How to start a construction business: The essential 5 step guide
Learning how to start a construction business could be one of the most valuable things you do professionally. Although starting a company of any kind can be complex, it also ensures you can pursue your passions, become your own boss, and even earn a significant profit.
Unfortunately, many would-be business owners make the mistake of underestimating how much work is involved in becoming an entrepreneur. Starting a construction business is similar to launching any new venture in many ways.
You’ll need to choose a niche focus, learn about your target audience, build a brand, and find funding. Failing to invest enough time and effort into the initial setup process, you could end up with a company that fails before it truly begins.
Around 68% of small business owners say they wish they had learned the basic skills to manage and grow their company earlier.
Today, we will help you build the foundations for a successful construction company with a step-by-step guide to some of the most important tasks you’ll need to do.
Is starting a construction company a good idea?
Before you start exploring the steps involved in starting a construction company, it’s worth taking some time to think about whether this route is actually the right one for you.
Starting any business can be challenging, but the construction landscape is a relatively sturdy and stable industry for entrepreneurs. Indeed, as of 2022, the construction space was worth around $15461,84 billion worldwide.
The chances are customers in both the B2B and B2C world will always need to access builders, architects, carpenters, and other construction professionals.
Not only is starting a construction company a potentially profitable idea, but it has some other benefits too. For instance, construction is considered an “essential” service in most parts of the US and around the world. Starting a construction company also means you can:
Positively impact your community
Regardless of the type of structure you have a hand in creating, you can rest assured it will have an impact on your local community. Homes, offices, schools, hospitals, and even bridges and roads are all designed with the help of construction businesses.
Your company actively builds the world around you.
Access endless versatility
The construction landscape is a relatively versatile space. Aside from simply building structures, companies can also get involved with things like architectural design or focus on a niche space like green, sustainable building.
The versatility of the landscape makes it easy to pursue a unique job opportunity.
Expand at your own pace
Construction companies can start relatively small, with basic jobs for consumers in the residential landscape. As your brand grows and you access the support of new experts and specialists, you might decide to branch out into new areas.
You can grow your business as much as you like or keep things simple. It’s totally up to you.
How to start a construction company step 1: Research
If you decide starting a construction company is a good idea for you and your goals, there will be a number of steps involved in bringing your new venture to life. Perhaps the most important initial step is research.
In other words, you need to learn as much as you can about your market, niche, competitors, and potential customers.
Start by looking into construction business ideas relevant to your skills and interests. Remember, there are numerous different ways to start a construction company.
Here are just some options you could consider, depending on your knowledge:
Block and brick manufacturing.
Electrician or lighting fitter.
Security items supply and installation.
Plumbing and pipework.
House repair and renovation.
Office or commercial construction.
Architectural design services.
Once you’ve found a handful of ideas that appeal to you, research the options in your current area.
It’s worth making sure there’s both a need for your solutions and services and that there aren’t too many competing brands offering the same thing. The chances are you will have some competition, regardless of which niche market you choose.
With that in mind, make a list of the most significant competing brands and asses their strengths and weaknesses.
Analyzing the competition carefully will help you to pinpoint areas where you can differentiate yourself from the other brands in your space and make your business stand out.
Finally, once you’ve researched your potential construction business ideas and your competitors, assess your target market. In other words, decide what kind of customers you’re going to be serving, and create user personas outlining all of their core characteristics.
For example, you might decide to focus your attention on the B2B sector, supporting other companies with building maintenance or renovating homes for government schemes. Small construction companies may start by offering simple plumbing and repair services to local homes.
The more you can learn about your target audience, the more you can tailor your company to their needs.
Starting a construction business step 2: Write a business plan
Once you’ve done the right amount of research into your market, competition, and target audience, it’s worth organizing all of the information you have into a business plan. Sometimes, it’s easy to overlook the importance of a business plan in the construction sector.
Most entrepreneurs are keen to jump into action as quickly as possible and don’t want to waste time writing documents.
However, a business plan can act as a kind of map, navigating you toward success in your space.
The right document will outline core details about your business, how it’s going to make money, and so on. Writing a business plan when starting a construction company can also make it easier to access funding from loan providers and shareholders, as it makes you seem more credible.
