How to Start a Construction Company

how to start a construction company

The construction industry is a big part of the American economy. You can become one of the over 700,000 employers nationally. But you’ll need to piece one of these small businesses together using the following suggestions.

How Much Does it Cost to Start a Construction Business?

The cost of starting a construction business depend on the size of the business, the type of construction work it does, and the location of the business. However, in general, it can cost anywhere from $5,000 to $100,000 or more to start a construction business. Most construction companies’ average startup costs are $37, 390.

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Here are some of the costs you can expect to incur when starting a construction business:

  • Business licenses and permits: You will need to obtain the necessary business licenses and permits from your local government. The cost of these licenses and permits can vary depending on the location of your business.
  • Insurance: You will need to purchase insurance to protect your business from liability claims. The cost of insurance can vary depending on the size of your business and the type of construction work you do.
  • Equipment: You will need to purchase equipment for your construction business. The cost of equipment can vary depending on the type of construction work you do.
  • Vehicles: If you plan on doing any traveling for your construction business, you will need to purchase vehicles. The cost of vehicles can vary depending on the size of your business and the type of vehicles you need.
  • Marketing and advertising: You will need to market and advertise your construction business to attract new clients. The cost of marketing and advertising can vary depending on the size of your business and the methods you use.
  • Staffing: If you plan on hiring employees, you will need to pay them wages and benefits. The cost of staffing can vary depending on the size of your business and the type of employees you need.

In addition to these costs, you will also need to factor in the cost of office space, office supplies, and other miscellaneous expenses. By carefully planning and budgeting, you can reduce the overall cost of starting your business.

More tips for lowering the cost of starting a construction business:

  • Start small: If you are just starting out, you may want to start small and grow your business gradually. This will help you to reduce your initial costs.
  • Outsource: If you can, you may want to outsource some of the tasks involved in starting a construction business. This can help you to save money on labor costs.
  • Use your own equipment: If you have any equipment that you can use for your construction business, you can save money on the cost of purchasing new equipment.
  • Do your own marketing: You can save money on marketing costs by doing your own marketing. This can be done by creating a website, using social media, and networking with other businesses in your industry.

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How Profitable is a Construction Company?

The American construction industry was worth $1.36 trillion in 2020. The overall spending declined. But private construction grew. The profitability of a construction company depends on a number of factors, including the size of the company, the type of construction work it does, and the location of the company. However, in general, construction companies can be very profitable.

According to the Construction Industry Institute, the average profit margin for a construction company is 10%. However, some companies can achieve profit margins of up to 20% or more.

There are a number of factors that contribute to the profitability of a construction company. These include:

  • The type of construction work: Some types of construction work are more profitable than others. For example, commercial construction is typically more profitable than residential construction.
  • The size of the company: Larger construction companies typically have higher profit margins than smaller companies. This is because larger companies have more bargaining power with suppliers and can get better deals on materials and labor.
  • The location of the company: The location of a construction company can also affect its profitability. Companies that are located in areas with a high demand for construction work typically have higher profit margins.

Profitability can also be affected by a number of other factors, such as the company’s management team, its marketing strategy, and the overall economic climate. If you are considering starting a construction company, it is important to carefully consider all of these factors before making a decision.

Take a look at these tips to also increase the profitability of a construction company:

  • Focus on high-margin projects: As mentioned above, some types of construction work are more profitable than others. By focusing on high-margin projects, you can increase your overall profitability.
  • Negotiate favorable contracts: When negotiating contracts with clients, be sure to negotiate favorable terms. This includes getting the best possible price for your services and ensuring that you are not responsible for any unexpected costs.
  • Manage your expenses carefully: Construction companies can have high overhead costs. By carefully managing your expenses, you can reduce your costs and increase your profits.
  • Build a strong reputation: A strong reputation can help you attract new clients and increase your prices. Be sure to deliver high-quality work and provide excellent customer service.

By following these tips, you can increase the profitability of your construction company and build a successful business.

Starting a Construction Company in 19 Simple Steps

Starting your own construction outfit requires planning and hard work. Following are the steps for a new construction company.

1. Research Nearby Construction Companies

Market research is necessary to get a handle on the competition. Local industry publications are good. Don’t forget to look to publications from the government and trade associations. Search engine results are great.

2. Stand Out from Your Competitors

Narrowing your focus to a specific target market is one way to be successful. Niche is important. Begin by choosing between commercial or residential work.

3. Create a Business Name and Brand

Every general contractor needs a brand. Be consistent. Your website and company vehicles should have the same logo. Engage prospects and customers on social media. Watch your enterprise grow.

4. Write a Construction Company Business Plan

A solid business plan does several things. It provides an overall business strategy so you can check milestones. And it can help secure funding plus specifics like equipment loans. Here’s a template and some tips for these small business owners.

  • For the financial section. Labor expenses are big. Include projections for salaried and subcontracted employees. Try to add some labor statistics.
  • For the industry analysis. Add in key stats like new home sales if you can.
  • For the marketing plan. One area to highlight is networking with the likes of home improvement stores. And local real estate companies.

