If you want to know how to start a construction company, you should know the proper planning and execution to create a successful business.
This guide will walk you through the basics, and we will cover everything from licensing and insurance to funding and ideas to start. So whether you’re just getting started or you’re looking for ways to improve your existing business, this guide has you covered.
Also, we’ll present a funding option to improve your cash flow and finance some costs.Get a fast and affordable loan to fund your business
Steps for Starting a Construction Company
Most entrepreneurs in the United States will need to do these few things when starting.
- Decide if you will specialize in a specific niche. Although you can have a business that does all types of construction, you can also specialize in building residences, designing commercial spaces, or remodeling houses, for example.
- Write a business plan. This is essential to know where to go and how to get there.
- Now it’s time to register your business and get the necessary licenses. Although which licenses or permits you need depend on your state. Most likely, you’ll need general, electrical, mechanical, and plumbing contractor licenses, among others.
- Don’t forget to consider the extra costs of a new business, like renting offices, buying machinery, equipment, and software, and hiring new employees.
Let’s break through some steps to start your own construction company.
Choose your business structure
When opening a construction company, choosing the proper business structure is essential.
The business structure you choose will impact several factors, including liability, taxes, and how you run your business.
There are four main business structures for construction companies to form a business entity: sole proprietorship, partnership, limited liability company (LLC), and corporation.
Each has advantages and disadvantages, so choosing the one that best suits your needs is essential.
You may need an Employer Identification Number if you are starting a business or nonprofit organization, or if you are hiring employees.
Register your construction company
Once you have decided on your business structure, you will need to register your company with the state where you will be operating.
This process will vary depending on the state but generally includes filing articles of incorporation or a business license application.
How to register a construction company
There are a few things to remember when registering a construction company in the United States.
- You will need to obtain a business license from the government. This license will allow you to operate your business and sell your services to customers.
- Register your business with the state. This will ensure that your company is appropriately listed on the state’s business registry.
- Get insurance for your company and workers. This insurance will protect your business and employees from any accidents or injuries that may occur while working.
Once you have these things in place, you can start operating your business.
Obtain the necessary permits and business licenses
Depending on the construction work you will be doing, you may need to obtain special permits and licenses from your state or local government.
Be sure to check with the appropriate authorities before starting any work.
What licenses are needed to start a construction business?
There are a few different licenses that you will need to start your own construction company.
- A general business license will allow you to operate your business and hire employees.
- A contractor’s license, allows you to perform contracting work.
- A builder’s license to build homes or other structures. Each state has its requirements for these licenses; check with your local government to see what you will require in your area.
With these licenses in hand, you can start your construction business and begin building homes or other structures for your clients.
Be sure to follow all of the requirements of each license to avoid any penalties or fines. Otherwise, you should have no trouble getting started in the construction industry.
Create a solid business plan
A well-crafted business plan is essential for any successful business, and a construction company is no exception.
Your business plan should outline your company’s goals, strategies, and financial projections.
Learn here how to prepare a construction business plan.
Unless you are self-funding your construction company, you will need to secure financing from outside sources.
This may include banks, investors, or government grants from the Small Business Administration, for instance.
Once you have the necessary funding, you can hire employees to help with the construction work.
Be sure to screen all applicants carefully and only hire those with the necessary skills and experience.
You will be exposed to a variety of risks.
You must purchase general liability insurance and workers’ compensation insurance to protect your business.
The average cost of construction insurance typically is between 1-5% of the total construction project cost.
Establish safety protocols
Construction work can be dangerous, so it is important to establish safety protocols for your employees to follow.
This may include requiring them to wear personal protective equipment (PPE) and providing training on how to operate machinery and tools safely.
Market your business
Once you are up and running, you will need to inform potential customers about your new company.
You can use various marketing strategies, such as print and online advertising, direct mail, and public relations.
Tips for Starting a Construction Business
Starting a successful construction business is no small feat. The industry has many facets, from heavy equipment and machinery operation to project management and marketing.
