you can know where every penny is going. Here’s how to keep your financials in check with ConstructionOnline’s brand-new OnCost Purchasing module:

• Seamless Integration with Project Estimates: Easily link purchase orders, change orders, and invoices directly with your project estimates, ensuring all financial aspects are aligned with the initial budget.
• Comprehensive Expense Tracking: Efficiently track purchase orders, bills, and receipts in one place, providing a complete view of all your expenses and preventing financial discrepancies.
• Built-in Approval Processes: Implement approval workflows for purchase orders and bills, ensuring that every expenditure is reviewed and authorized before it impacts your budget.
• Integrated Financial Management Tools: Consolidate all financial data—expenses, estimates, change orders, and invoices—into a single platform for streamlined project management and accurate financial oversight.
• Enhanced Accountability: With approval requirements and real-time tracking, you maintain better control over spending and reduce the risk of unauthorized or incorrect financial transactions.
• Rated #1 in Construction Management Software: ConstructionOnline comes highly recommended, being rated #1 for its robust features and effectiveness in managing construction finances by reviews from real ConstructionOnline users compared to real users of other construction software programs.

At the end of the day, poor expense tracking is one of the main causes of financial issues in construction. Don’t let your hard work crumble because of sloppy accounting. Keep your projects on track by implementing smart expense tracking—and avoid being another cautionary tale in the construction world!