There are many reasons why you might want to start a construction business. Maybe you’ve been working in the industry and want to branch out on your own, or perhaps you’re looking for something new and exciting.
But before we get into the nitty-gritty of starting a construction company, it’s important to know what is needed in order to make this dream come true.
First, you must know it can be overwhelming to decide to start your own construction business. There are so many details to be completed, including reporting and research, and you will notice it’s easy for people to lose sight of the passion behind starting a business.
Also, over 50% of small-business owners regret not taking enough time to learn how to manage a business within the first year and only let themselves get too “hot” thinking about making money.
Starting a business in construction is quite simple if you know where to begin, but it takes time to build a construction company as well, so it is important to start early to be successful later.
With this in mind, we want to make sure you start your journey right and are able to build a company that isn’t only a good revenue source but also something you’re proud of. Now, let’s go over the steps you will need to follow.
Do Your Research About the Construction Industry
The internet makes it easy to access a wealth of public, free data, and you need to take advantage of that whenever you decide to start a business, not only a construction one.
As long as you know how to find it, you can get a lot from this.
Of course, you could also rely on the regular Google search, but the problem is that you don’t know if the sources are reliable and provide the information you need.
Thus, if you want to find truly relevant details from reliable sources, give these a try:
- U.S. Small Business Administration: This broad-based toolkit is designed to assist small businesses at all stages of their growth. It also includes tools that are specifically tailored to the construction and facilities industry in which you can find information and know what it takes to manage your future business.
- U.S. Bureau of Labor Statistics: This data is collected by the BLS and includes information about construction employment, such as job openings, hirings, separations earnings, hours worked, and other details useful to set your business plan later on.
- Statistics and publications for the Construction Industry: Organizations such as the Fails Management Institute, Construction Marketing Association, Data USA, and others have construction statistics that provide valuable market insights.
- Local Industry Publications: Construction statistics can vary greatly depending on geography. Googling for publications or construction organizations in your area can give you additional insight that will help your business plan stand out from the rest based on where you will establish it and avoid too wide of a range.
Although some people find research unnecessary as long as you have a business idea and know-how to develop it, we consider it is a matter of perspective.
Just think about it: The more information you have, the more prepared you will be. It is simple math.
Of course, we know research can take lots of time, but you can just come up with some details and questions you can answer through it, like the legal requirements you have to meet and how to handle regulations.
Make Sure to Choose a Specialty
After doing your research, you can start thinking about the specialty you want for your construction business.
We know you’re thinking: “Isn’t construction a specialty already?” Well, this is kind of wrong and right at the same time.
You see, every niche has “sub-niches” you can consider and determine the actual services you offer in your business and products. Also, they determine how you will work and the profit margins you can obtain.
You have subcontractors who usually make between 20-30% profit margins but have smaller contracts in this field.
Then, you have general contractors who earn 10% profit but have larger contracts because they manage 10-15 trades on jobs simultaneously.
Both have their pros and cons, but you will need to consider the following factors in deciding what area you wish to specialize in.
- What is the field you have experience in?
- Which one is the most profitable according to your time and possibilities?
- What are the most in-demand construction items and services?
- Which option allows you to start quicker with your first client?
If you ask us, there are way too many factors to consider, but we want to make it simple for you, so we will ask something that can help you decide your specialty in a matter of minutes: Do you prefer residential or commercial construction, or maybe both?
Many construction companies are able to work in commercial and residential areas, but how they make this possible is based on their ability to finance projects and their cash flow.
Residential jobs usually require a 15% or 20% deposit in order to begin. After submitting your bid, you can also quickly start projects and find less competition, so your close rates are likely to be higher.
The problem with this part of the niche is that these projects are usually smaller, and you have to deal with the homeowners’ “feelings.” They will be very picky because it is their home and you will have to comply with lots of things.
On the other hand, commercial projects are usually larger and have higher contract values.
You have more competition, and there are usually no upfront deposits. Your bill is monthly, and you usually get your first payment within 40-90 days of starting the job.