However, with careful planning and execution, it is possible to find success as a construction entrepreneur.
Here are a few tips to help you get started:
Understand the construction industry inside and out.
Research the different aspects of the construction industry so that you comprehensively understand what you’re getting into.
This will allow you to make better decisions for your business and anticipate challenges along the way.
Develop a niche market focus
There is a lot of competition in the construction industry, so it’s important to identify a niche market that you can focus on.
This could be anything from residential construction to green building methods.
By zeroing in on a specific market, you’ll be able to serve your customers better and stand out from the competition.
Types of construction companies
There are many different types of construction business ideas, each with its own area of expertise.
Here are some of the most common:
- General Contractors
- Architectural Firms
- Structural Engineers
- MEP (Mechanical, Electrical, and Plumbing)
- Building Materials Suppliers
- Construction Equipment Manufacturers
Invest in quality equipment
Most construction companies rely heavily on equipment, so investing in quality machines and tools is essential.
Not only will this help you get the job done right, but it will also save you money in the long run by reducing repairs and maintenance costs.
Hire experienced professionals
When starting, it’s tempting to try to do everything yourself to save money.
However, this can lead to mistakes that could cost you dearly down the road.
It’s important to hire experienced professionals to help you get your business off the ground.
Following these tips will help you set your construction business up for success.
You can build a thriving enterprise in this competitive industry with careful planning and execution.
Construction Business Expenses List
If you’re thinking about starting, there are a few startup costs you’ll need construction company startup costs.
Naturally, one of the primary costs for construction companies is raw materials. Inventory upkeep is a primary concern for construction companies.
Running out of material in the middle of a job or delays in getting material to start new projects can add many costs.
The cost of raw materials depends on the types and sizes of projects your company takes.
For example, the cost of commercial construction materials averages between $16 and $20 per square foot.
With additional finishing, this cost can increase up to $30 or $40 per square foot. On the other hand, the average cost per square foot for residential construction is about $150.
Tools and Equipment
This is another high cost. A construction company can purchase and maintain its own equipment or rent it from another company.
Typically, the cost to rent equipment is $40 to $60 per $1,000 item costs.
That means that renting $10,000 machinery averages about $500 each month, while a $100,000 one could cost as much as $6,000.
Labor is a third cost that must take into account.
If you pay your lead employee $40 per hour, a framer receives $25 per hour, and a newer employee earns $15 per hour, you are looking at $80 per hour in labor.
This is simply one example of using a small construction team. However, at this rate, labor alone costs your company $640 for an eight-hour day.
This also does not consider labor burden costs like payroll taxes, benefits, meals, insurance, training costs, and employee supplies. For labor burden costs, divide the total yearly cost by the number of your employees to figure out the cost of each.
Permits and Licenses
Permits, licenses, and renewals are things construction companies cannot operate without. Lacking proper permits leaves your business open to litigation or unable to operate at all.
These costs can vary widely depending on state and local regulations.
However, it usually hovers around $0.80 per square foot, with an annual national average of about $430.
Proper licensing often costs a few hundred dollars annually and needs yearly renewal.
You can find a detailed list of the licensing and insurance requirements for construction companies in the U.S.
There are four types of construction licenses: general, electrical, plumbing, and HVAC.
There are other miscellaneous costs for construction companies too.
Rent and utilities can both be factors.
One of the great advantages of construction companies is that they often need no set physical location to operate.
The nature of a construction company is to move from job site to job site.
However, many construction companies still require space for off-site construction or inventory and equipment storage.
Insurance is another factor many forget to consider as part of their costs. However, the average cost of insurance for construction companies is over $1,200 per year. This means that coverage is no small investment for most businesses.
Are you not sure of what type of insurance you need? Find it in this article, where we organize the insurance requirements by type of industry.
Expenses and Earnings As a Construction Business Owner
One of the essential details to keep before you at all times is how much your construction company makes versus how much it spends.
