Over the past 20+ years, we have helped over 5,000 entrepreneurs and business owners create business plans to start and grow their construction businesses. On this page, we will first give you some background information with regards to the importance of business planning. We will then go through a construction business plan template step-by-step so you can create your plan today.
What Is a Business Plan?
A business plan provides a snapshot of your construction business as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategy for reaching them. It also includes market research to support your plans.
Why You Need a Business Plan
If you’re looking to start a construction business or grow your existing construction business you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your construction business in order to improve your chances of success. Your construction business plan is a living document that should be updated annually as your company grows and changes.
Sources of Funding for Construction Businesses
With regards to funding, the main sources of funding for a construction business are bank loans and angel investors. With regards to bank loans, banks will want to review your business plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to confirm that your financials are reasonable. But they will want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business.
The second most common form of funding for a construction business is angel investors. Angel investors are wealthy individuals who will write you a check. They will either take equity in return for their funding, or, like a bank, they will give you a loan. Venture capitalists will generally not fund a construction business.
Construction Business Plan Template
Your business plan should include 10 sections as follows:
Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.
The goal of your Executive Summary is to quickly engage the reader. Explain to them the type of construction business you are operating and the status; for example, are you a startup? Or, do you have a construction business that you would like to grow?
Next, provide an overview of each of the subsequent sections of your plan. For example, give a brief overview of the construction industry. Discuss the type of construction business you are operating. Detail your direct competitors. Give an overview of your target customers. Provide a snapshot of your marketing plan. Identify the key members of your team. And offer an overview of your financial plan.
In your company analysis, you will detail the type of construction business you are operating.
For example, you might operate one of the following types:
- Commercial Building Construction. This segment includes construction work (including maintenance and repairs) on office, retail, hotel, agricultural and entertainment buildings.
- Single Unit Residential Housing Development
- Multi Unit Residential Housing Development
- Municipal Building Construction
- Road & Highway Construction
- Electrician business
- Plumbing business
In addition to explaining the type of construction business you operate, the Company Analysis section of your business plan needs to provide background on the business.
Include answers to question such as:
- When and why did you start the business?
- What milestones have you achieved to date? Milestones could include sales goals you’ve reached, construction projects completed, etc.
- Your legal structure. Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.
In your industry analysis, you need to provide an overview of the construction business.
While this may seem unnecessary, it serves multiple purposes.
First, researching the construction business industry educates you. It helps you understand the market in which you are operating.
Secondly, market research can improve your strategy particularly if your research identifies market trends. For example, if there was a trend towards decaffeinated construction business consumption, it would be helpful to ensure your plan calls for plenty of decaffeinated options.
The third reason for market research is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.
The following questions should be answered in the industry analysis section of your construction business plan:
- How big is the construction business (in dollars)?
- Is the market declining or increasing?
- Who are the key competitors in the market?
- Who are the key suppliers in the market?
- What trends are affecting the industry?
- What is the industry’s growth forecast over the next 5 – 10 years?
- What is the relevant market size? That is, how big is the potential market for your construction business. You can extrapolate such as figure by assessing the size of the market in the entire country and then applying that figure to your local market size.
Note that trends are particularly important in the construction business. Economic trends, such as the boom and bust cycle of the nation, region, or specific locale you are in, drive a lot of the investment activity which leads to construction, whether it is homes, commercial, roads, bridges and tunnels. As such, be sure to research and include trends in your business plan.
The customer analysis section of your construction business plan must detail the customers you serve and/or expect to serve.
The customers you serve will vary greatly based on your type of construction business. For instance, commercial building construction companies serve a very different clientele than single unit residential housing development companies.
Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, include a discussion of the ages, genders, locations and income levels of the customers you seek to serve if residential, and type of business, function and seniority if commercial.
Psychographic profiles explain the wants and needs of your target customers. The more you can understand and define these needs, the better you will do in attracting and retaining your customers.
Your competitive analysis should identify the direct competitors your business faces. Direct competitors are other construction businesses.
In your plan, you need to detail the other construction businesses with which you compete. Most likely, your direct competitors will be construction businesses located very close to your location.