Commercial customers will need to have a credit line with their bank and terms with their supplier.
The are many more conditions and requirements, but you can find commercial construction more profitable.
Or, if you are okay to finance both projects and have a wider approach and audience, just think about how you can bid the residential option and deal with large projects that come with the commercial one.
What do we recommend? Beginners usually have a better time going for the residential specialty and then transforming into commercial only or going for both sub-niches.
Start Creating Your Business Plan
Any business, especially those in the construction field, should start after the owner puts together a solid business plan that can guide them in what they will need to do to achieve success and get established without many difficulties.
A business plan should outline the goals for your construction company and detail every step of the process and the funding and timeframe required to achieve each goal.
With all the information you include in a business plan, you should be capable of having something similar to a roadmap in how you could do things to avoid as many problems as possible.
Now, remember that anything that you feel is important to the smooth running of your business should be included, so the elements you should include aren’t limited to the previous ones.
Regarding this step, we want to clarify some details many people don’t understand or know about:
- Your business plan is more than just a way to put your company’s vision on paper. It helps you ensure that your fundamental ideas are sound and can generate real revenue.
- It will tell you exactly what, when, and why you are starting your business, as well as the steps that you plan to take to make it a reality.
- The business plan tells you how you can start your construction business and make it grow.
- The entire process of this business plan involves creating, refining, sharing it with mentors or business leaders you trust, and making refinements as needed.
- You will also need a business plan to obtain loans if you are looking to borrow one.
- It’s not difficult to draft a business plan. A majority of business plans are written using a template that takes the guesswork out. This means you can work around a template that will make the process easier.
With this clear, we will go over a crucial part we know you’re wondering: What should your business plan include in specific?
The business plan should be divided into sections that outline how you intend to structure your business.
Regardless of the number of sections you end up creating, the general outline should include who your target market will be, what type of services you offer, how many employees you plan to have, and how you will market and distinguish yourself from other construction businesses.
A section should be included that details how you intend to manage your construction business and a forecast of how much you anticipate making.
Include questions that involve how much you could spend on the project, the people you plan to hire, or maybe your plans for future expansions even when you might be a bit ahead of yourself.
Decide Your Business Entity
The decision about how to structure your company is a significant hurdle for new business owners because most of them have no idea or don’t know the differences.
Here, we will make it simple: You have four main business structures that you can choose from, and each comes with pros and cons.
- Sole Proprietor: You will have total control of your company. However, the bank may also seize your personal assets if your company defaults on a loan.
- Limited Liability Company: This option was created to reduce the risk of operating as a sole proprietor. An LLC will allow you to separate your assets from your company’s finances and have your individual finances and business ones separated, but it can be hard to raise capital.
- C Corporation: This is the traditional corporation entity for most businesses. Like an LLC, it protects business owners from personal risk and makes it easier to raise capital. It also allows owners to be divided among shareholders. However, C Corps are subject to double taxation.
- S Corporation: Probably the second common option, it is similar to a C Corp, but S Corps cannot have more than 100 shareholders, and all shareholders must be U.S. citizens or residents. S Corps are also subject to pass-through taxes, which means that only shareholders are subjected to taxation on dividends.
Based on the entity you choose, different steps to register your business will be followed, and licenses, certifications, and insurance are different in most cases.
Go & Register Your Business
Once you have your business plan ready and know the entity, you will jump to the step of registering it to make it possible finally. Just remember that your business plan might be requested during the process, so, no, you shouldn’t skip the previous step.
It is easy to register a company to the point of being able to give you the steps right here:
- Select your business entity: Decide your business name, and then decide whether to register it as an LLC or corporation.
- Obtain an employer identification number: Your federal tax I.D. is what you need to pay taxes, hire workers, open bank accounts, apply for business licenses, and pay taxes. Basically, you can’t do much without it, so you better get the EIN before moving on.
