How to Start a Small Construction Business: A Step by Step Guide

Construction Business

The construction industry is booming right now. Since the crash in 2008, the market has stabilized and it’s steadily growing, even surpassing the success before the collapse. Once again, it’s an exciting and lucrative investment opportunity for anyone looking to take advantage of the potential. And to help you start here’s a step by step guide to opening and running a small construction business.

Step 1: Define the Company and Set Your Goals

What you want matters. It’s important when you are taking steps to set up a set up your first company. Spend some time to think about the type of construction business you want to run. Do you want to be regarded as a general contractor? Do you want to specialize in a specific field? Will you have the capacity to do everything yourself? Or will you hire sub-contractors? What do you expect to achieve after the first year? Answering all of these questions allows you to set the goals for the company, and helps you work towards achieving them.

Step 2: Research Business Viability

Conduct a SWOT analysis to further reassess the idea of what kind of company you want to own. Take the time to evaluate your strengths, weaknesses, opportunities, and threats. Additionally, you might want to conduct full-scale market research to determine the competition in your area and possible target consumers you want to market your services to.

Step 3: Create a Solid Business Strategy

A solid business strategy with a detailed five-year plan and a financial forecast for the entire period will serve as a step-by-step guide that will determine the direction of your business. It should contain target goals you want to achieve at a monthly, quarterly and annual level and the milestones that will help you reach them. Additionally, you should determine costs (overhead, one-time, and variable), and profit goals/expectations, and include them into your financial forecast. This will help you secure funding for your business.

Step 4: Apply for Funding

Construction companies require a substantial capital investment to get things off the ground. The business plan and financial forecast along with the market research will help you lower risk when asking for a loan from banks, VCs, angel investors, and money lenders. Starting small and getting a few sub-contracting jobs can also raise capital for your future full-scale venture.

Construction Worker

Step 5: Get Supplies and Equipment

Sufficient supplies, gear, and equipment are essential to construction. At first, it might be a good idea to rent heavy-duty machines and instead invest in quality material and equipment until you gain a reputation and increase your bottom line. Start by investing in portable scaffolding made from aluminium, power tools, safety gear, and stock your supply store with timber, brick, tiles, shingles and other material.

Step 6: Get Permits, Protection and Insurance

To make your construction business successful, you need to protect it. Before you take on your first job, make sure to acquire the necessary licenses and permits to comply with government regulations. Obtaining these licenses will protect your employees, clients, and your whole company:

Business licenses and permits – A general business license will allow you to open up your company and start taking on clients. You should also look for specific licenses associated with construction, like safety permits, construction permits, and a tradesman license.

Surety bonds – In general your company needs to have construction bonds to do business legally. A surety bond is a type of guarantee from a third party to your client in case you don’t honor the agreed obligations stated in the contract.

Insurance – The type of construction work you do will determine the manner of insurance policies you need to take out. There are different kinds of business insurance policies, but the main include general liability, vehicle and property insurance, and workers’ compensation insurance.

Building codes – Building codes will set the standards for your construction operations, and regulate everything from design and materials to structure and on-site construction. Depending on your location you will need to comply with local codes, The International Building Code or other alternatives.

Civil Engineer

Step 7: Hire Labor

In general, there are four types of labor in the construction industry: full-time employees, labor brokers, subcontractors, and independent contractors. The best thing to do when starting off is to create a mix of all four labor types until you grow to scale and the bottom line allows you to take on full-time staff. So, you might initially only want to hire in-house office workers, and source on-site construction workers from labor brokers or among subcontractors and independents. That way the core of your business stays the same while you take the time to find the best talent.

Step 8: Market Your Company

Once you have everything you need it’s time to enter the market and find the first contract. Start with small, short-term projects like repairs or subcontract to an existing contractor. Repair and renovation projects generally work well because they don’t require intense planning, yet provide a steady cash stream. For these reasons, it might be best to market your company in these terms and move on to bigger building projects as you become more reputable.

Step 9: Take Action

It’s time to take the first step to start your own construction company. As you move through the steps make sure to put it all on paper and move down the list until you secure your first contract. It will be your actionable checklist that from A to Z, and into the construction industry.