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- How To Start Your Own Construction Business
- How To Start a Construction Company FAQs
- Helpful Videos & Slideshows
- Additional Construction Industry Publications & Resources
How to Start Your Own Construction Business
If you’re looking to start a Construction business, you’ve come to the right place. Since we’re going to show you exactly how to do it.
We’ll start with key industry fundamentals like how big the market is, what the key segments are, and how revenues and profits are generated.
Then we’ll discuss the keys to not only starting a construction company but succeeding in it!
15 Steps To Starting Your Own Construction Company:
- Choose the Name for Your Construction Company
- Develop Your Construction Company Business Plan
- Choose the Legal Structure for Your Construction Company
- Secure Startup Funding for Your Construction Company (If Needed)
- Register Your Construction Company with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get the Right Insurance for Your Construction Startup
- Buy or Lease the Right Construction Equipment
- Develop Your Construction Company Marketing Materials
- Purchase and Setup the Software Needed to Run Your Construction Company
- Hire Employees for Your Construction Startup
- Create a Marketing Plan
- Open Your Construction Business
1. Choose the Name for Your Construction Company
The first step to starting a construction company is to choose your business name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally, you choose a name that is meaningful and memorable.
Here are some tips for choosing a name for your construction company:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also, check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your construction business.
2. Develop Your Own Construction Company Business Plan
One of the most important steps in starting a construction company is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – This section should summarize your entire business plan so readers can quickly understand the key details of your construction business.
- Company Overview – This section tells the reader about the history of your construction company and what type of business you operate. For example, are you a general contractor, construction manager, or specialty contractor?
- Industry Analysis – Here you will document key information about the construction industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – In this section, you will document who your ideal or target customers are and their demographics. For example, are you targeting commercial or residential customers?
- Competitive Analysis – Here you will document your construction company’s competitive landscape. Who are your main competitors and what strategies do they use? How will you position your company in the market?
- Marketing Plan – Your marketing plan should detail how you plan to reach and acquire new customers. Which marketing channels will you use? What type of messaging will you use? Your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what services you will offer
- Prices: Document the prices of your company’s services
- Place: Where will your business be located and how will your restaurant’s location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your restaurant? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization, and/or social media marketing.
- What startup costs will you incur?
- How will your company make money?
- What are your projected sales and expenses for the next five years?
- Do you need to secure funding to launch your business?
3. Choose the Legal Structure for Your Construction Company
Next, you need to choose a legal business structure for your company and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the company and the business are the same legal person. In this case, the construction business owner is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal entity that is popular among small businesses. It is an agreement between two or more people who want to start a construction company together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its small business owners. This means that the construction business owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a construction company include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a construction business is that it offers limited liability to its owners. This means that the business owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays business taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your construction business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Construction Company (If Needed)
In developing your construction business plan, you might have determined that you need to raise startup capital to launch your construction startup.
If so, the main sources of funding for a construction business to consider are personal savings, loans from friends and family, small business loans, and equity investors.
- Personal Savings: The personal savings of the owners are often the largest source of startup funding for a new business. If you have saved enough money to cover all of your startup costs, then you may not need to seek outside funding.
- Loans from Friends and Family: Another common source of funding for a new construction business is loans from friends and family. If you have people in your life who are willing to invest in your business, this can be a great option. However, it is important to remember that these loans should be treated like any other loan, with interest rates and repayment terms that are agreed upon in advance.
- Business Loan: Small business and equipment loans are another option to consider when seeking funding for your new construction company. There are a variety of small business loans available, including Small Business Administration (SBA) loans, so you should shop around to find the one that best suits your needs. Be sure to read the terms and conditions carefully before signing any loan agreement.
- Equity Investors: Another option for funding your new company is to seek equity investors. Equity investors are individuals or companies that invest money in your business in exchange for a stake in the company. This means that they will own a portion of your business and will be entitled to a portion of the profits.
If you decide to seek equity investors, it is important to have a solid business plan and a well-crafted pitch deck. You will need to convince potential investors that your company is a good investment
5. Register Your Construction Company with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks and other financial institutions will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
6. Open a Business Bank Account
It is important to establish a bank account in your company’s name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
Meet with a banker to discuss your business needs and establish a relationship with them.
7. Get a Business Credit Card
You should get a business credit card for your construction company to help you separate personal assets and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business’s future success.
8. Get the Required Business Licenses and Permits
Next, you need to obtain the required business licenses and permits for your business. The specific licenses and permits you need will vary depending on the state and local laws where your business is located.