Construction services also need to highlight milestones in the operations section of their business plan.

5. Choose a Location

Choosing a location is easy if you’re opting for a home-based shop for your own construction business. Otherwise, here are some ideas.

  • Does the site need to be modified? Who will pay for that? Are there changes required to meet energy efficiency standards for equipment?
  • Make concessions for future growth. When you start a construction company, scale is important.
  • Are you renting? Check out any tax benefits for a construction startup.

Finally, make a must-have list to stay on budget.

6. Form a Business Entity and Register

Any new enterprise needs to become a legal entity. There are several to choose from. Personal liability is one of the big concerns for a business owner.

  • A sole proprietor can find issues with liability.
  • Partnerships need to define everything in writing.
  • Corporations offer good protection.

Find out if you even need to register your new business.

7. Open a Business Bank Account

You need an Employer Identification Number (EIN) and a copy of your general contractor’s license. The EIN acts as federal Tax ID.

8. Look into Small Business Loans

Small Business Administration (SBA loans) are a great place to look for funding.

Other options include:

  • Traditional banks and credit unions. Look for the best interest rates.
  • A business cash advance.
  • A line of credit

Factoring is another way to purchase materials and have a cash flow. Sell invoices to third parties.

9. Purchase the Necessary Construction Equipment

ExcavatorA versatile heavy-duty machine used for digging, excavating, and lifting materials on construction sites.
Backhoe LoaderCombines a loader (for loading materials) on the front and a backhoe (for digging) on the rear.
BulldozerA powerful machine with a large, flat blade used for pushing and grading large quantities of soil and debris.
Skid Steer LoaderCompact, maneuverable machine used for landscaping, material handling, and light demolition work.
CraneEssential for heavy lifting tasks and placing materials at elevated heights on construction sites.
Concrete MixerUsed to combine cement, sand, water, and aggregates to produce concrete for building foundations and more.
Power SawEssential for cutting various materials, like wood, metal, and concrete, for construction and demolition.
Drill MachineUsed for creating holes in different materials for fastening and joining components during construction.
JackhammerPowerful pneumatic tool for breaking concrete and rock during demolition and renovation work.
Concrete VibratorUsed to remove air bubbles and ensure proper compaction of freshly poured concrete.
WheelbarrowSimple but essential for transporting materials around the construction site, providing efficiency.
Safety GearIncludes hard hats, safety glasses, gloves, and high-visibility vests to protect workers from hazards.
Measuring ToolsTape measures and levels ensure accurate dimensions and alignment during construction and layout tasks.
Hammer and NailsBasic hand tools for various construction tasks like framing, carpentry, and general assembly work.
Safety BarriersUsed to mark off hazardous areas and ensure the safety of workers and pedestrians on the construction site.

The construction industry is reliant on heavy-duty equipment. While it is nice to own the following equipment, you don’t have to when you start out. You can start by renting and move to ownership.

  1. Excavator Description: An excavator is a versatile heavy-duty machine used for digging, excavating, and lifting materials on construction sites. It comes with a bucket attached to a hydraulic arm for efficient earthmoving tasks.
  2. Backhoe Loader Description: A backhoe loader combines a loader (for loading materials) on the front and a backhoe (for digging) on the rear. It’s ideal for smaller projects and is commonly used for utility trenching and site preparation.
  3. Bulldozer Description: A bulldozer is a powerful machine equipped with a large, flat blade on the front, used for pushing and grading large quantities of soil, debris, and other materials on the construction site.
  4. Skid Steer Loader Description: A skid steer loader is a compact, maneuverable machine with a small turning radius. It’s used for various tasks, such as landscaping, material handling, and light demolition work.
  5. Crane Description: Cranes are essential for heavy lifting tasks, such as placing steel beams, concrete panels, and other materials at elevated heights on construction sites. Various types, like tower cranes and mobile cranes, are available.
  6. Concrete Mixer Description: A concrete mixer is used to combine cement, sand, water, and aggregates to produce concrete, which is crucial for building foundations, structures, and other components.
  7. Power Saw Description: Power saws, such as circular saws and reciprocating saws, are essential for cutting various materials, including wood, metal, and concrete, for construction and demolition tasks.
  8. Drill Machine Description: Drill machines are used for creating holes in different materials, such as wood, metal, and masonry. They are essential for fastening and joining components during construction.
  9. Jackhammer Description: Jackhammers, or demolition hammers, are powerful pneumatic tools used for breaking concrete, rock, and other hard surfaces during demolition and renovation work.
  10. Concrete Vibrator Description: Concrete vibrators are used to remove air bubbles and ensure proper compaction of freshly poured concrete, enhancing its strength and durability.
  11. Wheelbarrow Description: Wheelbarrows are simple but essential tools for transporting materials like soil, sand, and debris around the construction site, providing efficiency and convenience.
  12. Safety Gear Description: Safety gear, including hard hats, safety glasses, gloves, and high-visibility vests, is crucial to protect workers from potential hazards on the construction site.
  13. Measuring Tools (Tape Measure, Level) Description: Measuring tools like tape measures and levels are essential for ensuring accurate dimensions and alignment during construction and layout tasks.
  14. Hammer and Nails Description: Basic hand tools like hammers and nails are essential for various construction tasks, such as framing, carpentry, and general assembly work.
  15. Safety Barriers and Cones Description: Safety barriers and cones help to mark off hazardous areas, control traffic flow, and ensure the safety of workers and pedestrians on the construction site.