Consider the table below as an example:
Contractor expenses structure and estimated profit for one week of a company’s operations
|$||Cost as a percentage of sales|
|Weekly raw material cost||3,000||30%|
|Payroll for the week||2,500||25%|
|Amount set aside or spent on repairs and maintenance||300||3%|
|Rent and property expenses||1,000||10%|
The table above shows that payroll and raw materials take up about half of weekly sales revenue.
The business owner grosses $4,500 on the $10,000 weekly gross, so his gross margin is 45%.
The table also accounts for various other expenses like rent, utilities, repairs and maintenance, and property expenses.
The remaining amount is $2,700, or 27 percent of the weekly gross. This can be set aside for any miscellaneous expenses, with what remains going toward profit.
Decreasing raw material or labor costs can increase this company’s profitability since these are its significant expenses.
Other costs can be harder to reduce and have less impact on profitability.
If the company has an insufficient gross margin, it will have very little to pay for miscellaneous expenses.
This causes a decline in profits and, if expenses build too much, can even create profit losses.
How to Grow a Construction Company
There are many different ways to grow a construction business. Some common methods include:
- Increasing the number of projects you bid on and win.
- Adding new services or divisions to your company.
- Expanding your geographic territory.
- Growing your team of employees, either through hiring or acquisitions.
- Investing in marketing and advertising to increase brand awareness and generate more leads.
- Developing strategic partnerships with other businesses in the industry.
- Creating a strong online presence through your website and social media channels.
- Becoming involved in the community through sponsorships, philanthropy, or other initiatives.
- Participating in trade shows and other events related to.
A Funding Way to Start Your Construction Business
Small business owners should consider taking a loan for a construction company. You can find a trusted partner in Camino Financial.
We dedicate to helping your construction company flourish: many construction business owners like you have trusted us for their working capital needs.
They have found in us the solution to fund their projects and maintain a healthy level of cash flow.
Our quick turnaround processing makes it possible to get funded in as short as two days, so your construction company doesn’t suffer from the lack of cash flow to fund a new project.
How much does it cost to start a construction company?
The total cost of starting your own construction business can vary greatly depending on several factors. But you can expect to spend around $8,409 and $74,851.
What are a construction company’s profits per house built?
It is normal for a construction company to earn 15% to 20% of the cost of a residential project.
How much does a construction company earn?
According to the Construction Financial Management Association, the average net profit (before taxes) is between 1.4% and 2.4% for general contractors and 2.2% and 3.5% for subcontractors.
How to get capital for my construction business?
Obtaining financing for your small construction business is easy if you apply for a business loan with Camino Financial.
We have minimum requirements, and you can’t receive the capital as fast as two business days.
How much money do you need to start a construction company?
It depends on the size and scope of the company you want to create.
For a small construction company, you could get by with as little as $10,000. This would cover the cost of licenses, permits, materials, and equipment.
For a more medium-sized company, you might need closer to $100,000. And for a large construction company, you could realistically be looking at starting costs around $1 million.
Of course, these are just rough estimates – actual costs will vary depending on your specific business plan and situation.
How do I start a successful construction company?
In order to start a successful business, the most important thing is to make sure you have the proper licenses and permits in place.
You’ll also need to have a good understanding of the construction industry, and you’ll need to be able to manage and oversee projects effectively.
Who makes the most money in construction?
The people who make the most money in construction are the people who own the construction companies.
They usually make a profit of about 10% on every project.
The next highest earners are the people who work for the construction companies.
They usually earn around $25 an hour, although this can vary depending on their level of experience and expertise.
Is construction a profitable business?
Now you’ve learned how to start a construction company, you should know, in general, that construction can be a very profitable business – especially if a company has expertise in a particular niche or region.
Construction industry publications say that one of the main factors contributing to the profitability of construction businesses is the amount of risk involved.
The more risky a project is, the higher the potential profits (and losses) can be.
This means that companies that can secure high-value, low-risk projects can make very healthy profits, while companies that specialize in risky projects (such as civil engineering) may experience more profit.