While there’s no one-size-fits-all strategy for what a business plan should include, some of the most common sections are:
This is essentially an introduction to your business plan. It should be brief, compelling, and brimming with valuable information. It may also include a brief insight into your brand’s mission statement and values.
An overview looks at the core components of your business, such as who the founders are, what it does, and when it was formed. In some cases, this summary will also include a value proposition statement that highlights the demand for your solution.
Market analysis consists of research proving the demand and potential profitability of your construction business. It may look at the current state of the industry, your target market, growth opportunities, and competitor research.
In the business structure section of your plan, you can cover who owns the company, the division of shares among investors, and the legal structure for the business (LLC, corporation, sole trader, etc.)
Products and services
Here, you’ll cover what kind of products and services you want to offer. Since construction companies often rely heavily on the sourcing of materials and labor, it’s worth highlighting any existing partnerships you’re going to be using to build the company.
You can also highlight the kinds of contracts you’ll want to use with clients.
Marketing and sales
In the marketing and sales section of the business plan, you’ll explore how you plan on reaching potential customers and converting them into clients.
You might once again highlight your value proposition, your brand positioning strategy, and any plans for what kind of marketing campaigns you’re going to use.
Finally, your financial plan and projections highlight a comprehensive overview of the current finances of your company and how you plan on growing in the future.
Documents in this section may include income statements, projected income, cash flow forecasts, balance sheets, and possible debt obligations.
Starting a construction company step 3: Licenses and registration
With your business plan ironed out, the next step in learning how to start a construction business is simply making sure you have everything set up from a legal perspective. It may be helpful to speak to a specialist or attorney in your industry at this point to ensure you don’t overlook anything.
For the most part, however, establishing your business as a legal entity is relatively straightforward. You’ll need to begin by deciding what kind of business you want to run, such as a sole proprietorship, LLC, or corporation.
Each option comes with its own pros and cons to consider, as well as distinct requirements connected to tax returns.
Once you choose the right structure for your business, you’ll need to get an Employer Identification Number from the IRS website. Depending on your structure, you may need to complete additional forms and documents.
Most construction companies will need to register with state and local agencies and complete various tasks to prove their business is safe.
When starting a construction business, you’ll also need to think about the following:
State and federal licenses
Construction companies are responsible for building crucial structures according to specific safety and quality standards. To ensure you’re compliant with the rules and regulations in your area, you may need to apply for a handful of licenses.
While a general license will ensure you’re able to work as a basic contractor in the construction space, a specialty option will permit you to perform specific specialist tasks, like roofing, HVAC repair, carpentry, electrical work, and plumbing.
Companies planning on applying for government contractors will also need to acquire a government contractor license.
Business insurance is one of the most important resources you’ll have when you own a construction company. It can protect you from a range of different issues, including liabilities and material theft.
While there are various forms of insurance that may be relevant for construction companies, some of the most common options include the following:
General liability insurance
General liability coverage provides protection to construction companies in the event of any worksite accidents, property damage, or injuries.
Construction companies with a physical office or warehouse where equipment is stored will need property insurance to protect them against property damage, theft, as well as client injuries on the premises.
Most construction companies will need to use some heavy machinery, including vehicles. If you own your construction equipment yourself, you’ll need to ensure it is properly insured. You can also consider purchasing a waiver.
If you’re planning on working alongside a range of employees, you’ll need worker’s compensation insurance. Your general liability insurance will cover the consequences of the accident, for the most part, and legal fees.
Unemployment insurance can be useful for freelancers and contractors who aren’t sure for certain whether they may lose their job or a consistent source of income. This insurance protects you with monetary assistance as you find new jobs.
Starting a small construction business step 4: Finding funding
Perhaps the most challenging question business leaders need to answer when learning how to start a construction business is how they’re going to fund their new venture. Ultimately, it’s difficult to know for certain how much money is needed to start a construction company.
The exact costs will depend heavily on the type of business being created. Some basic handyman companies, plumbers, and renovation experts will only need to invest in a handful of different tools and machines.