- Follow it with registering in state agencies: A few states in the USA will require you to register on paper. However, others allow you to handle this process online and without visiting any office. To fulfill this step, you will need to research the requirements based on your state.
- Next, register with local agencies: You will need to visit your local government’s websites to find out what registration is required for a construction business in your specific city, town, and just location.
As previously mentioned, more steps than this will depend on the entity you chose for your construction business.
Get Your Documentation & Insurance
It isn’t secret that you will need to search for the licenses and permits required in your state and sometimes your local municipality to start your construction business properly.
After all, documentation is usually the headache all businesses have to deal with in order to be called a company.
To find out the exact licenses required, contact your state’s Contractors Board or your local Department of Labor.
A few factors that may vary from one state to the next include liability and workers’ compensation laws. Thus, we cannot tell you the specific licenses and certifications you will need, nor the permits you will be requested by the government.
However, we can tell you a few common ones that will be necessary regardless of your state and location:
State and Federal Licenses
- General Contractors License: Construction companies require a general contractor license that allows them to work in the industry and both small and large projects.
- Specialty Contractors License: Depending on the specialty you choose, you might need an extra license to perform them, which happens with roofing, carpentry, and more.
Every construction company needs to be covered in the event of an emergency or accident.
For it, you must make sure your construction company has insurance. Diverse insurance policies are required to protect your business’s assets, employees, and property.
- General Liability insurance: It covers you for worksite injuries, property damage, and other incidents.
- Property insurance: If your physical office is located in a city, you will want property insurance to protect you against damage to property, theft, natural catastrophes, and injuries sustained by clients while they are on the premises.
- Workers Compensation Insurance: If an employee is hurt on the job, your general liability insurance will pay for the immediate effects.
- State Disability Insurance Employees who are permanently disabled by a job accident can file for financial aid.
Find the Funds for Your Construction Business
Mentioning that construction companies require funding is too much, considering that every business needs money to start.
However, we want to point out for what you will need the funds in this case. After all, depending on the business you decide to start, you can either need more funds or not.
You need to rent or buy the equipment and supplies for construction businesses to start working, get your real estate, and maybe hire employees. It all depends on how you will structure it as well.
Now, regardless of how much you need, you have different financing options:
- Small Business Loans.
SBA provides a range of low-interest loans to small businesses that are specifically designed to help them succeed.
However, keep in mind they are only available to business owners who have a strong credit history and good credit scores.
- Working Capital Loans.
You can get loans for specific purposes like working capital loans designed to cover daily operational expenses such as payroll and office utilities.
In highly seasonal industries where the majority of the company’s revenue is generated over a short period of time, working capital loans are very popular.
- Purchase Order Financing.
There are short-term financing options that can be used to cover upfront costs for industries that heavily rely on material sourcing.
Purchase Order Financing Organizations offer monetary advances to cover purchasing orders. They typically charge between 1.9% and 6.6% per month.
- Vendor Financing.
A financing agreement can be arranged with the vendor to finance materials. This is a way for construction companies to negotiate a longer payment term without paying late fees or penalties.
Vendor financing can be beneficial if your contract does not require payment from the customer.
- Private Lenders.
Lenders that are willing to provide money without following the regular conditions from banks and similar institutions tend to be more accessible for construction companies. Thus, you might want to give them a try in your local city.
Promote & Expand Your Business
Once you have settled all the logistics and have the money, you won’t have difficulty dealing with purchases and establishing your construction business.
What you will need to do next is to focus on expanding your business by promoting it and bring customers.
Customer loyalty and reputation are two of the most important factors in ensuring longevity in the industry.
You want to leave every client and project on good terms and, of course, get those deals in the first place; you will be a very new business.
Honesty and communication are the best ways to achieve this. Be upfront with clients about the time it will take to complete a project and keep them updated throughout the project to let them know if there are any problems.
Contracts should include a clear project schedule. This includes contingency time for weather delays, equipment failures, and other unexpected circumstances.
It is also a good idea to include terms and conditions of payment as well as a clause for claims for extra work and an estimate of the scope of work.
