How To Start A Construction Company
Starting a construction company can be pretty exciting! Figuring out HOW to start a construction company is a whole other animal. It’s not as easy as just going to your friend and asking them to let you remodel…no no…It’s quite a bit more difficult.
You’ll have to do a bunch of mind numbing research and so much paper work that you’re hand will cramp! And all that before you’ll likely see any kind of a profit.
Did you know that nearly 70% of ALL small business owners regret not slowing down to learn how to properly run and a manage a business during their first year? One thing that’s great though is that starting a construction business is simple as long as you have some guidance. The bottom line is that all construction companies take some time to build up and earn you 6 figures, but by starting now, you can be successful later.
Worried about the virus slowing everything down?
Construction services have actually been deemed essential services in over 36 states, odds of success are in your favor!
A construction business isn’t the best business to start though if you’re after money. A construction business can be very physically and financially draining. You’ve all noticed the price of lumber skyrocketing right? Construction companies everywhere are taking a massive hit!
If money is what you’re after we recommend checking out a business model that won’t require breaking your back and betting on the house!
Starting A Construction Business – 5 Steps To Success!
Check Out This Simple Way To Run A Digital Real Estate Empire Online
This is so simple, it should be illegal.
Table of Contents
Step 1. Research And Understand The Construction Business
Starting a construction business in 2021 is much easier than starting one in 1985. We’ve got this great thing called the internet now and we can have just about any kind of information we want at our fingertips! Here are some great sources to look at on how to start a construction company:
- U.S. Small Business Administration: The SBA offers tools and information to help construction companies like yours as you grow. You’ll also find info on how to get a small business loan.
- U.S. Bureau of Labor Statistics: The BLS will help you learn things specific to the construction industry when it comes to employment. Job openings, hourly pay, and so on.
- Construction Industry Publications and Statistics: There are several magazines and media outlets related specifically to how to start your own construction company.
- Local Industry Publications: By using a simple google search in tandem with your location, you can find different media outlets with local information regarding the construction industry.
Research is always optional when starting a business, but if statistics show anything, it’s that those who do tend to have a higher success rate of those who don’t. Additionally, it’s also much easier to create your business plan if you have done some research first.
Step 2. Creating Your Business Plan
Whether you start a construction company or not, whatever business you start, you need to create a business plan. Having a plan created will help you stick to it when things get tough. You’ll also learn things like how to raise investment funds, how to get a business loan at low interest rates, and more!
This document is only one or two pages and serves as a compelling summary and introduction of your newly created business plan.
The executive summary of business plans are typically the easiest to write because it has all the basic information about your company. Things like business name, services you offer, funding goals, past successes that are related, and future plans. You’ll dive deeper into all of those topics later in your plan.
Following the executive summary will be your overview of the company. You’ll provide information like the founders, when it started, and what services is offers. On top of that, be sure to include your value proposition statement that talks about why your specific services are needed in the market you’re targeting.
Additionally, note how your business is structured or will be structured. Are you going to be an C-Corp, S-Corp, or LLC? Also let your audience know how the ownership is divided if you are not the only founder.
Market Research / Analysis
This is where all that upfront research as a business owner comes into play. In your market analysis, you will need to prove by statistics that your target market has demand for what your offering and why you are the company that can fit the demand.
Here’s just a few things to think about including:
- State of the Industry: You will need to provide statistics that prove your target market is strong enough to support your construction business
- Your Target Market: Describe what your audience is looking for and why they will want your services/products using the data in your local community.
- Growth Opportunity: You’ve heard it been said before, if you ain’t growin’ you’re dyin’, you want to make sure your target market will have enough demand to allow your business to grow at will.
- Market Share and Product Pricing: Calculate how much of the current business you’ll be able to capture compared to your competition and institute a pricing plan that allows you to be competitive and profitable.
- Competitor Research: Pick apart your competitors and be honest. What are they doing good, what are they doing bad…how will you be able to beat them.
But what if you didn’t just have to be limited to your local area? What if you could build properties all over?
Scam Risk recommends a business model that doesn’t have you land locked and can bring in MUCH more money at MUCH higher profit margins!
In this part of the business plan you’ll go over your business structure:
- How is ownership split?
- any investors and shares?
- Legal structure (LLC, Corp, etc)
- Organizational layout and management
- Current employee count and future employee projections
The main goal of this portion of the plan is to properly explain how your chosen structure will lead to the company being successful.
Products And Services
In this section you dive deep into what products and services you plan to offer. Use past or even current projects as examples as to what your construction company will offer. Also talk about how you plan to build relationships with a source for the various materials you’ll need throughout the years.
