So goes the popular saying, “It all starts from the ground up.” This is especially true when starting a construction company. While you may think it’s necessary to be a handyman or to have a natural knack for using tools, neither is entirely true. Your primary focus as the owner is to have a handle on running the business.
Depending on your location’s seasonality and local demand, running a construction company can be a very fruitful endeavor. But as with any business venture, starting a construction company will require a lot of time, energy and paperwork. In addition to standard steps, your new business will be held to extra regulatory requirements and market realities unique to the trade. But for those willing to stick with it, the rewards can be great. Let’s look at the steps involved in creating the perfect blueprint for starting a construction company.
Some Considerations When Starting Up
While running a construction company can be incredibly lucrative, there are some considerations you should entertain before taking the steps to start one. The most pressing ones are those that relate to seasonality and the types of jobs you hope to take.
First and foremost, learn if there are any restrictions in your geographic region on when construction activity can occur. In some jurisdictions, “construction season” might be more than a passing phrase, as extreme weather conditions can dictate when and where construction activity can take place. It might not be worth having a year-round construction business in an area where you can’t work year-round. Check with local authorities in your jurisdiction.
After checking on any seasonal restrictions, consider the type(s) of work you want your company to specialize in. Will most of your jobs be from homeowners looking to build property extensions? Will you bid on government contracts to help build entire offices or even public works infrastructure? Will you need specialization for the jobs you hope to take, such as dealing with hazardous materials? These are important questions, and they will likely have more than one right answer based on the work you want to do. Those answers will also determine if your company will need any additional licensing.
With these considerations in mind, here’s what you’ll need to do to start your own construction business.
Trade Schools and Contractor’s Courses
While there’s no requirement for you to know how to hammer a nail or cut a floorboard, the best managers at least have a grasp on how this work is completed. Therefore, it is pertinent to do your homework and learn all sides of the business. If you haven’t already done so, consider taking various trade-school courses to learn about plumbing, electrical work or carpentry. Most importantly, sign up for a contractor’s course.
Create a Business Plan
As with starting any business, creating a solid business plan is essential to framing what your company will be. Not only should your business plan include short-term goals, but it should also include projections for future revenue, market size growth and the strategies you will employ to meet them. Note what type(s) of construction jobs you hope to take on (e.g. residential, industrial, commercial, etc.), and clarify the steps you will take to secure that work. Construction inevitably requires expensive machinery, so include a budget section for tools, equipment and materials, as well as a budget for recurring maintenance costs. Business plans will also help you with obtaining funding, should you need it.
Incorporate, Register and License
This step can happen concurrently with the drafting of your business plan. To protect both your business and yourself—as well as to appear professional when seeking funding and clientele—you should decide on the type of legal business entity under which your company will form. Hiring an attorney to do this can help with forming a legal structure. Determining what legal structure your business should take (e.g. LLC, corporation, partnership, etc.) will be part of developing your business plan. Once you decide on a structure, you should also have a company name in mind. Make sure you register that name with the county clerk’s office or state agency to protect yourself should any trademark issues arise.
After all that is done, you will want to apply for the proper licenses in your state. For instance, in California, the Contractors State License Board is responsible for administering exams and maintaining registrations for applicants. Be sure to check the licensing requirements for any local, state or federal authorities based on the types of jobs you want to work on.
Secure Your Office
Some construction companies start out at a home office. Although this can keep you afloat, there are two main reasons that it’s beneficial to maintain a separate business presence. First, potential clientele might be more willing to do business with someone that operates out of office space than they would a business in a home office. Second, you will need a place for all of your company’s tools, equipment and construction vehicles. You may not have these at first, but as your business grows, you will acquire them over time. Having a separate office for your company can allow your construction business proper room to grow.
Get Bonded and Insured
Some people are justifiably skeptical about employing construction companies due to horror stories of contractors stealing materials and poorly executing jobs. In spite of this, there are many reputable companies out there, which is what yours should strive to be. A large step to being legitimately reputable is to be properly insured and bonded. In fact, being properly insured and bonded is required in some jurisdictions.
Being bonded shows a customer that a bond company has investigated your business and found that you are trustworthy enough to insure. It’s also a requirement for licensing in some states. You should work with a licensed insurance broker to acquire the necessary insurance that your small construction company needs as coverage. Most likely, you will need contractor’s liability insurance, workers’ compensation and/or builder’s risk insurance, which covers buildings under construction. Even if neither is required, becoming properly licensed and bonded can convince otherwise skeptical customers about your commitment to doing a good job.
Connect With Contractors, Suppliers and Other Trade Business Associates
Your construction company will act as the controller of each job. However, in order to successfully tackle these jobs, you will need to work with other specialists in the construction field. For some jobs, your company might serve as a “prime contractor,” or the contractor responsible for completing the project as a whole. In other jobs, especially if you can offer specialized knowledge, your company might be a “subcontractor,” or one that works under the prime contractor to complete work that they cannot complete alone. Depending on the size or nature of the job, your company might act as one or the other.
First off, do your research with your local Chamber of Commerce to make sure you’re partnering with reputable associates. Establish relationships with other contractors that you will use to finish jobs and take on jobs you can’t handle. Pinpoint who your suppliers will be; open accounts with them, and arrange credit. Other trade business associates/subcontractors include building inspectors, heating, ventilation and air conditioning (HVAC) specialists, electricians, carpenters and wood framers, plumbers, masons, landscapers and cost estimators.
There are extravagant, costly ways to promote your construction company, such as running television and digital ads, and then there are simple, inexpensive ways, such as placing signs at your job sites. Because construction sites tend to be prominent on any landscape, small construction companies can use that to their advantage while still leveraging traditional, cheaper promotional avenues. In addition to having an eye-catching logo on your prominent signage, make business cards, create image portfolios that include prior jobs, and build a website with pictures and descriptions of those jobs. However, you decide to approach advertising, make sure to set aside a marketing budget in your business plan and spend that money accordingly. Don’t forget to ask for testimonials, which are great catalysts for word-of-mouth campaigns.
The world of construction is one that few people genuinely understand, and because of this, clients are often taken advantage of. This is why potential clientele raise a questionable brow when approaching a suitor for their construction needs. At the end of the day, integrity and hard work will always have the greatest long-term payoff.