So you’ve decided to start a construction business, but you’re unsure of where to start?
A good foundation is as important for the construction of a building as it is for the construction of a business…
This article is going to lay the foundation for everything you need to know before starting a construction business in 2021.
I'm Ippei, and I've been killing it at online business, passive income, and local lead generation since 2014...
And I’ve surveyed the land and done all the digging so you don’t have to:
Plus I’ve taken the time to break down all the startup costs involved, as a healthy average profit margin for the industry and what you can expect to make in revenue.
Here is your 7 step quick-start guide on how to start a construction company!
Let’s dive right in.
How to Start a Construction Business in 2021
Start Construction Business Super Short Summary
Starting a construction business in 2021 can be extremely profitable! But before you get started, you'll need to lay the foundation with a solid business plan, master the art of bidding jobs, get great insurance coverage, and pass the test to obtain your General Contractor's license.
Start Up Costs
While this list is not a comprehensive compilation of every you need to start [xyz] business, it provides a snapshot of what you need to add into your business plan.
Total Startup Cost: $118,170
Annual Revenue of Established Construction Company:
According to https://www.agc.org/, the average annual revenue of this kind of business is:
Average Construction Industry Profit Margin: 18.00%
7 Step Quick Start Checklist:
1. Choose a Name and Write a Business Plan
Starting a construction company is easily one of the most profitable business models out there…
As well as being in high demand, even during a recession!
Whether you just want a small handy-man business of your own, or you want to scale a multi-million dollar construction company…
The sky’s the limit!
But regardless of your goals, the one thing you will need is a catchy business name.
This isn’t the time to just spray paint “Joe’s Handy-Man Business” up on the side of your van and call it a day!
You want to choose a business name that is easy to remember and easy to spell…
Plus something that sticks in people’s mind and clearly communicates who you are and what you specialize in.
When creating your business name, aim to meet the following basic criteria:
And once you’ve come up with the perfect name…
Don’t forget to check whether or not it’s available!
You might think that you’ve come up with the coolest, most unique business name in the world…
But unfortunately, there is nothing new under the sun.
And the chances are high that someone has already thought of the same name or even a similar name.
To avoid confusion, and to create a clear brand, double check to make sure that there isn’t another business operating with your ideal business name!
Once you’ve gotten the name nailed down…
It’s time to get your business organized!
Which means that it’s time to sit down and write your business plan.
Regardless of the size of your future construction company, a business plan is an important step.
If you’re aiming for that small handy-man business, your business plan might be shorter, with more direct, actionable steps that will keep you focused on your goals…
But if you’re planning to scale a massive company, then you’re probably going to be in need of some funding.
So your business plan is going to be crucial in obtaining funding and small business loans in the future!
In that case, be sure to include detailed information on your long term, projected financial timelines, as well a thorough market analysis of your industry niche.
At a bar minimum, include the following basic business plan elements:
Basic Things to Include in a Business Plan:
2. Hire a Bookkeeper
Alright, I know, you probably think I’m crazy for telling you to hire a bookkeeper before you’ve even bid your first job!
But hear me out…
Chances are, you’ve never balanced a bank account before in your life, and the idea of spending hours laboring over invoices, spreadsheets, and receipts sounds like a nightmare.
Even if you’re decent at math, business bookkeeping and accounting is a skillset all its own…
And I’d bet money that after trying it on your own for even six months, you’ll wish you’d just listened to me in the first place.
At the very least, invest in some solid accounting software.
If you’re going to take on your bookkeeping by yourself in the beginning, it’s best to do that with specialized software…
And not just a pen and paper.
Some great options for accounting software are:
The construction industry is complex:
You’re going to have dozens of receipts from purchasing supplies, project estimates, invoices, and checks building up on your desk before you know it...
So trust me when I say that the position in your business that you should consider outsourcing first, is undoubtedly your bookkeeping.
A good bookkeeper can be the difference between turning a profit in your first year, or going belly up!
Plus, they will know all the tricks of the trade to help you save big time when tax season rolls around.
And if this is your first time running your own business, then filing your taxes as a small business for the first time can be extremely intimidating.
While you might be tempted to wait until tax time to hire an accountant to retroactively handle your bookkeeping for the past year…
This is a very bad idea.
For one thing, they’ll charge you out the wazoo…
But ultimately an accountant’s job isn’t to sort through your year of unkempt business transactions, invoices, and bank statements.