Also plan to include the different contracts you will be offering to clients and whether or not they will vary project to project. Will it be a lump sum, unit price, or cost plus all the time and materials? This is also part of your business strategy.
Marketing And Sales
This is where you explain how your construction company plans to reach customers and turn them into paying jobs.
Things you’ll want to include are:
- Value Proposition: Why your target market needs you and why you’re better than alternatives.
- Positioning: How you plan to find and reach your target customers (business cards, word of mouth, etc)
- Promotion: How do you plan to advertise and market your small business?
- Sales Strategy: What makes your sales process better than the competitors?
Marketing and sales is the key to any business, but most business owners don’t have time to understand it, they’re better at fulfillment.
If you want to really stay ahead of the competition when it comes to marketing and sales as a construction owner, click here to learn about the skill that pays ALL your bills!
Financial Plan + Projections
In this part of the business plan, you’ll need to go over the finances of your company and where you want your finances to be in the future. If you don’t have any current personal data, make sure to include your projections based of the current industry data.
Some things to include are:
- Projected Income or Current Income Statements
- Cash Flow Statements or Forecasts
- Current Balance Sheets or Projected
Note all of debt obligations you may have. This would be things like a mortgaged property, equipment, tools, and vehicles.
Lastly, include how much money you need to raise for funding. Also state whether or not you will need additional funding in the future. Note their specific purpose as well like equipment loans, business assets, property, tools, etc.
At the end of your business plan will be other pieces of info that are relevant to your business, but don’t necessarily fit in the other categories. A miscellaneous section if you will.
You should include the following in your business plan:
- Charts, tables, and graphs
- Startup costs
- Detailed market analysis
- Past project details
- Permits or business license acquired
- Proof of insurance / insurance agent
- Resume’s of the founder(s)
- Company organizational chart (management structure)
After you have a complete business plan, it is time to officially register your business with the federal, state, and local government.
Sounds like there are a lot of legal hoops to jump through huh? We bet you can feel your hand cramping up from all the potential paperwork right now!
Step 3. Register Your Business
Compared to all the other steps so far, registering your business is actually a bit simpler.
1. Decide on a business entity: Choose the business name that will help you build your brand and stick in the mind of customers. Also choose LLC or Corporation.
2. Get an Employer Identification Number (EIN): You’ll need an EIN to pay taxes, hire people, open your business bank account, etc. You can apply on the IRS website and find more information.
3. If you’re registering as: An S-Corp will need to file a 2553 from with the IRS while LLC’s will be dealt with by the federal and state governments
4. Register with state agencies: Some states still use paper, some are electronic. You can look up what your state requires on the small business administration website. If you’re in multiple states, you’ll need to abide by each states separate rules.
5. Register with local agencies: Check with your local government if any registration is required.
Most business owners don’t know how to properly structure their business. Here are the 4 most common business structures to choose from. Each one has their own pros and cons.
Sole Proprietor: You have sole control, but you’re also fully liable. If you default on anything, the bank can seize your assets and that’s no fun.
Limited Liability Company (LLC): An Limited Liability Company is designed to do exactly what it sounds like. It reduces the liability risk you have compared to a sole proprietor. You get to keep your company and personal assets separate, protecting you as an individual when you go the LLC route.
The issue you’ll run into however is that it is harder to raise funding. If funding is something you’ll heavily be relying on for you to start a construction company…a corporation might be better for you.
C Corporation: The C Corp is just like an LLC except it makes it easier for you to raise capital since ownership will be divided amongst shareholders.
Shareholders do complicate the whole process though and you’re also subject to double the business taxes. The corporation is taxed and the shareholders are taxed based on the dividends.
S Corporation: An S Corp is like a C Corp but you are limited to only 100 shareholders and they must all be U.S citizens.
However, you also get the added perk of pass-through taxation where only the shareholders get taxed on their dividends.
Now registering your business entity is only half of the grueling admin process. When you start a construction company, you’ll need to research several different business licenses, permits, and certifications for the work you plan on doing.
Liabilities are everywhere with construction. Employees can get hurt, accidents can damage the property…there’s just so much that could go wrong that would cause your business to pay out HUGE.
4. Acquire Licenses, Certifications, Permits & Insurance
For your state and even local cities, you’ll need to find out what licenses you need to operate legally. There are some things that vary state to state so be sure to double check!
The following is a list of common licenses you might need:
State and Federal Licenses
The two main licenses are as follows:
- General Contractors’ License: Most states require this license, the paperwork you fill out along with applications will vary state to state.
