Getting into construction business can be very rewarding. If you know how to use tools and if you are quite skilled with bricks and mortar, you could establish a successful construction company, if in case you plan to leave your day job and start a business on your own. Starting your own business is a great way to double your income, be your own boss, set your own rules, and set your own working hours. Being an entrepreneur is flexible, profitable and a smart choice if you have the qualities imbibed. On the other hand, it could be risky, unstable and full of challenges.
Even if you start small, your construction business would need careful planning and management strategies to become successful. You must also follow the rules and regulations laid by the government. Today, we shall share with you the ins and outs of the construction business and the steps required to start one.
Construction is one of the high-growth industries currently and is expected to reach new heights in the next couple of years. In most developed countries, such as India, US, UK, and Australia, the construction industry contributes around 9% of the total GDP. It is an industry that will always be in demand and full of opportunities, even during difficulties.
If you observe, many growing small industries are directly or indirectly connected to construction. Some of them are:
- Structural construction (Roofing, siding, concrete)
- Professional construction services (Interior and Architectural Designs)
- Utility systems construction (Sewage line, water connection, electricity, oil, and gas connection)
- Finishing construction (Drywall, painting, plumbing, flooring)
The target niche is broader than most other businesses. Whether for a residence, commercial use, public service, or industry, we need people to build buildings, roads, railways, and so many other systems. Therefore, walking into the construction industry totally makes sense. The scope to scale is super high while the barriers to entry are very few.
Break down of the Construction Business
You can build any type of construction business – broad and big with many service branches or small and narrow with limited specialized solutions. The construction industry is divided into three parts, namely:
- Industrial construction, which includes building and engineering mills, factories, manufacturing units, chemical plants, power plants, and oil refineries.
- Heavy Engineering or Infrastructural Construction, which includes building highways, roads, bridges, flyovers or any other civil work required by the government, large-size public works, such as temples, monuments, churches etc., and construction of water/waste system, such as dams, reservoirs, sewage utilities, and canals.
- Construction of Building that can be both residential and non-residential includes homes, corporate offices, malls, schools, hospital etc.
These three are the major niches of the construction business. You have to choose one based on your experience, skill, start-up budget, and other factors, such as:
- Current major players in your area
- Immediate and long-term opportunities to grow business
- Niche customers
- Your business size, in terms of space for equipment, tools, materials, labors, staff, and stakeholders
- Government rules, regulations, and laws you will like to adhere to
Since there is always a demand for construction companies and since this is a growing industry with a lots of players, make sure you understand the local landscape. Meet up with the Chamber of Commerce, trade organizations, veterans of the industry, and local Municipal Corporation to get a vivid picture of the entire thing.
Steps to Start a Construction Business
Step 1: Identify Your Niche
If you are able to identify a niche where there are plenty of opportunities, your business will stand a greater chance at succeeding. There are options, you could be a residential property builder, or specialize in a particular niche, such as mid-century restoration company or dedicate in building public projects.
You should learn more about your community’s needs to identify your role in construction. Talk to other businesses or local residents to find out what they demand. Furthermore, your services should be affordable for the people in the city, community, or area. Therefore, consider the demographics trends too.
Your target customer will also play a pivotal role in determining your niche.
For instance, ask yourself whether you want to promote your services to organizations or to individuals. You have to identify the actual people paying for your services; they may not necessarily be the end users.
You could specialize in:
- Commercial space and market your services to industry promoters, property owners and development groups.
- Refurbishing old houses and market your services to owners of those properties who want to sell it, banks, and credit unions.
- Public work projects and market your services to government, municipality etc.
- As a subcontractor, architect or interior designer.
Step 2: Make Your Business Plan
Whatever business you decide to start, a business plan is just support it, guide it, and lead it for several years. Your business plan should contain separate sections, explaining the different facets of the business elaborately. It should be comprehensive and double-checked if you plan to apply for a bank loan or present to other potential lenders. Put in plenty of time to develop it. You could section the business plan into the following categories:
- Markey analysis
- Target customer
- Services you will provide
- Business structure (employees, size, and operations)
- Location of your business
- Financial projection (break even and profit analysis)
- Financial goals
- Business development goals
- Financial strategy (how will you use your money)
- Marketing strategy (how will you promote your business)
- Key selling point and brand value proposition (how will you differentiate your business from competition)
It is not an easy task, forming a business plan all alone. So, do involve experts from each sector. You need a mentor in the form of attorneys, financial advisor, marketing consultant, and accounting expert. You can also get guidance from Women’s Business Centre, Veteran’s Business Outreach Centre, and Small Business Development Centre.