And it doesn’t help to discover a problem in your job costing estimates a year later.
Your bookkeeper will help you to spot red flags in your business before they create a real problem!
3. File Your Papers with Uncle Sam and
Get a Business Account
When setting up a construction company, it’s best to get an attorney involved in the formation of your business.
They will be able to assist you with the process of forming your LLC, and advise you on creating your initial business contracts.
Establishing yourself as a Limited Liability Corporation, or other such business structure is mandatory.
The construction industry faces high risks and legal liabilities, so protecting yourself legally from day one is extremely important.
Once you’ve established your LLC, you’ll need to apply for your EIN number.
This can be done online with the IRS for free!
The next step to setting up your construction company for success is to open a business bank account.
In the beginning, it’s very tempting to take on a couple jobs here and there out of your personal bank account…
But this gets messy fast!
Plus it’s extremely difficult to keep up with from a bookkeeping perspective.
Skip the headache of wondering where your personal cash went to, and open a business bank account straight away.
A good rule of thumb is to never mix personal finances with business finances…
And trust me: the IRS agrees!
Before you choose a bank account, however…
Take your time to research which business bank accounts are right for you!
Not every bank operates the same way.
In the construction industry, having access to funds quickly and easily is imperative.
If your incoming deposits are put on long holds, you might find yourself in a bind when you need to pay subcontractors!
This is a business migraine that isn’t worth it.
Do your homework in advance and choose the right bank!
Once you’ve opened your own business bank account you’ll be able to order your checks, and start booking jobs!
4. Get Your Construction Licenses/Certifications & Insurance
One of the hardest and most complex aspects to starting a construction company is obtaining the correct construction licenses, certifications, and insurance.
But it’s also the most important part of your job!
The construction industry can be extremely dangerous if not done safely and properly, so these legal requirements are for your protection and the protection of others.
Depending on the type of construction business you are trying to start, you may need different licensing in regards to your specific trade.
If you are wanting to start an all encompassing construction company, you will probably need a General Contractor’s License.
Without a contractor's license you won’t be able to pull permits, your coverage will be limited, and you will only be able to take on projects worth up to $35,000 in size.
But keep in mind, this number isn’t the retail price (what you charge the customer).
It’s the cost to you as the contractor: aka your cost of supplies and labor but excluding your profit.
Example: $60,000 for a kitchen remodel, but cost to you for labor and materials is only $32,000. So this fits within the legal limitations.
A GC License has several different levels: the standard contractor’s license is usually enough for residential projects, but if you want to take on more expensive commercial jobs…
Then you will need the higher commercial level GC license.
This commercial license will be much harder to obtain.
You will have to pass a test to obtain these licenses, and most people spend at least a year studying for the exam.
The requirements and specifics of the test vary by state, but generally the test will be divided into two parts:
If you are looking to only specialize in a specific industry (such as plumbing or electrical) you can get away with obtaining a license specifically for that specialty vs obtaining the full GC license.
Purchasing the right insurance for your construction company is a big deal.
Most construction companies have many employees or subcontractors working for them, as well as a variety of clients.
Legal complications are more a matter of “when” than “if” in the construction world.
So when you are shopping around for business insurance for your construction company, look for a broker that is experienced with the construction industry.
They will know what options and coverage will best suit your needs, and will be better equipped to answer your questions and concerns.
There are four primary lines of insurance for a construction business:
Insurance for Construction Company:
If you’ve never heard of that last one…
You’re not alone.
Inland marine insurance is a type of business insurance that helps cover products, materials and equipment while they are transported on land, such as by truck or train.
In addition to these specific insurance policies, you may also want to explore umbrella coverage policies for your business as well.
This is also something that your experienced broker will be able to assist you with.
5. Sales and Marketing
Without a strong sales and marketing department…
You don’t really have much of a construction company!
Unfortunately, when you are first starting out, the sales and marketing department is probably you!
While it would be amazing to hire an incredible salesman or two for your construction company right away…
This might not be realistic for you.
The good news is that there are several steps you can take to get started with your sales and marketing on your own…
Even if you aren’t sales savvy!
The first step is obviously to create a website.
We’re living in 2021 people…
If you don’t have a mobile friendly, up-to-date website: what are you even doing with your life??