- Specialty Contractors’ License: This is for work like carpentry and painting among others.
If you plan to do construction work for the government, you’ll need to apply and register as a government contractor. Government contracts can be quite lucrative.
Insurance is probably the most important piece when it comes to a construction company. There are so many liabilities as the work is often dangerous. So you need to make you and your employees are covered in case of an accident. You’ll also need multiple policies as we’ll outline below.
- General Liability Insurance: This is for the basics like injuries, property damage, etc.
- Property Insurance: This is for your office. You want this type of insurance in case of damage, theft, natural disaster, or if client accidentally hurts themselves while visiting.
- Vehicle Insurance: For all the machinery and vehicles you have it’s best to get this type of insurance as the chance for damage is higher than any other similar industry.
- Workers Compensation Insurance: This is the type of insurance that kicks in when it causes a loss of wages for your employee. General liability is limited to the immediate consequences of the accident.
- Unemployment Insurance: This is the type of insurance that covers an employee as they seek out a job for reasons beyond their control like a layoff or business closure.
- State Disability Insurance: If an employee suffers a long term disability for a work related injury, they can file for financial assistance.
Now that you understand all the insurance aspects, let’s dive into the section you’ve all been waiting for…MONEY.
5. Find Capital For Your Construction Startup
As a brand new construction business owner, you’ll likely need access to funding to buy the equipment and supplies you need. Unless you have deep pockets, odds are you will be looking at several different loan options from a credit union.
Small Business Loans
The SBA offers several loan interest loans that are designed to allow businesses to thrive. The catch is that business owners must have a long credit history and high credit score to qualify for these SBA loans.
Working Capital Loans
A working capital loan is a type of loan that is designed so that you can cover the day to day operating expenses like payroll or construction management software. These types of loans are popular in season based industries where most of the revenue comes in for the year in only a few months. These loans compensate for the slow business.
Purchase Order Financing
Construction companies rely on material sourcing. When you need to short term financing to cover for materials of a project up front, this is the type of financing you’ll want.
Purchase order financing typically have an interest rate of 2-6% per month.
Another option for financing materials would be to do so through a vendor. Instead of going to the bank, you could ask for financing from the vendor that has a longer payment term. This would save you from late fees and other penalties.
Vendor financing is great for customer contracts that don’t require financial deposits from the customers up front.
What Is Our Top Recommendation For Making Money In 2021?
Our review team has come across a program in the real estate industry that is next level!
Although it’s not real estate in the traditional sense, it’s all digital.
Where a Construction Company falls short is in profitability.
You can’t realistically expect to be able to make any REAL passive income when you basically just created a full time back breaking job for yourself.
But what if you leverage it?
With this digital real estate program, you can have the ability to completely walk away from manual labor like construction!
Sound too good to be true? Of course it does! But it isn’t…in fact, business owners wish they had this skill!
All you have to do is build and rank a website and forward the jobs off to a business owner in town, you could even email it to them!
This works for literally any service based business, tree service, plumbing, towing, etc.
How do you get paid and how much?
Simple, after you forward the jobs off to a business owner and he makes some money off of them, you simply ask to make the deal beneficial for each other.
A fair price to charge per lead, depending on the industry is 10-20%…let’s just use the tree service industry for example and go by worst case scenario.
Let’s say you build and rank the site and only 20 jobs a month come in. The average tree service job is anywhere from $500-$2000!
That means at bare minimum you have an asset worth $1000 a month!
See why they call it digital real estate now? That’s a rent payment.
The great thing is how easy it is to scale. You don’t have to answer the phone…all you have to do is get the phone to ring.
Remember Construction Businesses and all the small profit margins?
This one actually allows you to collect that without breaking your back all day. Truly passive income!
The training program takes making money online to a whole other level. The owner of the program walks you through how to build and rank a site hand in hand, with the occasional voice over when he is sharing his screen.
You will learn the importance of keywords, website name, how to send call notifications via email, backlinking, etc.
Once the training program is completed you will also have access to a Facebook group where you can ask questions and be in a community with others on the same journey as you.
Unlike a Construction Company, where you have to keep trading your time for money over and over…. You can finally get on the financially free side of life. A business will always want more leads and another job. In fact it doesn’t even matter that the job isn’t coming from their website name…they see it as it is…expanding digital real estate.
Unlike a Construction Company, more people have been able to become financially free as well.
Digital real estate allows you to have passive income with most of your day being spent LEVERAGING your time NOT trading it.
Now, I know you probably have tons of questions… So, check this out to learn more.