To find out which licenses and permits you need, you can contact your state’s business licensing office or your local Chamber of Commerce.
Some of the most common licenses and permits for construction companies include:
- General business license: A business license is generally required in order to operate a business.
- Building permit: A building permit is generally required in order to construct a new building or make additions or renovations to an existing building.
- Zoning permit: A zoning permit may be required in order to operate your new business in a particular location.
- Construction license: In some states, you may need to obtain a construction license in order to operate your business.
- Environmental permit: If you’re going to be doing any construction work that could potentially impact the environment, you may need to obtain an environmental permit.
- OSHA certification: If you’re going to be doing any work that could potentially expose your employees to safety hazards, you may need to obtain OSHA certification.
9. Get the Right Insurance for Your Construction Startup
Construction is a risky business, and it is important to have the right insurance in place to protect your company from potential liabilities.
There are a variety of insurance policies available for small businesses, and the type of policy you need will depend on the size and scope of your company. Some of the most common types of insurance for construction companies include:
- General Liability Insurance: General liability insurance protects your company from claims arising from injuries, property damage, and other damages that occur as a result of your business operations.
- Workers’ Compensation Insurance: Workers’ compensation insurance protects your employees in the event that they are injured while working on a job site.
- State Disability Insurance: State disability insurance provides benefits to employees who are unable to work due to a disability.
- Unemployment Insurance: Unemployment insurance provides benefits to employees who lose their jobs due to no fault of their own.
- Business Owner’s Policy: A business owner’s policy (BOP) is a type of insurance that combines general liability insurance and property insurance into one policy.
- Equipment Insurance: If you own any equipment, it is important to have it insured in case of damage or theft.
- Vehicle Insurance: If your company owns any vehicles, you will need to have them insured.
10. Buy or Lease the Right Construction Equipment
In order to open a successful construction business, you will need to have the right equipment. You can either buy or lease the equipment you need.
If you decide to buy your equipment, you will need to finance it. One option is to take out a loan from a bank or other financial institution. Another option is to use equipment financing, which is a type of financing specifically for equipment purchases.
If you decide to lease your equipment, you will need to find a leasing company that specializes in construction equipment leases.
11. Develop Your Construction Company Marketing Materials
Once you have all of the necessary licenses, permits, and insurance in place, you will need to develop your company’s marketing materials.
Your marketing materials should include a company logo, business cards, a website, and brochures or flyers. You will also need to develop a marketing strategy to promote your business.
There are a variety of ways to market construction services. Some of the most common methods include online marketing, word-of-mouth marketing, and print advertising.
12. Purchase and Setup the Software Needed to Run Your Construction Company
To run a successful business, you’ll need to purchase and set up the software for various tasks, such as accounting, point of sale (POS), and customer management.
Some of the most popular software programs used by restaurants include:
- QuickBooks: QuickBooks is a popular accounting software program that can help you track your restaurant’s finances.
- Microsoft Office: Microsoft Office includes programs like Word, Excel, and PowerPoint that can be used for various tasks, such as creating marketing materials and tracking sales data.
- POS Systems: POS systems are used to process customer orders and payments. There are many different types of POS systems available, and the type you need will depend on the size and complexity of your restaurant.
- Customer Management Software: Customer management software (CMS) is used to track customer information, such as contact information, order history, and preferences.
13. Hire Employees for Your Construction Startup
Once you have all of the necessary licenses, permits, equipment, and software in place, you will need to start hiring employees. The type of employees you need will depend on the size and scope of your business. Some of the most common positions include:
- Project Managers: Project managers are responsible for overseeing the day-to-day operations of a construction project.
- Construction Workers: Construction workers are responsible for performing the actual work of a construction project.
- Office Manager: The office manager is responsible for managing the company’s office and administrative staff.
- Accountant: The accountant is responsible for handling the company’s finances, including billing, invoicing, and payroll.
14. Create a Marketing Plan
Your marketing plan should include a variety of strategies for promoting your business.
Some of the most common marketing strategies used by construction companies include online marketing, word-of-mouth marketing, and print advertising.
When creating your marketing plan, you will need to consider your budget, target market, and the types of marketing methods that will be most effective for your business.
15. Open Your Construction Business
You are now ready to open your business. By following the steps outlined in this guide, you can be sure that you are taking the necessary steps to start your business on the right foot.
Below are answers to frequently asked questions that might further help you.
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How to Start a New Construction Business FAQs
What are the Typical Startup Costs for a New Construction Business?
