Construction is one of the largest industries in the world and the U.S. This doesn’t mean, though, that construction company startups aren’t going to have their challenges.
For instance, a 2020 National Construction Payment Report suggests that 80% of construction companies that they measured spend the majority of their time chasing up payments! And many report that job site coordination is a big issue that creates delays in their work.
So what we believe is you need to nail all the fundamental aspects of starting a construction company. Then you place yourself in a much more favorable position to deal with more complex problems you are likely to face in the industry.
Let’s now take a look at our complete step-by-step guide about how to start your own construction company, the right way.
Research the Local Market
First and foremost, you need to research the local market or any of the regions you hope to serve. It might be that the market is already overcrowded and your business might not be so viable.
A good place to start is to research the number of local construction companies there are. Then you can categorize these companies by learning what they specialize in. You can further separate them through their pricing, and what sort of reputation they have.
To find and rate reputation, you might want to look at independent review sites for the construction industry, such as Trustpilot Reviews.
Also, you shouldn’t forget to start research about the customers you hope to appeal to and generate custom with. If you want to research demographics, the U.S. Census Bureau is an excellent source for local and national statistics.
Write a Construction Firm Business Plan
Once you’ve thoroughly researched the local market, you’ll be in a strong position to begin writing your business plan. This is going to be one of, if not, the most vital document you’ll create for your business.
You can see it as a guiding force for all future decisions. And your business plan will offer you a way of measuring your progress in the coming months and years. Furthermore, a solid business plan gives lenders reassurances, which means they may be more inclined to lend you the funds you need.
Register the Business
The next logical step to business ownership in the construction industry is to register your company. This gives your business legal entity status where there may be tax incentives and benefits. You also may gain some legal benefits and personal liability protection.
How do you register your business? Well, often, it’s a straightforward process where you register your company’s name with the local and state governments. You will also need to register your firm at a federal level to receive your federal tax identification.
You can also apply for your Employer Identification Number (EIN). By doing this, you can then trademark your logo and business name via the United States Patent and Trademark Office.
Get Your Licenses and Permits
At this point, you’ll be able to refer back to your business plan to help you figure out what sort of licenses and permits you need. In your business plan you should have stated:
- What size your company will be to start with
- The location where you wish to do business
- The type of construction you wish to specialize in
The above factors will determine the type of licenses and permits you will need to run your company in a legal manner. you will need to get such licenses and permits from state and federal levels.
Say, for example, you’re doing roofing and you want to install a Fire Rated Roof Hatch – you will need the necessary licenses to carry out such work. The same goes if you wanted to work with very large vehicles to transport materials. The government’s SBA website is a great way to search and find out the types of permits you need.
Insurance and Liabilities
At the same time that you’re dealing with permits and licenses, it’s a good idea to look into insurance. You will need insurance and so will your employees. This is due to the risky nature of construction.
Accidents are a reality of the construction trade, so you have to get to grips with the sort of liabilities you may face. Therefore, developing a contingency plan is something you should aspire to. You might not be able to plan for every eventuality straight away, but it’s good to get the ball rolling.
Also, in most cases, states will need you to have workers’ compensation insurance at a minimum. Plus, there may be various other insurances you need such as auto insurance and general liability insurance, to name a couple.
Of course, you are going to need the right level of funding for your new construction business. You should clearly lay out the level of funding you require in your business plan. This way, when you approach lenders, they have a clear breakdown of what they are investing in, and whether it looks doable.
The USA.gov website is a fantastic starting point for any small business owner to search for funding sources. You get plenty of lists of where you may be able to find grants and loans for your construction startup.
Be aware that profit margins in the construction business can be small. And, with inconsistent billing periods, you need to factor in potential cash flow issues when considering financing. Several projects may have hefty upfront costs too, so make sure you ask for enough financing!
A sensible idea is to plan to have an emergency cash account. You can use this if your cash flow situation is looking bad, or if a project’s costs are running way over budget. Just remember to replenish this account when you are in a position again to do so.
Start Your Construction Company the Right Way
If you want to start a construction company, you need to get all the fundamental aspects right, before you can start venturing into project work. Once you’ve laid all the necessary foundations for your company, and received sufficient funding, you should be ready to get on with business.
Thanks for reading this guide, we hope it’s helpful? If so, why not check out our main blog page for more informative reads such as this one?