But I have more good news for you:
You don’t even need to hire a graphic designer if your startup budget doesn’t allow for it!
In fact, even the most technologically challenged person can learn to build a simple, modern, user friendly website thanks to the template based website builders that are available now.
Some of my favorites are:
The biggest thing is to make sure that your website clearly displays who you are and what services you offer.
As well as a clear direct way to get in contact with your company for an initial quote/bid.
After you’ve built out your website, take the time to establish yourself on social media.
There’s no reason to have an account on every social platform out there right, especially since the list just keeps growing…
(Does anybody really know what the heck Clubhouse even is?)
But here are three great options for construction companies:
And finally, you need to get a Google My Business page set up ASAP.
This will help people to find your business faster in localized search results, and within Google maps!
Plus it’s free to set up.
Once you set up your account, you’ll receive a confirmation code in the mail to confirm your place of business and address…
And you'll be ready to rock and roll!
If you want to take your marketing strategies a step further, take a look at our coaching course for local lead generation, here.
Then you can move on to printing your business cards, letterhead, and envelopes!
One thing that I need to make very clear is that you need to have your license number clearly displayed on all of these marketing materials.
Not only is this a legal requirement in many states, but it also adds a much needed level of credibility to your new business.
Alright, I know what you might be thinking here…
All this online stuff is great, but what about some good old fashioned in-person networking?
Is that still relevant?
Yes, it absolutely is!
Outside of passing along business cards to people you might meet through work, friends, family, or even church…
Here are my top two tips for leveraging in person networking:
Joining the local chamber should be an absolute no brainer!
There’s no better way to get out into your community than by connecting with other small business owners that are passionate about seeing their community grow and thrive.
But getting your work truck wrapped probably sounds less like a networking opportunity.
Having your work vehicles clearly labeled to communicate who you are and what your business does is like having a mobile billboard!
You might be surprised at how many leads you get just because someone saw your work truck parked in their neighbor’s driveway…
Or someone read that you repaired windows while they were stopped behind you in traffic!
Trust me, it’s worth the extra money!
6. Mastering the Art of Project Bids and Estimates
Creating accurate, dialed in bids for your potential jobs is one of the most difficult and most important aspects of running a profitable construction company.
You need to develop a systematic method for bidding jobs, creating job estimates, and sending project proposals to potential clients.
Streamlining this system and consistently updating it will ensure accuracy, and a failure to do so will result in two key problems:
One inevitable factor about the construction industry is that the numbers will constantly change:
Common Variables in the Construction Industry:
All these prices change and are dependent on the current market, as well as being extremely localized even within one specific state!
The best thing you can do for yourself when learning how to accurately bid a job is to ask your client lots of questions, and ALWAYS measure twice!
Once you have all the info you think you need from them about the job, create detailed and itemized list and price out every item on that list.
Then tack on at least a 5% waste percentage on top of that number.
Another way to safeguard your profit margins for construction jobs is to add in contingency policies into your bids and contracts for unexpected issues that may arise during the job.
When you are first starting, another method is to bid labor only jobs.
Which means that the client pays for all the supplies as you go along throughout the project, and the only thing you bid for is the labor costs.
There are two pros to this method:
When you’ve completed a labor only job, follow up with the client to find out what they spent and use this to create data for future bids when you are ready to branch out from labor only job quotes.
After your first year in business you will be able to use all of your accumulated knowledge, experience, and data to fine tune your bidding process even further.
Just be aware of the shifts and changes in the market and industry so that you can make adjustments to your job costing spreadsheets.
Something as small as failing to bid the cost of nails could result in losing hundreds of dollars if not more!
Plus, consistent and accurate pricing will be important for customer satisfaction…
And the faster you can get estimates and proposals done, the better your chance at closing a sale.
Always exceed customer expectations: make your motto, “Under promise and over deliver” every single time.
7. Get Your Start Up Money (Funding)
It’s no secret that construction companies make a lot of money…
But to make a lot of money you inevitably have to spend a lot of money.
So what do you do if you don’t have that chunk of change to begin with?
You have to spend money that you don’t have to make money!
Which equals outside investors, partnerships, or business loans.
Because the construction industry has been around for so long, and will probably continue to stick around for as long as people walk this planet…
There are a multitude of viable options to obtain startup funding for a construction company!
You can easily find investors, and the variety of different small business loans that are available for construction companies even extent beyond the SBA itself.
