Guidelines to Starting a Construction Business: 20 Things to Consider

Although a challenge, starting a business within the construction industry can prove to be a very profitable endeavor for many business owners. Whether individuals or businesses are buying, renting, or having new building constructed, there is always a need for construction services. However, to get your business up and running, there are many components to consider. If you are about to embark on the path of starting your own construction business, consider the following items to help pave the way:

1. Determine your focus. Construction businesses can take a variety of forms. Determine your focus, and think about the type of customers you would like to serve. You may decide you want to contract for single services, or perhaps perform larger projects that require maintaining a workforce of employees. Bear in mind that it makes sense to diversify your service offerings, so that when seasonal lulls hit, your revenue streams will not follow suit. For example, although you may specialize in home renovations, consider expanding your repertoire to encompass related skills in order to reach a larger client base, such as offering green renovations and solar panel installations.
2. Lay the Groundwork. Although most construction business owners have previous experience within the industry, it is not a mandatory prerequisite. However, any on-the-job training you have received beforehand may prove to be valuable to starting a business. If needed, obtain the additional education and training necessary to best position yourself for the jobs and contracts you would like to acquire. For example, if your objective is to start bidding on larger commercial projects, but you lack the estimating, proposal writing, or bidding expertise, seek the training or software programs needed to give yourself an edge.
3. Develop a Business Plan. Preparing an effective business plan is critical to the success of your business. Thoroughly analyze industry trends, market data, and calculate the sales volume needed to directly compete in the construction industry. In the plan, make sure you specify the scope of work you will provide, as well as the tools and equipment you need to complete your projects. Make sure you clearly specify what makes your construction business unique, in comparison to your competitors. Your business plan should be a fluid document. Plan to update it as often as required, so it accurately reflects your evolving business requirements.
4. Organize. Decide on a name for your construction business, and organize it in a way that best protects you and your personal assets against claims or lawsuits. During this phase, many new business owners seek legal counsel to help determine which company type best suits their needs. A certified CPA may also assist with the organization paperwork, such as applying for an Employer Identification Number (EIN), and a Fictitious Name ("Doing Business As"), where applicable.
5. Bank Account. Establish a bank account in the name of your company. Use this account to pay and receive all business-related transactions. Avoid using the same bank account for both business and personal matters at all costs.
6. Obtain Capital. In some instances, you may be required to obtain capital in order to get your business up and running. For newer businesses, obtaining capital can sometimes prove to be a challenging process. In this instance, consider utilizing personal funds, request an equity line against your mortgage, or visit local banks. If you need to obtain a business loan, make sure you do your research and shop around for a good interest rate.
7. Licenses. Construction businesses are required to obtain a variety of licenses. License requirements are generally set on a local or state level, depending on your location. Find out what license requirements are required for the types of work that you will be performing. A handy state reference for licensing requirements is www.contractors-license.org. Some common license requirements that depend on location include plumbing, electrical work, HVAC installations, well drilling, asbestos abatement, and fire protection sprinkler installations. Note that in some instances, tests may be required to obtain certain licenses. Make sure you obtain all the permits and licenses needed, so you can legally operate your business.
8. Performance Bonds. Depending on the type of construction business you are operating, you may be required to obtain performance bonds. Performance bonds ensure that the work you complete is in agreement with the scope and terms of a contract. If this is a requirement for your business, make sure you do the necessary legwork so you can provide performance bonds to your clients.
9. Insurance. Obtaining the necessary insurance is very important for construction businesses. With this in mind, you can better protect yourself, your personal assets, and provide protection for legal claims or lawsuits that may arise. Although it is not a requirement in most states, strongly consider obtaining Workers' Compensation insurance to protect yourself and your employees. In addition, if you are delivering design-related construction services, you will also consider obtaining Errors and Omissions (E & O) Insurance to protect yourself from errors that may arise due to design miscalculations.