Step 3: Finance Your Business
A construction business is generally a capital-intensive business. It cannot be started with a minimal budget. You have to purchase equipment, materials, and personnel in bulk. Based on where you operate and what services you offer, your startup fund will vary. You will need cash to lease office, buy vehicles, tools, equipment, and machines, hire staffs, pay bills, pay salaries, advertise, register for licenses and permits, and set aside extra for other settlements.
The best option is to apply for a loan for the required fund. You have to create a formal business plan (mentioned above) and present it to the bank. Your business plan must validate your reasons for starting a construction business. Make sure you talk about the interest rates, tenure, and terms of payment.
If you have personal funds, you can use that up too. Other options that you can look up are crowd finance, credit unions, community banks, angel funds.
Step 4: Register Your Business on Legal Grounds
Your next step should be making your business legal to operate in your state. Look up your state and local government website and find out the regulations that govern establishing small construction companies. Since construction businesses are highly regulated, make sure you know the legal codes, laws, occupational safety practices, health administration permits, insurance requirements, and licenses to obtain.
There are building codes enforced in your area, known as IBC or International Building Code. You have to understand them in order to start the business. OSHA has mandated personal protective equipment and safety practices for the construction business. You need to adhere to those practices and also the rules and permits laid out by the state for different classes of construction.
All these requirements vary from country to country.
Register Your Business
Choose a name for your business, register it, and apply for a business license. Construction business names usually start or end with owner’s name, examples include Parkinson’s Constructions, Srivatsa Gardens, Ganguly Groups etc. You could try something on similar lines. However, ensure that the name you choose has not been trademarked by another business. You can verify the name at your state’s Patents and Trademarks Office.
A construction business can be established as a Sole Proprietorship, Limited Liability Company, Partnership, or a Joint Corporation.
Based on your personal liabilities and financial status, your attorney will be able to tell you the best business structure for your company. Each comes with its own pros and cons. For instance, sole proprietorship and partnership offer tax benefits but do not protect owner from personal liabilities. It is just the opposite for corporations. They protect owners from personal liability, are heavily taxed.
Apply for an Employee Identification Number (EIN) from your state IRS. EIN is necessary for opening a business bank account and for hiring employees.
Next, apply and get a business license in the state to operate your business legally. Based on your services, you may have to apply for a specialty license as well. An example would be a tradesman license.
Step 5: Secure Your Company with Insurance and Bonds
Construction business runs under several risks. So, you have to make sure that you are protected from all sides. You need to purchase a variety of comprehensive insurance policies to get the necessary protection. Some of these insurances include limited liability insurance, worker compensation insurance, property insurance, and commercial vehicle insurance.
The nature of your business will decide the number of insurance you require for your business.
You need surety bonds to protect your clients by paying them in the event you do not complete the construction project on time. Surety bonds are must for construction companies, however, requirements differ from state to state. For more clarity about the entire thing, contact a reputable surety bond agent and find out what you need to fulfill.
It is not easy to apply for a surety bond. For approval, you have to prove to the granter that you are financially sound, experienced, and capable. Small Business Administration can provide you with a bond if you do not get approval from a surety bond provider. Each bond will cost you between 0.5% and 2% of total project cost.
You need to fulfill your tax obligations as a business owner. And so, make sure you carefully track and record all of your incomes and gains. In order to record your incomes and expenses separately, you have to open a bank checking account under your business name. A separate business account will make you seem like a professional company.
Apart from a business checking account, you should consider hiring an accountant to manage your taxes and day-to-day bookkeeping.
Step 6: Run a Successful Construction Business
To run and grow a dynamic construction business, the following elements need to be taken care of:
- Equipment: Use the right kind of equipment in your construction projects. You can either buy equipment or rent them. However, owning your own set of equipment could prove beneficial in the long run. You could lease or rent equipment which you seldom use.
- Employees and Contractors: Employees play a huge role in project completion. Make sure you hire experts and skilled people for your work. You need to gather a skilled team who will assist you in all your steady and continuous projects. You can hire independent contractors or subcontractors for specific one-time jobs and projects.
- Marketing: It is important to establish a relationship with your customers through effective promotional strategies in order to receive continuous projects. Hire a professional marketing expert for comprehensive online and offline marketing.
- Invest in marketing as much as possible, right from developing a website to creating exceptional social media campaigns to win your clients.
- Network: Don’t forget to network and build excellent rapport with contractors and sub-contractors, suppliers, building inspectors, and developers for these people are instrumental in your project completion. If you develop a good connection with them, they will probably refer you for new opportunities and keep projects streaming in.
Learn the art of bidding and negotiation. Be a leader. Do not make promises you can’t fulfill. Hire a business manager to carry the administrative work while you focus on your projects.
We hope that our article proves to be an effective guide in your decisions. If you have any questions, do leave a comment below.