All agreements made with clients should be written. This is the best way for you and your company to protect all parties involved.
Clients will be more likely to return to you if you are more transparent and accountable with them. Plus, they will be more likely to recommend you to other people. This can lead to a snowball effect of success.
But before you get confused, you can just work on attracting clients by promoting on social media, using the old yet common networking, word-of-mouth, and relying on different lead generation strategies based on your niche.
Creating your website, optimizing it, and using AdSense are some of the main strategies you should include right away.
Frequent Questions: What to Keep in Mind for Your Business
We know you still have lots of questions, and we want to clarify as much of them as we can. Thus, we decided to do something different with this article and answer the most frequent:
- How much does it cost to start a construction business?
We kind of answered it before when mentioning you could start with less than $5.000. However, if we have to go for the general option, starting your own contractor company won’t cost a lot.
The biggest expenses come in the equipment, tools, licenses, and insurance, which can take the $5.000 standard we set to $10k-$20k.
- What are the ongoing costs of a construction business?
Many ongoing expenses are job-specific. Your bottom line will always include materials and equipment costs.
Advertising and communication will continue to be important factors and the maintenance and replacement of tools and equipment.
You may need to hire additional employees, a bookkeeper, or hire subcontractors for specific tasks such as painting, plumbing, and HVAC installation, depending on the specialty of your construction business and other elements.
- Who is your market target?
Your target market is families and individuals with sufficient assets to build or need to perform some repairs and projects you can solve with your construction services.
Clients with little money can become anxious about how much money is being spent on a project and may be tempted to cut corners or put off completing a project.
The bottom line of a customer must be strong enough to continue funding the project, regardless of the economy. Your assessment of clients should include their financial stability. While you are working on their project, think of them as a part of your business.
Overall, homeowners and commercial property owners are both your targets depending on the final option: Residential, commercial, or both.
- How do you make money?
You are paid to begin, continue and finish the construction project you were hired for based on an agreement you write down with the clients, and usually, money is provided upfront.
The customer then gets billed for ongoing work and materials, and at the end of the project, after all the workers and bills have been paid, the contractor will cut.
- How much can you charge to clients?
Clients are charged according to job-specific rates. This means that the job scope will impact the pricing.
It is also necessary to establish an hourly rate for your team and a salary for you in which your net earnings will be the salary.
All other costs will include materials, workers, and any intangibles that are necessary to keep the job going.
To establish a baseline cost, research other contractors in your area. While you should be competitive, don’t overprice or undercut your competitors.
- What is the profit a construction business makes on average?
The majority of profits will be reinvested in the growth and success of the business. Thus, it tends to be hard to determine a profit.
However, construction companies can be lucrative once a business is established. Businesses earn anywhere from $100.000 to $1 million annually, which can be more depending on your success.
6 Tips to Start Your Construction Business & Succeed
- When forming your company, consider your options carefully: Do you want to be an individual contractor, or do you want to own a construction firm that will expand to many locations? This has to do with dealing with the entity options available.
- Conduct continuous market research. Even when it is necessary to do it initially as we instructed, you should also continue doing it over the years to guarantee you maintain your business updated and competitive.
- Don’t skip your business plan if you want to have a good start, but don’t feel too pressured with it either if you are having a hard time. A simple outline, for starters, can be enough.
- Follow the rules and regulations for the construction trade. Make sure you adhere to building and VAT regulations.
- You can start a construction business for as low as $5.000. Remember, you don’t have to finance everything right away or solve all the paperwork at once. Take it slow if you are unable to go for the full investment.
- Be consistent and remain patient. You can do it, and trust in your abilities is necessary.
The Local Lead Generation Process for Your Construction Business
All right! So, everything is about building properties and generating leads. But how does the process actually take place? Are there other steps I need to know?
The steps I mention below are what students from our local lead generation program follow to generate leads for businesses like yourself. So I’ll help you see what we do. And how if you join our program, you can simply generate leads for your own business (unless you want to start a side hustle and build a laptop lifestyle business).