Having these essential tools and equipment will significantly enhance the efficiency and productivity of a new construction company and ensure smooth progress on various projects.

10. Create Your Own Construction Company Website

To start a construction outfit today, you need a website to attract potential customers. Many home inspection businesses provide good examples.

They include a separate page for each service. And testimonials.

11. Make Sure You Have the Licenses Required in Your State

State and local governments require different business licenses. Here are some general business license requirements by state. These cover specific licenses.

Each state is different. Insurance is important too and a reputable surety bond agent provides coverage for financial damages.

12. Get Your Taxes in Order

Paying business taxes is part of your new operation. Be mindful of federal and state payments and keep all documentation in order for tax purposes.A home inspector pays the following:

  • Tax to the feds as independent business operators.
  • That means a self-employment tax.

It’s important to keep all of your documentation because there are both federal and state payments.

13. Purchase Business Insurance

Insurance is crucial for construction companies. Here is a list of the insurance policies needed.

  • General Liability Insurance. Covers claims for property and bodily injury.
  • Vehicle Insurance: Prevent company closure. This covers vehicles used for work and employees who drive them.
  • Workers Compensation Insurance. Occupational safety is important. These policies cover workers injured on the job. Mandatory in every state except Texas. Get more info on health administration here.
  • State Disability Insurance: Another insurance that replaces lost wages. The contributions are tax-deductible.
  • Unemployment Insurance. These programs are managed at the state level. There’s federal oversight.
  • Property Insurance. Protects company property against theft and damage.

14. Sort Out Your Accounting Systems and Construction Software

Small business administration in construction needs to do several things. Accounting and software should work hand in hand. Look for billing reports, payroll and project budgets in one spot.

15. Hire Employees

If you plan to hire employees, ensure you have obtained an EIN. Post job openings in relevant places, such as social media, and consider offering apprenticeships to attract skilled workers. Stay updated on construction industry trends through industry publications.

Look in construction industry publications for advice on trends.

16. Market Your Business

A physical business card was the way to market years ago. Those still apply. But today’s marketing strategy for small businesses in construction needs to be digital too. The brand image needs to be the same on your website and social media accounts. The same logo applies to your trucks and front yard signs as well. Sharpen up your digital marketing skills with courses.

Develop a comprehensive marketing strategy that incorporates both traditional and digital methods. Maintain consistent branding across your website, social media accounts, and physical marketing materials like business cards.

Remember, whatever strategy you choose, keep your target customers in mind. Your business plan should have some details.

17. Network

Networking is vital in the construction industry. Take advantage of opportunities at trade shows, industry associations, and other events to connect with potential clients and industry peers. Building inspectors and construction owners need to network. There are good opportunities at trade shows and industry associations and companies such as ConstructReach.

The back of a business card is a good place to add some personal assets like updated contact info.

18. Bid for Contracts

Government contracts can be lucrative for construction startups. Prepare and submit well-structured documents covering project design and construction phases. Government contracts are golden for construction startups. Start here.

Submitting a document covering the design and construction phases is an early step.

19. Grow Your Construction Company

With the right approach and determination, your construction company can flourish. Focus on delivering quality work and making a positive impact on your community. Continuously evaluate your strategies and adapt to changing market demands.

Remember that each step in starting a construction company requires careful consideration and planning. You can build a successful construction business by following these guidelines and staying dedicated to your goals.

FAQs about How to Start a Construction Company

What are the legal requirements to start a construction company?

To start a construction company, you’ll need to register your business, obtain necessary licenses and permits, and comply with local building regulations.

How do I secure funding for my construction business?

Funding options include personal savings, bank loans, investors, or partnerships. Prepare a comprehensive business plan to present to potential lenders or investors.

What types of insurance do I need for a construction company?

General liability insurance, workers’ compensation, and builder’s risk insurance are crucial to protect your business from potential risks and liabilities.

How do I build a strong team for my construction company?

Hire skilled workers, experienced project managers, and administrative staff. Focus on employee training, retention, and a positive work culture.

What equipment and tools do I need to start a construction company?

Essential equipment may include excavators, loaders, concrete mixers, power tools, safety gear, and vehicles for transportation.

How can I attract clients and win construction contracts?

Build a professional website, create a portfolio showcasing your past projects, network within the industry, and provide excellent customer service.

What safety measures should I implement on construction sites?

Develop and enforce safety protocols, conduct regular training, provide protective gear, and maintain a safe working environment.

Image: Depositphotos, Envato Elements

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Rob Starr Rob Starr is a staff writer for Small Business Trends. Rob is a freelance journalist and content strategist/manager with three decades of experience in both print and online writing. He currently works in New York City as a copywriter and all across North America for a variety of editing and writing enterprises.

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