9 Must-Know Tips On How to Start a Construction Business

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You were born with a hammer in your hand! Your favorite toys were your tool bench and your dad's old hardhat.

Your friends chose degrees in accounting, education, and biology. Some chose work in restaurants. Not you!

You walked on the job site and never looked back. You chose well because according to a 2017 study, 3,477,000 people work in the construction industry and make a decent living doing it.
Now, you're ready for the next level.

You've dreamed about and talked about for years. Now you feel like you're ready. But you're not sure exactly how to start a construction business.

If this is you and you're ready for the next challenge, we've put together 9 tips you must know before you start your construction company.

1. Know Your Why

The first question people will ask you is "why?" From your mother to the underwriter of your business loan, people always ask why someone would leave the security of a steady paycheck and start their own construction business.

Maybe commercial construction is booming in your community. Or there's a demand for residential renovation and remodeling. Maybe there's a shortage of skilled drywallers or cement masons.

Whatever the case, knowing your why satisfies inquiring minds and gives you the confidence that you're making a good decision.

But what if you're certain of why but aren't sure what type of construction business you should start?

2. Tap Into Your Skillset

What do you do well? Are you a top-notch framer or is your specialty trim work? Do you work with concrete or is drywall more your thing?

The construction industry isn't just about building new homes or remodeling existing structures. 

Some of the most profitable construction businesses include painting companies, masonry, and electrical work. If you enjoy the process of taking a project from start to finish, construction project management is also in demand.

Take time and think about what you do best. If you're interested in an area of the construction field where you don't already have skills, consider taking a class. Or find someone you know who can teach you the skills needed for the job.

Knowing why you're starting a business and narrowing down your niche is the first step. Next figure out the financial piece of the business.

3. Money Makes the Construction World Go Around

Every business needs funding but construction start-ups often need more money than most.

For example, if you start a small carpentry business your start-up costs can vary from $10,000 to $50,000. Construction company start-ups are concerned with office supplies and rent for office space.

Your costs are associated with equipment costs, paying employees or sub-contractors, and insurance. Of course, this isn't an inclusive list but it's a start.

The old saying "it takes money to make money" is true in this business. Before diving in too deep consider forming a good relationship with your bank and other people who might be good financial resources.

If you've figured out the money, you're ready for the next step of the business planning process.

4. Building with the Basics

You may be big on brawn and have a lot of years in your trade but starting your own construction business takes more than a handful of nails or a shiny new tool trailer. You need a business plan!

Preparing a business plan helps you figure out your business goals. A business plan also helps you come up strategies to achieve those goals.

Wouldn't it be nice if you had a crystal ball that showed you what obstacles you might face in the future? A business plan can identify potential problems so that you can create a plan for managing them if they do come up.

Creating a solid business plan not only serves as a road map of sorts for you it's a requirement if you apply for a business loan.

If you're seeking finance for your business, you'll need to show banks and investors why they should invest in your business.

Lenders and investors won't risk their money if they're not confident in the success and profitability of your business. 

A well-researched business plan shows you're serious about your business and helps investors see the big picture of your business idea. The business plan also shows what you've projected for profits.

Now that you've created a business plan, take the next step and register your business.

5. Get Your Business Registered

Regardless of whether you're starting a framing, plumbing, or drywall company, you can't start working until you properly register the business.

Every state has their own rules for registering a business but most require you to at least:
Speaking of business structure, most states expect that business owners register first with the Internal Revenue Service (IRS) or whatever entity your country of residence uses for registering business structure

After registering the basic business information with your state, the next item of business is taking care of licenses and permits. 

6. Permits Licenses and Certifications

Most entrepreneurs (and that's what you are now) aren't prepared for the list of hidden costs associated with starting a construction company.

You're probably aware of some of the permits and licenses but no doubt you'll encounter at a few surprises along the way.

For example, if you operate heavy machinery, your standard driver's license won't suffice. Framing companies use cranes when they set the rafters on a new construction home. Read more about heavy equipment and the importance of safety.

Most states and cities won't allow work on a residential or commercial building without the proper permit. For some job-related tasks in the construction field, you may need special certifications.

Be aware of all the certifications, licenses, permits, mandated by your state and city before you start operating your business. That way you'll avoid unnecessary work interruptions and expensive fines.

In addition to permits and other licenses, you'll invest in a variety of tools.

7. The Tools of the Trade

Every construction business requires both general tools and those specific to the trade you've chosen.

Most construction entrepreneurs need a generator for use at the job site, a variety of saws and blades, hand tools, and a storage place where you can protect them from theft and weather.

You can either own or lease your tools. Purchasing tools for cash is ideal but some tools are too expensive and financing is the better option.

Maybe you don't have the funds available right now for the larger tool expenses. Don't worry because most larger cities have leasing companies that specialize in renting tools to small business owners.

One thing you can't avoid, especially if you own construction tools is insurance.

8. Don't Forget Insurance

Actually, insurance might be the most important expense you'll incur when you start your construction company.

Insurance protects you and your business from liability. Insurance protects your employees if they're injured on your job site. And insurance protects your customers and their property should you or your crew damage something.

There are several types of insurance and each serves its own unique purpose.

For example business property insurance covers property your business owns, leases or rents, and includes coverage for your tools and other equipment. Business liability insurance covers your business if someone sues it for causing harm to a person or damage to property.

Workers’ compensation provides benefits to employees. If an employee gets hurt or sick while on your job site or while performing work for your business, this insurance covers medical care and lost wages.

Worker's compensation also provides a financial benefit to your employee's family if they die while on the job. Both business liability and worker's compensation can cover your legal expenses if someone files a lawsuit against the business.

Running your business without insurance sets you up for fines and even worse lawsuits.

So far, we've shared a few tips, important steps, and activities related to construction start-ups. One last tip won't cost you anything other than your time and maybe a cup of coffee or two.

9. Learn How to Start a Construction Business

Even if you were born to swing a hammer and you've built everything from bookshelves to custom homes, starting a new construction business is a whole new box of nails. Consider asking for advice from a mentor.

Finding a mentor in the construction industry shouldn't be difficult. Talk to people you know in your trade. Invite them out for coffee or lunch and ask for their insight.

A mentor can be a seasoned business owner or you can find a mentor through one of the government-sponsored programs engineered for entrepreneurs. Organizations like SCORE pair people with mentors from their industry at no cost.

Never turn down help or advice from entrepreneurs with more experience than you have. Free advice and even advice you pay for can mean the difference between success and failure.

Ready for Opening Day?

From the basics to tips about business plans, insurance, tools, and finding a mentor, hopefully, you've found something that inspires you as you learn more about how to start a construction business. 

It's a big undertaking but that's just one entrepreneur's take every day. You're definitely not alone. If this article encouraged you, check out our blog where you'll find business articles on a wide range of topics of interest to small business owners.