Other construction companies offering specialist services, and building entire buildings from scratch, may need to spend a lot on initial setup.
Alongside the cost of essential tools and materials, construction companies will also need to budget for staff, real estate (if you have your own office), insurance costs, and more. The good news is you don’t necessarily need to find the money for everything in your own bank account.
You can seek out additional monetary support in the form of the following:
Small business loans
Small business loans are great for entrepreneurs in search of a low-interest way to grow their own companies. However, these resources may be difficult to access if you don’t have a long credit history and a good credit score.
Working capital loans
Some loans can be acquired for specific purposes. Working capital loans can handle day-to-day operational expenses for things like payroll and office utilities. These loans can be extremely helpful during slow periods of the year.
Purchase order financing
Industries relying heavily on material sourcing and partnerships, like the construction sector, often take advantage of purchase order financing. With this strategy, organizations get assistance paying for materials and crucial items up-front.
If you’re working with specialists in your industry to access specific resources and materials, you may also consider using vendor financing. With this method, you access a range of financing options from vendors to reduce outgoing costs.
Starting a construction business step 5: Growth
Finally, once you have all of your funding in place, you’ve created an effective business plan, and you’ve finished the legal side of preparing your business for success, it’s time to invest in growth.
Ensuring long-term growth for your construction business is about more than just constantly investing in your services and building marketing campaigns.
You’ll need to create a compelling brand you can use to connect with your target audience on an emotional level and strengthen your chances of long-term sales and revenue.
You should be thinking of new ways to boost brand reach and awareness all the time with a branded website, SEO, and content creation.
You might even want to look into ways of nurturing customers through the purchasing cycle with investments in social media and email marketing.
Here are some quick tips on starting a construction business with the potential for growth:
Partner with the right people
Partnerships are often essential in the construction industry. You’ll need to work alongside other specialists, suppliers, and manufacturers to ensure you can deliver a consistent service. Make sure you do your research before you dive into any relationships with new companies.
Ensure the values and vision of the partners you work with continue to align with your own. Don’t be afraid to look into partnership opportunities that can help you to boost your market presence too, such as sponsorship deals.
Deliver exceptional customer service
Some of the biggest and best construction companies get most of their revenue through word of mouth. The more your customers promote your business with excellent reviews and testimonials, the more your credibility will grow.
To generate positive reviews, you’ll need to make sure you’re delivering the kind of service customers love to rave about. Go all-out on delivering exceptional support.
Experiment with marketing
If you want to improve your chances of consistent growth in the construction landscape, you need to be willing to promote your brand. The good news is there are multiple different ways you can get started with promotion.
You might invest in social media, email marketing, content creation, or even influencer advertising. There’s no one-size-fits-all strategy here, so make sure you experiment to see what works best.
Never cut corners
Running and building a construction company can be a time-consuming and expensive process. That’s one of the reasons why some brands end up trying to “cut corners” to save some cash or time.
However, even one bad review about your company could be enough to destroy your entire reputation. You might even find cutting corners gets you into trouble with authorities and regulators.
Create a consistent brand
Your brand is what will set your construction business apart from dozens of other companies offering similar services. It demonstrates your values, vision, and personality through your use of content, imagery, and even color.
Brands can be an excellent tool for generating awareness and customer loyalty. However, they need to be consistent if they’re going to deliver the right results.
Additionally, it’s worth thinking about seeking out additional help if you’re struggling with the growth of your construction company. Starting a construction business from scratch is rarely easy. In fact, it takes a significant amount of work, planning, and investment.
Working with professionals who can help you through each complex stage can be extremely useful.
You can consider joining forces with branding and marketing teams to develop your identity and improve your brand reach. You might work with graphic designers on creating your website or access the help of a financial specialist for accounting. Don’t overlook the benefit of good support.
Are you ready to own a construction business?
Learning how to start a construction business from scratch is no small undertaking. There are various crucial steps involved in bringing your venture to life. You’ll spend much time researching your target market and niche, choosing a business structure, and writing a business plan.
However, investing in developing the right strategy for your construction company from day one will significantly improve your chances of long-term success. Following the guidance above, you should be able to develop a fantastic construction company with the potential for a significant profit.