Essentially, our lead generation can be divided into four steps:
The first is prospecting. You need to take the time to do market research on a niche (industry) and determine how many phone-driven businesses are there.
Keep in mind that this is local research as you need to know how many companies need leads. For example, you may search for “plumbing services Youngstown OH.”
You will find dozens or even hundreds of businesses trying to get themselves in front of the customers by ranking on Map Listings, organic results, and even Ad.
The second step, building. When you find a niche (plumbing, tree services, a software company, real estate…), you will need to start building your digital properties. You don’t need to be an expert in HTML or coding. It can be easy with the right tools.
The third step is now taking time to rank your lead gen website. With the site done, you need to work on SEO strategies and start dominating those Google search results. If you’re new to SEO, it stands for Search Engine Optimization.
To keep it simple, it consists of the entire process of growing a company’s visibility on search engines like Google and generating organic traffic. And remember this, local lead generation is part of the strategies.
Moving on to step four, once you rank the site, you will start getting your ROI and profits. You only need to rent it out to a local business interested in the leads the site generates. You can offer a couple of free leads to their move on with the actual pay per lead.
To review steps 1-4 above, I described it to a normal student who is building a lead gen business to help local service providers generate more calls. But replace the student with you as the business owner. And replace sending the leads to a business to simply siphoning the leads to your personal business.
By the way, fun fact, about 20% of our students in our local lead gen program are actually business owners who went through the program. And they use the skillsets we teach to generate leads for their own business.
An Example of Lead Generation: Home Advisor
You must be thinking, “if lead generation sounds so good so far, how come I haven’t seen any company?” That’s the thing; there are many out there. You just don’t know they are dedicated to it.
HomeAdvisor is one of the best examples you can find on the Internet as it is a top lead generation company that has spent millions building its brand but also earned even more zeros for this same reason.
They started small as everyone else but invested in building their brand awareness to make people who are looking for home services go to their website and find what they need. They are over 75% of people’s first choice when they need those services.
If you don’t get HomeAdvisor that much or need a refresh, users need to submit their information to request a service and get a professional or expert who can provide it.
HomeAdvisor’s job is to share your information, which makes you a lead, with local companies so they can contact you and offer the service you’re requesting. For sharing this lead information, HomeAdvisor gets paid by the companies. This happens for every single lead they send to multiple businesses.
Business owners who don’t have marketing skills or don’t even know how to have any online presence will always rely on those pages to list their services. They will save time and effort, but companies like HomeAdvisor can make them spend lots of money as leads aren’t exclusive (one lead is sent to multiple companies after all).
Using Facebook Ads aka Paid Ad Platforms: Do They Generate Leads?
They DO generate leads. If not, no one would use them.
However, you need to remember two facts:
- Paid ads or platforms can be expensive.
- They don’t generate “natural” leads.
Whenever someone sees or clicks in one of those ads, over 80% of them did it by accident or are trying to close/report it.
Why? Because they aren’t looking for those services. At least not at the moment.
What those ads do instead is interrupt their time on the platforms. Users aren’t there to find companies or businesses unless they are searching for a specific company’s user, and for that, there’s a search bar. This is why it is hard to convert them to actual customers who will show interest in the companies’ services. Also, you’re limited by a budget.
When using lead generation, everything is organic. You aren’t forcing others to pay attention to your business but rather being there when they need you. This is why Google’s organic traffic will always beat paid ads, and the reason companies continue investing in it, which is a lot cheaper as well.
What Is Local SEO?
Don’t worry… I didn’t get it at first either. Following the short explanation, local SEO focuses on scaling businesses’ visibility on search engines. However, this is only for those who serve their communities face-to-face.
What does this mean?
Experts and professionals like painters, plumbers, and dentists (but not only them) offer their services to their local customers. Why? Because they can’t deliver them unless they are located in the same area of their customers.
