How to Start a Construction Company

Construction is one of the largest sectors of the US economy, worth a stunning $1.3 trillion and influencing several other industries, from trucking to appliances, and from utilities to real estate, and more. If you’re good with your hands and enjoy working outdoors, you could start your own construction company and carve yourself a slice of that vast market.

What could be better than helping people build the home of their dreams? By starting your own construction company, you could do just that, and watch the money roll in.

Of course, starting a construction company won’t be easy. It will take hard work, time, and most importantly, knowledge. Fortunately for you, this step-by-step guide provides all the information and insight you need to start hammering away at your new entrepreneurial venture.

Step 1: Decide if the Business Is Right for You

Pros and cons

A construction company has pros and cons that you should weigh before deciding if starting one is right for you.

Construction industry trends

The outlook for the US construction industry is strong, thanks in part to the recently passed $1.2 trillion infrastructure bill. 

Industry size and growth

• Industry size and past growth – Market research firm Statista values the US construction market at $1.6 trillion((https://www.statista.com/statistics/226368/projected-value-of-total-us-construction/)) and points out that new construction has more than doubled over the past decade.((https://www.statista.com/statistics/184363/value-of-new-private-construction-put-in-place-in-the-us-since-1999/))
• Growth forecast – With massive projects to upgrade roads, railways, and airports, the US construction industry is expected to grow more than 3% annually through 2026.((https://www.globaldata.com/store/report/usa-construction-market-analysis/))
• Number of businesses – There are more than 3.7 million construction businesses in the US.((https://www.ibisworld.com/industry-statistics/number-of-businesses/construction-united-states/)) 
• Number of people employed – The US construction industry employs at least 10 million people.((https://www.ibisworld.com/industry-statistics/employment/construction-united-states/))

Trends and challenges

Construction trends include:

• Increasing use of new technologies, such as virtual design and construction management tools, will boost efficiency
• Rapid growth of modular construction and prefabrication segment
• Growing preference for environmentally sustainable buildings
• Use of living building materials, such as self-replicating concrete and self-mending biocement
• Use of drones to survey construction sites and prevent worker injuries and deaths

Challenges in the construction industry include:

• Lack of skilled contractors and workers
• Shortage of construction materials and supply chain disruptions
• Extreme weather conditions

What kind of people work in construction?

• Gender – 90% of contractors in the US are male, while 10% are female.((https://www.zippia.com/construction-contractor-jobs/demographics/#gender-statistics))
• Average level of education – 41% of contractors hold a bachelor’s degree.((https://www.zippia.com/construction-contractor-jobs/demographics/#degree-level-types))
• Average age – The average age of a contractor is 46 years old.((https://www.zippia.com/construction-contractor-jobs/demographics/#age-statistics))

How much does it cost to start a construction business?

Startup costs for a construction company range from $17,000 to $65,000 or more. The largest costs are for tools and heavy equipment like excavators. You can buy used equipment to keep costs at the low end, and in some cases, you can rent equipment.

You’ll need a handful of items to successfully launch your construction business. Here’s a list to get you started:

• Basic hand and power tools
• Excavators
• Bulldozer
• Backhoe loaders

How much can you earn from a construction business?

The average profit margin for a residential-focused construction company is 25%. New home prices run from about $100,000 to half a million or more, but let’s peg your average home sale price at $200,000.

In your first year or two, you could build 3 homes a year, bringing in $600,000 in annual revenue and $150,000 in profit, assuming that 25% margin. As your brand gains recognition and you add workers, you might build as many as 10 homes in a year. With annual revenue of $2 million, you would make about $500,000.

What barriers to entry are there?

There are a few barriers to entry for a construction company:

• Startup costs, particularly for equipment, are high
• Some construction knowledge and experience required
• With no track record, attracting clients will be tough

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Step 2: Hone Your Idea

Now that you know what’s involved in starting a construction company, it’s a good idea to hone your concept in preparation to enter a competitive market.

Why? Identify an opportunity

Research construction firms in your area to examine what they build, their price points, and which homes sell best. You’re looking for a market gap to fill. For instance, maybe the local market is missing a lower-priced housing builder to meet the demand of younger people looking for starter homes.