Here is a breakdown of several common loans for small businesses:
7(a) Loans - This is the best option when a real estate purchase is also involved.
This type of loan can be used for:
To be eligible for the 7(a) loan assistance, businesses must:
504 Loans - This is for major fixed assets that promote business growth & job creation.
This type of loan can be used for the purchase of or construction of:
Or the improvement or modernization of:
A 504 loan CANNOT be used for:
To be eligible for the 504 loan, businesses must:
This type of loan can be used for a variety of purposes that help small businesses expand, as long as that is under the $50,000 limit.
Some examples include:
A microloan CANNOT be used for:
To be eligible for a microloan, businesses must contact the intermediary lender as they each have their own specific requirements.
Just do your research and come prepared with a thorough business plan.
The biggest thing is being able to prove the profitability of your business idea, and display the confidence and experience necessary to qualify for outside funding.
The nature of the construction industry is that it relies heavily on debt.
While you need to be prepared to repay your debts in a timely manner…
Getting into debt as the owner of a construction company is basically a right of passage.
So be prepared for this ahead of time!
Pros and Cons
of starting a construction company
For many aspiring entrepreneurs, one of the greatest draws to launching a business is the freedom to set your own schedule. There’s no boss to dictate your day, or look over your shoulder… You are in control of your time. This can be both freeing, and stressful. But for most small business owners, it is one of the most gratifying aspects of being self employed.
An ever growing population equals an ever growing construction industry. And if there’s one thing you can count on… It’s an increase in population. While the construction industry is affected by many things: lumber costs, a recession, etc… It will always be around, and in the long run, it will continue to grow, regardless of the economic climate. This is a reassuring benefit when starting a construction company of your own.
Another great aspect to the construction industry is that there is a vast amount of niche opportunities. The more you specialize your services, the more directly you will be able to market your business to the right clients. Construction is a broad term, but you can easily set yourself apart from the competition by niching down early on in the process.
If you want to start a construction company, but are overwhelmed at the thought of taking on large projects… Take a deep breath. You can start out small! You don’t have to be building entire neighborhoods or skyscrapers from year one. In fact, you never have to do these types of jobs if you don’t want to. A construction company can be scaled to whatever size suits your goals.
If there is one thing that cannot be avoided when launching a construction business, it’s the startup costs. You will need extensive finances to get your construction company off the ground and read to rock and roll. This will include everything from your equipment, to your work vehicles, to your labor crew. It is no small undertaking, even on a small scale.
Without a General Contractor’s license, you will be extremely limited in the scale and type of projects you can legally take on. And the process of obtaining a GC license isn’t exactly a walk in the park. The test takes years of experience and months of study to pass. You do what you can without a license, but be careful to remain in compliance with the laws of your state, and realize that the cap on your project size will be around $35,000 in most places.
Because construction companies are so lucrative in nature, it can be an attractive business model. But it’s also extremely high risk. If you don’t know what you’re doing, and something on a job goes wrong, you will be dealing with nightmarish lawsuits. And if you incorrectly bid a job, and lose money, your company will be in debt.
Speaking of job costing… When you place a bid on a potential job, you better know what you’re doing. A larger company might be able to afford bidding low to beat out competing construction companies that are vying for the same job… But this is a risky game for a new company to play. You need to be an expert at correctly costing your jobs, so that you know what you need to turn a profit before you place a bid on a project. Getting this wrong could be fatal to the health and sustainability of your business.
The Heartbeat of Your Construction Business is...
New business coming in.
Without a consistent flow of new leads coming in…
Your construction company is basically toast.
Most people hire multiple trained and talented salesmen to cope with this reality.
And while this is a great step towards creating a sustainable and profitable construction company…
There’s actually a better way.
When I first decided to go into business for myself I was barely making $2,200 a month at my job.
But when I decided to learn the art of local lead generation…
My income skyrocketed to over 50K a month in a matter of five years!
The entire foundation of the lead generation business model is helping small businesses by supplying them with new leads, practically on demand!
Through leveraging the localization power of Google, as well as strategic SEO tactics…
Local lead gen can help your construction business stay busy for the long term.
And the best part is:
Once you’ve put in the work to set up your online lead generation properties…
Your work is done, and they will continue to passively produce new business for you!
So if you're ready to get started on your lead gen journey today...
Take a look at how we can help you get started, here.