What to Know to When Starting a Construction Business
Nov 10, 2021
Starting a new business is an exciting prospect—especially in the construction industry, which is facing much pent-up demand. The recent passage of President Joe Biden’s more than $1 trillion infrastructure plan has also injected new excitement into the industry.
The overall construction industry is expected to grow by 3.7% in 2022. Despite material shortages and rising prices, the residential housing market has been booming. Single-family residential construction saw a 9% increase in 2021. And many homebuilders expect that supply chain issues should smooth out by the middle of 2022. On the nonresidential construction side, the American Institute of Architects estimated a 4.6% increase for 2022.
As with any new venture, the best way to set yourself up for success is to put down a strong foundation. That means taking time to create a solid business plan and research the local market. So before you start printing business cards, tackle the steps in this guide to getting your construction company off the ground.
In this article
Do your research
Gathering information about who your potential customers might be—and your competitors—will be critical to the success of your business. Start with local construction organizations in your area. Trade and construction associations may offer helpful insights and guidance on local market trends.
Beyond that, here is a list of resources you can use for starting a construction company, including research about the construction industry and your specific target market, too.
- U.S. Bureau of Labor Statistics. The BLS collects and analyzes data about employment and average earnings in the construction industry, both for individual employees and employers.
- U.S. Small Business Administration. The U.S. Small Business Administration provides users with detailed information about various business industries. The SBA’s site is a great tool for learning how to start a small business. They have information on everything from financial programs to the laws and regulations of the construction industry.
- Construction Marketing Association. The CMA provides visitors support on marketing in the construction industry with industry-specific disciplines and an inside look at how to market construction products and/or services.
- Data USA. Data USA provides information about occupations, labor, salary, regional concentrations, industry trends, and projections.
- Construction Industry Research and Information Association. A neutral, independent, and nonprofit body, CIRIA gains early insight into policy and regulation development, changing operating environments, and new developments in construction techniques and materials. Their newsletters and resource guides offer valuable insights into the construction industry for general contractors.
Remember: Economic trends influence the outlook for the industry as a whole, so it’s important to do your research to avoid costly mistakes such as not preparing for potential labor shortages.
Write a business plan
Writing a business plan is a must for every new business owner. A good business plan will help keep you focused throughout the process of launching your company—especially as demands like raising funds, targeting the market, getting approved for loans, and finding potential customers compete for your attention.
The first element in a business plan is your company structure. You have several options here.
- Sole proprietor. This is a company without employees and one person using the company as a pass-through entity, which means that all the income goes to the owner or investor.
- Limited Liability Company. This refers to a group of individuals or partnerships.
- Franchises. These are companies that license the brand, products, or services of another company are franchises.
- Corporations. An S corporation is a smaller company with fewer than 100 members. A C corporation is a large company with 100 or more members.
Beyond corporate structure, make sure your business plan includes these sections:
- Executive summary. This important summary should include a table of contents, contextual background of the company, objectives and goals, market opportunity, competitive advantages, and financial highlights.
- Business description and structure. This provides an inside look at what your business is, why it’s an important addition to the market, why you’re in the business, and what you’re selling and/or providing. Describe your process and your services, pulling in details from your inventory fulfillment abilities and other operational details, if you can.
- Market research and strategies. This is where that research comes in handy. Dig through the intel you’ve gathered to outline your market analysis and strategy, including forecasts of sales, upcoming project milestones, advertising and PR plans, customer testimonials, and more. Try to answer the question: What makes your business different from the competition?
- Management and personnel. This is where people can get to know you. Be sure to include a short biography with your background and expertise and that of any other leaders in your company.
- Financial documents. These are the numbers that back up everything you’ve said thus far. Typical items to include are conservative projections of profit and loss statements, balance sheets, cash flow statements for the future, and more.
And with that, we’re on to the next step: registering your business.
Register your business
Things are getting official now! Most states have a site to visit with small business assistance guides and a registration portal.
Start with your county clerk to register a business name and work from there. You’ll also need an employer identification number (EIN), which is your federal tax ID to pay taxes, hire employees, open a bank account, and apply for business licenses. That brings us to the IRS, where you can apply online to get your EIN. The IRS also has a new business checklist so you can make sure you’re hitting all the important steps of starting your new construction business.
Apply for licenship, permits, and certifications
You’ll also need to apply for specific licenses, permits, and certifications for businesses in the construction industry. Check with your state’s Contractors’ Board and/or your local Department of Labor to make sure you’ve covered all your bases. The SBA also offers a guide to the federal and state licenses and permits you may need.
You might also want to certify your new company. Certification can take your business to the next level as a marketing tool, because it attracts top-tier clients. As a result, you’re setting your startup construction company up to sustain the challenges of the industry and grow with your competitors with an added edge. Learn how to certify your construction business in MT Copeland’s class on certification, taught by Jennifer Todd, the president of LMS General Contractors, a full-service demolition and environmental contracting business.
Insure your business
You must get insurance before beginning work to protect yourself against accidents, emergencies, or property losses. The most common types of insurance construction companies get are general liability insurance, workers’ compensation insurance, property damage, vehicle, unemployment, and state disability.
Now that you, your employees, your business, and its assets are covered, it’s time to find the money to make everything happen.
Financing and funding your construction company
Construction has some costly overhead, so figuring out how to finance your company is a legitimate concern. To start, there are plenty of options out there to fund your business, but the top contenders are listed below:
- SBA and small business loans. SBA loans are optimal for small businesses. They are secured by the government and offer long terms, high borrowing limits, and low interest rates.
- Working capital loans. These cover everyday business operations like payroll and rent.
- Equipment loans. These are loans that let you buy or lease major equipment.
- Line of credit. Lines of credit allow business owners to draw from a set amount of cash. You only pay interest on the amount you actually borrow from the line.
A word of advice? Trust and believe in the process. The potential for high wages and high demand is there. It’s time to kick your plans into high gear and start your own construction company.
MT Copeland offers video-based online classes that give you a foundation in construction fundamentals with real-world applications, like certifying a construction business. Classes include professionally produced videos taught by practicing craftspeople, and supplementary downloads like quizzes, blueprints, and other materials to help you master the skills.