How to Start a Construction Business- A Step-by-Step Guide

Thousands of construction businesses start every year. However, most of these businesses fail before marking their first decade in the industry.

As someone said, being good at construction isn’t the same as being good at running a construction business. To stand tight in the competition you need to consistently offer quality services all while facing the challenges thrown at you by the uncertain environment.

Since you are here, you are thinking of translating your passion for construction into a profitable business venture.

Well, we will help you out. This article offers a step-by-step guide to help you plan, prepare, and equip for starting your construction business.

So let’s get started.

How much money do you need to start a construction business?

It takes approximately $53,100- $245,200 to start a mid-sized construction company in the USA. A variety of factors such as equipment cost, licensing fees, lease rental expenses, and cost of raw materials factor in to determine the exact costs.

Pros and Cons of Starting a Construction Company

Construction is one of the top industries suitable for startups. Yet, there are disadvantages as well to starting a business in a construction segment.

Step-by-step Guide to Start a Construction Company

Rome wasn’t built in a night and the same stands true for your construction startup. This step-by-step guide offers a roadmap to starting your own business.

1. Research About the Construction Industry

Of course, a solid level of industry research is required before you can set up your own construction company.

But how? How do you conduct industry research that’s comprehensive and insightful?

Pick high-quality data from authoritative websites and industrial publications. This data is usually gathered using ground-level research methodologies and is precisely accurate.

Now, the Internet is filled with plenty of information. But not everything you read there is reliable. So here are a few sources that can help you gather quality and relevant research base for further study.

• US Census Bureau: Get construction-related data for construction spending, housing statistics, building permits, etc.
• Bureau of Labor Statistics (BLS): Specific data source for employment, wages, productivity, and safety in the construction sector.
• Construction industry publications: Check out ENR, CII, NAHB- economics and housing policy, construct connect, etc. to get valuable market analysis in the form of news, data, and publications.
• Local industry publications: Gather data from local publications and magazines.
• US Small Business Administration: Has a variety of tools and data for small businesses to grow your construction company.

Starting your own construction business is challenging in this competitive industry. A thorough industry and market research will help you understand the industry from a macro and micro point of view.

Moreover, this research will form the foundational base for setting up a well-planned and equipped construction business.

2. Select a Construction Business Type

So you want to step into a construction market. But do you know that the construction industry is worth 1.8 trillion dollars?

You cannot start a construction company in this humongous market without a niche.

Identify the promising segments in the construction sector and pick your business type.

Here are a few different construction business models you can explore:

• Residential construction
• Industrial construction
• Government construction
• Commercial Construction
• Infrastructure construction
• General contracting

Each of these construction projects presents different opportunities. Considering the demand, profit opportunities, growth potential, and entry access a construction type for your business.

3. Brainstorm a Business Name

A business name is your identity. So ideally you should pick a name that encapsulates your company’s services, objectives, and core values.

Sometimes, famous contractors choose to operate their construction companies under their name. However, since you are still starting out, here are a few suggestions to keep in mind while naming your construction company.

• Choose a small, catchy, and unique name.
• Choose a name that highlights your services or construction niche.
• Check the domain name availability for the names you have shortlisted.
• Check out the state regulations for naming your business, if there are any.
• Try to include keywords in your name. This will help boost SEO while developing your online presence.
• Take suggestions from tools like online name generators, ChatGPT, etc.

Get opinions from friends, family, and relatives before finalizing the name. You can also hire professionals to help you name the business.

4. Find the Right Location for Your Business

Most construction companies initially start with a home location to avoid monthly rental expenses. If that’s the case, you don’t need to worry about picking a location.

However, if you are planning for a physical setup of your company, finding a suitable location is a bit of a chore.

Here are a few things to keep in mind while choosing a place:

• Buying or renting a company property
• The scale of business operations
• Lease rental policies at a particular location
• Renovation, modification, and decoration needed to transform it into a functional office
• Available tax benefits

Finalize the location or at least start looking for one after studying the government rules and regulations.

5. Write a Construction Business Plan

A quality business plan offers a roadmap to form a successful business. It also identifies the potential gaps and blind spots in your planning to make it rock solid.

Regardless of what type of construction company you plan to start, your business plan should include the following components.

• Executive summary
• Company Overview
• Market research and analysis
• Construction services
• Sales and marketing strategy
• Construction company operations
• Management team
• Financial plan

Writing this entire plan with exact precision takes a lot of effort. So keep aside some time and invest your resources in quality research and tools to make an actionable construction company business plan.

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6. Register Your Construction Business

Before starting any formal projects, you need to register your business with a state. This will separate your business from you and make it a legal entity.

Follow these steps to register your construction company and make it a separate legal entity:

Select a business entity

First things first, select a business entity for your construction company. The entity you choose will determine the business strategy, liabilities, taxes, filing fees, and state taxes of a company.

Here are a few business entity options for you to explore:

• Sole proprietorship
• Limited Liability Company
• Corporation
• Limited partnership
• Limited liability partnership

Evaluate the pros and cons of choosing a particular business structure before registering. Generally, LLC is an ideal choice for construction businesses as it will secure your personal assets against business liabilities.

Research and identify the documents required to register a particular type of entity.

Apply for tax registration & business EIN

Tax registration requirements vary depending on the type of construction business and state you will operate from.

Head over to the IRS and apply for your employer identification number (EIN). EIN is a 9-digit federal tax ID that will be required to pay business taxes, open a business bank account, and apply for a loan and business license.

After registering your business, take a step further and apply for essential licenses and permits for your construction business.