You might consider targeting a niche market by specializing in a certain aspect of your industry, like green construction.

This could jumpstart your word-of-mouth marketing and attract clients right away.

What? Determine your products or services

Determine first if you want to do residential or commercial construction. In general, residential construction is going to be a much easier market to enter without a track record. If you choose residential homes, decide what types and sizes of homes you want to build.

You may end up designing your own home models. Look at what features are in demand, such as first-floor master bedrooms or en-suite bathrooms. You may decide to do custom homes to a customer’s specifications instead, or offer that as an option.

How much should you charge for new homes?

The average price of a new home is about $285,000. You’ll need to look at market prices in your area to determine a range for your prices. You’ll also need to determine all the costs involved in building a home, including labor and overhead, and price the homes for your target margin.

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will depend on the prices of the homes you build. If you decide to build lower-priced starter homes, your market may be young professionals. You can probably find these people on Instagram as well as business-related sites such as LinkedIn.

Where? Choose your business premises

In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office. You can find commercial space to rent in your area on Craigslist, Crexi, and Commercial Cafe.

When choosing a commercial space, you may want to follow these rules of thumb:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better
• The name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “homes” or “construction”, boosts SEO
• Choose a name that allows for expansion: “Jim’s Bakery” over “Jim’s Cookies”
• Avoid location-based names that might hinder future expansion
• Use online tools like the Step by Step business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

• Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
• Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
• Product and Services: Describe your offerings in detail.
• Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
• Competitive Analysis: Analyze main competitors, assess their strengths and weaknesses, and create a list of the advantages of your services.
• Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
• Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
• Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
• Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
• Appendix: Include any additional financial or business-related documents.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to construction companies.

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your construction company will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just needs to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using ZenBusiness’s online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have. 

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Venture capital: Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best options, other than friends and family, for funding a construction business.

Step 8: Apply for Licenses/Permits

Starting a construction company requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your construction business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business.

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.

You can use industry-specific software, such as HCSS, Procore, or FieldWire, to help manage your projects, costs, billing, and scheduling.

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Marketing

Some of your business will come from online visitors, but still, you should invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.

Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:

• Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area. 
• Instagram: Same benefits as Facebook but with different target audiences.
• Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Schedule Now”. This can sharply increase projects.
• Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.

Kickstart Marketing

Take advantage of your website, social media presence, and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:

• Signage – Put up eye-catching signage at your store and website. 
• Flyering – Distribute flyers in your neighborhood and at industry events. 
• In-Person Sales – Offer your services at local markets and trade shows.
• Sponsor events – You can pay to be a sponsor at events that are relevant to your target market
• Post a video – Post a video about your construction projects. Use humor and maybe it will go viral!
• Email marketing/newsletter – Send regular emails to customers and prospects. Make them personal. 
• Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
• Seek out referrals – Offer incentives to generate customer referrals to new clients. 
• Press releases – Do press releases about new projects, etc.
• Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
• Pay–per-click marketing – Use Google AdWords to perform better in searches. Research your keywords first.
• Do a webinar – Share your construction expertise online with a video seminar.
• Testimonials – Share customer testimonials about how your company helped them.
• Create infographics – Post infographics and include them in your content.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your construction meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your construction business could be:

• Quality starter homes that are easy on your wallet
• Custom homes to fit your family
• The greenest, most eco-friendly homes in town

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a construction business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in construction for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in construction. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.

Step 12: Build Your Team

If you’re starting out small, you may just need a few laborers initially. But as your business grows, you will likely need workers to fill various roles. Potential positions for a construction business would include:

• Construction Workers and Foreman
• Sales Manager
• General Manager
• Marketing Lead

The plumbing and electrical work is generally done by subcontractors.

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.

Step 13: Start Making Money!

Worth more than a trillion dollars, the US construction industry is full of opportunities! You can start by doing small residential projects and build your construction empire over time. Keep in mind, it’s important to stay updated with the latest trends and use new construction management systems to improve your operational efficiency and minimize your risks. 

With your construction company, you’ll have a huge impact on people’s lives and your community, and make an excellent living at the same time. You’ve established a great entrepreneurial foundation of knowledge, and you’re now ready to build your own successful construction company!