10. Labor. As an employer, plan to hire only the best workers, as this is a direct reflection of your business. Decide whether your business model is better suited to hire employees or contractors paid on a 1099 basis. Note that when you hire employees, you will incur additional wage responsibilities such as the applicable state and federal tax withholdings, Social Security, income tax withholding, and unemployment insurance. You must also take into account employee benefits including vacation pay, health insurance, and retirement program plan options. In addition, construction companies historically hire a large percentage of immigrant and minor workers. Make certain you understand immigrant or child labor law requirements, and how these requirements affect your business.
11. Workplace Safety. Develop a health and safety workplace plan that is in line with Occupational Health and Safety Administration (OSHA) standards. Construction employers need to be especially cognizant of OSHA requirements in regards to both the health and safety of their employees, as well as their worksite location. Plan to implement employee training and education so all workers thoroughly understand safety requirements, and how to identify and avoid workplace hazards. Prominently post safety rules and regulations in a workplace common area visible to all workers. Although it can be challenging for a construction business, your objective should be to strive for no worker injuries or accidents.
12. Labor Law Compliance. Federal and state laws require employers to post official labor and employment posters outlining rules and regulations in a workplace common area. In some cases, this includes posting bilingual posters in English and Spanish. The LaborLawCenter™ provides construction employers with the Construction Industry Compliance Products required to satisfy unique industry requirements.
13. Contracts. Develop company contracts that you can utilize for projects. A good contract should outline a project's scope such as scheduling, payment terms, work requirements, and so forth. If necessary, consult with legal counsel to create the contract document, or a professional experienced in preparing construction contracts. To better protect yourself, conduct business by written agreement, rather than by verbal agreement.
14. Cost Structure. Develop a pricing structure for your services offerings. Take into account all of your direct labor, the cost of the materials and equipment needed to complete the task, your overhead, the complexity of the project, and the profits you would like to receive for the project. Consider the going market rates so you can directly compete with your competition.
15. Accounting. Get in the habit of recording your company's profits and expenses. If you are not inclined to the accounting upkeep yourself, consider consulting with a licensed CPA, or hiring someone internally so you can focus on building your business.
16. Networking. Market yourself within your industry by joining professional organizations, and by attending industry trade shows and seminars. In addition, network with business professionals outside of your immediate industry who may prove who beneficial, such as with inspectors, appraisers, and real estate agents. Oftentimes, if you are well networked within the construction industry, it paves the way for a very profitable stream of referral business.
17. Marketing. Plan to develop marketing materials so that potential clients can learn about your products and services. For example, promote your business with flyers, business cards, or advertising placements via print or online sources. Decide on a reasonable marketing budget, and make sure your efforts are focused on delivering your message to a targeted audience. Having a website these days is a must! Build a website that encompasses who you are, what you provide, and the best way to contact you.
18. Sales. Plan to develop a sales process for your business. Effective marketing will help draw interest in your services. Once you have generated interest it is your job to convince clients to work with you. Learn how to effectively deliver proposals that address your key strengths, budgets, and project outlines. Be prepared to professionally discuss what sets your business apart from the competition. Be honest with your clients on your abilities, budgets, and project timelines.
19. Manage Expectations. When working with clients, make sure you clarify expectations. This includes how, when, and what you will deliver based on the discussed project parameters. Oftentimes, a client may request changes to the original plan. When this is the case, make sure you effectively communicate to all parties involved so everyone is on the same page. Set reasonable time frames and budgets, and always handle client interactions in a diplomatic fashion.
20. Stay Current. As a business owner, it is a good idea to continually educate yourself on construction industry trends and topics so you stay ahead of the curve. Look into industry-specific subscriptions (online or print), read articles, or join local associations and chambers.

Many construction business owners and employers would agree that starting a business is a challenging endeavor. Overall, the crux of your success usually comes down to one thing: your customers. Make sure you effectively communicate, understand requirements, and manage expectations at all times. Remember that your workers always give your customers a lasting impression of your business, and that positive experiences help pave the way for your success within the industry.

The article within is not designed to infer legal counsel, but rather an informative guideline for items one should consider prior to starting a business within the construction industry. For more precise requirements on individual circumstances, seek the appropriate legal counsel.

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