7. Apply for Construction Licenses and Permits

Construction is a heavily regulated industry. To ensure that your operations are legal, you need to apply for various business licenses and permits as regulated by federal rules. You also need to check state and local government guidelines for construction industries in your area.

Here are a few business licenses that are commonly required for construction companies:

• General contractor’s license: Almost every state requires you to have a general contractor license to undertake construction work.
• Specialty contractors license: You will require specialized licenses for business works like HVAC, plumbing, roofing, electrical, painting, etc. Depending on your service offerings, identify if you require some of these licenses.
• Zoning permits:  Check the zoning ordinances in your area and ensure that your business location is legal for undertaking construction work.

Check the state-wise requirements and federal regulations for required licenses and permits on the official SBA website. To check all the requirements implied by the local government, contact the state contractor’s board.

If you want to get government contracts, you would have to take a special license for that as well.

Be very particular at this stage. Missing out on any compliance requirements can result in heavy fines and closure by the government.

8. Get Business Insurance

A variety of risks encircles the construction industry. You simply cannot afford to have an uninsured business in case of casualties.

Again, check the insurance requirements for construction companies as issued by state and local governments.

Check out these common insurance policies required in the construction field:

• Workers compensation insurance
• Property insurance
• Unemployment insurance
• Builder’s risk insurance
• General liability insurance
• State disability insurance
• Vehicle insurance

According to government regulations you need general liability insurance, property insurance, and worker’s insurance compulsorily.

However, it’s ideal to get all-round coverage to insure your business against all the possible risks and casualties.

9. Apply for a Bank Account and Business Credit Cards

Even if the business operations are of small scale initially, it is advisable to keep your personal and work accounts separate. If you don’t maintain separate accounting, you are likely to risk your personal assets.

Moreover, having a business bank account makes the process of filing taxes much more effective and efficient.

Now, remember the EIN number we got while registering the business? Using that EIN you can open a bank account for your business and apply for credit cards.

As a business owner in the construction segment, you would require loan and credit facilities, time and again. A credit card will help you build a strong credit history making you eligible for different loans and credit.

Sort out these formalities before you start signing the construction contracts.

10. Fund Your Business

It takes a lot of money to start even a mid-sized construction company. Bootstrapping is not always the option and you may have to secure funding from outside.

After considering your funding requirements, here are a few funding sources you can explore:

• Bank loans: This is the commonly used method to acquire a loan. However, it has its limitations, and loan requests can be rejected if proper documents aren’t presented.
• SBA loans: With SBA acting as a guarantor, you can acquire SBA-guaranteed loans with higher limits, and lower interest rates for a long duration. These small business loans are specially designed for small business owners in the USA.
• Government grants: Avail of different government grants by checking the eligibility. This can help you bring down the capital needs.
• Friends and family: Seek personal loans from friends and relatives and get the funds at relatively lower rates of interest.
• Construction-specific loans: A construction business can also explore funding options like working capital loans, equipment loans, vendor financing agreements, etc.

Be it direct or indirect, these funding methods can help you get the money to build a successful business.

11. Build a Team

A business owner alone cannot make the company successful. You need a solid team to translate the construction ideas into completed projects.

While making a business plan, you must have identified the requirements for staff and employees. From project managers to construction workers, and equipment operators, a variety of people will contribute together to make a team.

Now take that plan and use it as a reference point to make hiring decisions.

Use various platforms like Glassdoor, ZipRecruiter, and others to hire employees. However, for part-time blue-collar jobs, you can use contractors’ contacts.

12. Purchase Necessary Construction Equipment

Maybe not a hundred, but you do require plenty of tools and equipment to equip a new construction company. At this stage, you have a choice to make: Rent equipment or purchase equipment.

Heavy equipment is also available on lease making it a feasible choice for construction owners.

The list of equipment and machinery gets pretty exhaustive. However, here are a few essentials you definitely require to complete construction tasks:

• Heavy equipment: bulldozers, excavators, loaders, compactors, etc.
• Material handling equipment: Crane, forklift, elevators, etc.
• Power tools: Drills, saws, grinders, etc.
• Concrete equipment: Concrete mixers, concrete pumps, vibrators, etc.
• Hand tools: Hammers, screwdrivers, pliers, etc.
• Safety equipment
  
• Electrical tools
  
• Welding and metalworking tools

The business’s future success relies largely on the quality of equipment and tools that a company has. Evaluate your financial position and make informed choices.

13. Prepare to Launch Your Business

You are all equipped to start a construction company. But hey, you still need to figure out a solid plan to launch your new business.  Here are a few things to keep in mind as you start planning the grand launch:

Develop a marketing plan

In this stage lay out a clear marketing plan using your market research and ensure that it answers the following:

• The budget for marketing activities
• Marketing channels to reach your potential customers
• Social media platforms populated by your target market

Also, consider the marketing methods adopted by local companies to reach their target market. Also, keep in mind that the marketing efforts should reflect the value proposition of your construction company.

Build a website

A website is not a choice anymore. Even if you wish to operate locally, you need a website and a spectacular online presence

Now, you can hire a developer to build an entire website for you. If not, invest some time and build a website on your own.

Start by getting a domain name and choose your hosting provider. Build your website using a website builder and launch it.

That’s not it. Start working on SEO, create your GMB profile, and run paid ads to strengthen your online presence.

Conclusion

Now that you have figured out all the steps to start your own business, it’s time to work on your construction business plan. A forward-thinking, actionable plan will help you capture the local market and expand as the business grows.

Ready to start? Download our construction business plan sample and use it as a reference point to build your business.

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