For each such competitor, provide an overview of their businesses and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as:
- What types of customers do they serve?
- What services/products do they offer?
- What is their pricing (premium, low, etc.)?
- What are they good at?
- What are their weaknesses?
With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask prior customers of your competitors what they like most and least about them.
The final part of your competitive analysis section is to document your areas of competitive advantage. For example:
- Will you provide superior construction services?
- Will you provide construction services that your competitors don’t offer?
- Will you make it easier or faster for customers to acquire your services?
- Will you offer better pricing?
Think about ways you will outperform your competition and document them in this section of your plan.
Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a construction business plan, your marketing plan should include the following:
Product: in the product section you should reiterate the type of construction business that you documented in your Company Analysis. Then, detail the specific services you will be offering.
Price: Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your marketing plan, you are presenting the menu of services you offer and their prices.
Place: Place refers to the location of your construction business. Document your location and mention how the location will impact your success. For example, is your construction business located within a major city that’s growing rapidly?
Promotions: the final part of your construction business marketing plan is the promotions section. Here you will document how you will drive customers to your location(s). The following are some promotional methods you might consider:
- Social Media Marketing
- Direct Mail
- Advertising in local papers and magazines
- Reaching out to local bloggers and websites
- Local radio advertising
- Banner ads at local venues
While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.
Everyday short-term processes include all of the tasks involved in running your construction business such as doing construction, procuring supplies, hiring staff, etc.
Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to serve your 100th customer, or when you hope to reach $X in sales. It could also be when you expect to hire your Xth employee or launch a new service offering.
To demonstrate your construction business’s ability to succeed as a business, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.
Ideally you and/or your team members have direct experience in the construction business. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.
If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act like mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in construction businesses and/or successfully running a businesses.
Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet and cash flow statements.
Income Statement: an income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenues and then subtracts your costs to show whether you turned a profit or not.
In developing your income statement, you need to devise assumptions. For example, will you serve 10 customers in the first year or 20? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.
Balance Sheets: While balance sheets include much information, to simplify them to the key items you need to know about, balance sheets show your assets and liabilities. For instance, if you spend $100,000 on building out your construction business’ office, that will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a bank writes you a check for $100.000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.
Cash Flow Statement: Your cash flow statement will help determine how much money you need to start or grow your business, and make sure you never run out of money. What most entrepreneurs and business owners don’t realize is that you can turn a profit but run out of money and go bankrupt. For example, let’s say a client approached you with a $100,000 contract, that would cost you $50,000 to fulfill. Well, in most cases, you would have to pay that $50,000 now for supplies, equipment rentals, employee salaries, etc. But let’s say the company didn’t pay you for 180 days. During that 180 day period, you could run out of money.
In developing your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a construction business:
- Purchases, which include tools, equipment, and input materials (the largest expense for construction companies)
- Payroll or salaries paid to staff (27% of a typical construction company’s costs)
- Business insurance
- Rent and utilities
- Taxes and permits
- Legal expenses
Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your store design blueprint or location lease.
Putting together a business plan for your construction business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will really understand the construction business, your competition and your customers. You will have developed a marketing plan and will really understand what it takes to launch and grow a successful construction business.
Construction Business Plan Keys to Success
Below are some of the keys to success in the construction business:
- Vision & Focus: determine the type of construction business you want to operate and stick to that vision.
- Create your business plan: Your plan will help you set goals and outline how to achieve them.
- Get licensed, bonded, and insured: before you can bid on your first job, you need to investigate and meet the requirements for local and state licenses and do what you need to do to secure them, get your worker’s compensation and liability insurance, and find out how much you need to be bonded for.
- Build a winning team: Hire and train a team of employees with the right skills. Remember that since construction is seasonal and cyclical, you must also be willing to downsize if/when the workload decreases.
- Purchase wisely: be careful not to overspend on salaries and equipment. Consider renting equipment when possible.
- Properly price jobs: Keep factors such as overhead and actual production costs (materials, labor, inspections, etc.) in mind when pricing jobs to ensure a healthy profit on all projects.
Related article: How to Start a Construction Business
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