To make sure those businesses get more leads, you need to rank them locally by claiming the business listing on Google to place them on Map Listings. Local SEO also involves online reviews, citation management, and how you manage your entire online presence in the local area.
If you are going to bet on lead gen, you need to adapt yourself to today’s world: The Internet.
Keep in mind that although traditional channels and methods like billboards, warm calls, and pamphlets still work, they aren’t part of your tools. Whenever someone needs a service, they go to Google and search for it.
“Dentist in Miami” or “plumbing services in Orlando,” etc. And you can keep coming up with services or professionals people need and look for. Thus, you need to make sure you’re using Google to get the companies in front of their clients.
Users will always click on the first search results (those near the top), and many of them will be either Ad links (people paid to place their websites there), Map Listing, and then you get websites. Almost all of them are your goal and where you should always aim to place yourself.
Can My Construction Business Utilize a Local Lead Generation Strategy?
If you want customers, you better know you need it. Following the previous explanation, lead gen is all about placing businesses in front of their customers, choosing them over their competitors.
Put it simply – it’s all about closing deals and having clients for those companies to make money. The main difference with the usual methods companies use for this is how lead generation approaches different channels to get them in the right place of the market to get customers.
Those channels are all focused on the Internet as most people are searching for products but also services across the net. The issue is that the Internet is way too broad, and businesses don’t know how to place themselves. They usually try, but they get one common result: losing money and time.
How Powerful Are Organic Construction Leads from Google?
For companies looking for customers, it’s everything. For you? Pretty much the same. When you build a business with digital properties, you get to make thousands of dollars a month.
This isn’t a “get started today and get rich tomorrow” thing, but it is HIGHLY scalable, and ROI + positive results are guaranteed. Learning a fairly decent and very needed set of skills to create your digital properties and start ranking them on Google is required.
I have invested in several online businesses over the years, and if there’s something uncertain, whether you will get your ROI or not, even more than the actual profit.
However, this business moved my earnings from five figures a year to a month in ONLY passive income while sitting comfortably at home.
On my laptop. Anywhere. Anytime.
You can look at one of the first sites I built back in 2016, and it continues making me over $1.000+ every month. The best part is that I don’t need to touch it or the rest I’ve built over the years, just like this digital property.
What Makes Lead Generation SO Alluring?
Here it goes: you can work from home.
The main issue with regular business opportunities is how much you need to invest in staff, equipment, or rent to have a place to sell your products or offer your services.
We all know the hassles of traditional businesses that involve regular expenses, which are extremely high. Can you afford it? I don’t think so, and even if you can, is it worth it? Now, it isn’t only about the money. You also need to put in a lot of work, and it isn’t only during the first couple of months or years. Usually, it is as long as you continue running it.
You can save yourself those headaches and bone-breaking tasks and expenses with lead gen since it is more about generating leads with digital channels—mainly websites.
Websites can be VERY cheap to build, and with many tools online, you get to do it in a couple of hours instead of days. Any virtual or digital business is scalable and won’t need constant maintenance.
So, let’s summarize this:
- You save money in regular expenses with traditional and most online businesses as what you need is yourself and digital properties (websites).
- You can bet on passive income.
- There’s no need to hire more people to get started.
- You can generate leads in multiple industries, which allows you to work on any niche you want.
How Can I Get Started in the Local Lead Generation Program?
Anyone can start and learn. That’s the beauty of this business model. I knew nothing about SEO, Map Listing, and everything I’ve mentioned so far. It is all about learning the skills, gaining experience, and deciding to take the step.
Remember that this business model will never get old as business owners are always looking for leads. They need to do business and scale their companies. Why not do the same while helping others and still making money?
You can start with this local lead generation course highly recommended for anyone wanting to grow in the business. It is a close training that will take you through each step and make sure you are able to get your ROI, profits and take control of your life.
You will be added to an incredible lead generation family ready to help you 24/7 when asking questions on the group. Anyone is welcome who’s willing to put in the work. Click here to watch the lead gen webinar.