Initial, one-time costs:
- Construction tools and equipment
- Website and promotional materials
- Office space and equipment
- Materials (cement, lumber, steel, etc.)
- Professional fees (accountant, attorney, etc.)
- Rent and utilities
- Equipment maintenance
How much do Construction Operators Make?
Depending on which segment the company specializes in, construction executive salaries average anywhere from $66,000 to $175,920 per year.
How Big is the Construction Industry?
According to First Research and IBISWorld, the industry has grown at a rate of approximately 3.4% over the past five years, to reach $1.5 trillion in revenue. Revenue is generated by the approximately 660,000 construction businesses in the US.
What are the Key Segments of the Construction Industry?
The industry is responsible for a wide variety of activities, from dam and highway construction to roofing and tile work. The top revenue-generating segments include:
- Commercial Construction - This segment generates the most revenue and includes construction work (including maintenance and repairs) on office, retail, hotel, agricultural, and entertainment buildings.
- Electricians and Housing Developers - This segment ties for the second-largest segment and includes work on electrical wiring, plumbing, and HVAC systems in new and existing commercial and residential buildings.
- Other segments generating at least $100 billion per year include Municipal Building Construction companies, Plumbers, Home Builders, and Road & Highway Construction.
What External Factors Affect the Construction Industry?
A number of factors affect the performance of the industry. These drivers include:
- Funding – Federal, State, and Local governments fund a variety of construction projects, namely infrastructure projects, and municipal projects. As such, the industry benefits when more government funding is available.
- Input Prices – When the price of inputs (such as concrete, steel, and lumber) rises, industry operators will generate lower profit margins. Conversely, low input prices can increase demand for construction, and allow for more profit.
- Corporate Profit and Per capita disposable income – The industry relies heavily on corporations’ and individuals’ ability to order construction projects. Corporate profit is one of the factors in determining business expansion, which requires new construction. Similarly, homeowners’ access to disposable income spurs demand for new housing or home improvement projects.
- Technology – Companies that adopt newer technology have a significant market advantage. Some examples of new technology used in the industry include geographical information systems (GIS), Building Information Modeling (BIM) and laser scanning, telematics, and drones.
Who are the Key Competitors in the Construction Industry?
Major construction companies in the US include Fluor, Bechtel, and The Turner Corporation. Smaller local companies make up a large portion of the industry as well.
What are the Key Customer Segments in the Construction Market?
The key customer segments in the Construction market are as diverse as the services provided by the industry.
These potential customers can be grouped by:
- Residential Building Construction (which primarily serves individuals and investors),
- Nonresidential Building Construction (serving corporations, commercial establishments, sports clubs, etc.),
- NonBuilding Construction (typically infrastructure, funded with public monies; industrial projects; excavation projects, etc.), and
- Other Construction Companies (for services such as electrical work, flooring, window installation, etc.).
What are the Key Costs for a Construction Startup?
- Wages – Wages are a significant expense for construction businesses, averaging approximately 27% of revenue.
- Purchases – Purchases, which include tools, personal protective equipment, and input materials, are the largest expense for most construction companies.
- Other – Other costs include rent, utilities, software, subcontractors, insurance, and depreciation.
What are the Keys to Launching a New Construction Business?
- Define your vision – Decide which construction segment you will specialize in.
- Have a business plan – A construction company business 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 your team – Hire and train a team of employees that have the right skills. However, since construction is seasonal and cyclical, you must also be willing to downsize if/when the workload decreases.
- Take stock of your tools and equipment, and purchase what you need.
- Properly price jobs – Be careful to factor in overhead, and actual production costs (materials, labor, inspections, etc.).
Helpful Videos & Slideshows
Paying Yourself – Owning a Construction Company
Seven Practices to Construction Business Success
Construction Management and Estimating
How To Build A Construction Business
Additional Construction Industry Publications & Resources
For additional information on the construction market, consider these resources:
- The Associated General Contractors of America: www.agc.org
- Engineering News-Record: enr.construction.com
- Construction Labor Research Council (CLRC): www.clrcconsulting.org
- National Association of Home Builders: www.nahb.org
- US Department of Housing and Urban Development: www.hud.gov
- National Institute of Building Sciences: www.nibs.org
- Federal Housing Finance Agency: www.fhfa.gov
- National Association of the Remodeling Industry: www.nari.org
- Construction Mavericks: www.constructionmavericks.com
Be sure to also check out local industry publications and resources available from your state and local government specifically for construction businesses.
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