How to Start a Construction Company

Co-authored by Perryn Olson

Last Updated: September 17, 2022 References Approved

Owning your own construction business can be very rewarding, but it also takes a lot of work. Not only do you need to think about how you are going to pay the start-up costs, but you need to come up with procedures for marketing yourself and completing your projects. If you commit yourself and take the time to plan ahead, you can have a successful construction business!

Part 1

Part 1 of 3:

Putting Your Plan Together

1
Do market research. Before you even think about starting a business, you need to understand your market. Start investigating the potential profitability of a construction business in your area by consulting industry publications for information about market trends specific to the construction industry in your area. The U.S. Small Business Administration is also a great resource for finding relevant industry information. In addition, you should find out what other companies offer similar construction services in your area, how much they charge, and what kind of reputation they have.^{[1]
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U.S. Small Business Administration
U.S. government agency focused on supporting small businesses
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- You can also learn more about your community's needs for construction services by getting out there and talking to local residents and business owners.
- Be sure to consider the demographics of your area. You need to provide services that the people in your community will want and will be able to afford.
2
Write a business plan. Putting together a business plan that establishes your business goals and procedures is an essential step to starting any business.^{[2]
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Expert Source

Perryn Olson
Construction Specialist
Expert Interview. 3 August 2021.} This formal document will help you understand everything that is involved with starting and running your business. You will also need to present your business plan to any potential lenders, so be sure to put plenty of time into developing it thoroughly.^{[3]
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Trustworthy Source
U.S. Small Business Administration
U.S. government agency focused on supporting small businesses
Go to source}
- Your business plan should contain separate sections that explain in detail how you will structure and manage your business, what kind of services you will provide, who your target market will be, how many employees you will hire, how you will market yourself, how much competition you will face, how you will differentiate your business from competitors, how much it will cost to start and maintain your business, and how much money you expect to make.
- If you have never written a business plan before, you might want to look into hiring a professional to help you write it.
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3
Get support. Starting a business is a complicated process, so you might benefit from the advice of an experienced mentor. Check out the SCORE Mentors Program to get matched with a mentor from your industry for free. You can also get guidance from your local Small Business Development Center. Female entrepreneurs can also look into Women's Business Centers, and veterans can get extra help from the Veteran's Business Outreach Center.
4
Decide where you will run your business. You will need a property that provides an office for your administrators, large storage space for tools and equipment, and parking for your construction vehicles. Some construction company owners work from home. You could begin your business at home, but as it grows, you may want to consider finding an office location.
- Keep in mind that if you operate your business out of your home, you will need a special license for home-based businesses.
- Even if you run your business from home, you will need to budget for a few office-related expenses, including a dedicated business phone line, an organized work area (if you don't already have one), and maybe a PO box if you don't want to get business mail at home.^{[4]
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5
Get the funds you need. The startup costs associated with a construction company can vary dramatically based on where you operate and what services you provide. Keep in mind that you will need funds to lease or buy vehicles, equipment, and tools. Additionally, you will have to pay bills, advertise, and pay salaries. Assuming you don't have the funds readily available, you need to budget all of your expected costs and apply for financing.^{[5]
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Expert Source

Perryn Olson
Construction Specialist
Expert Interview. 3 August 2021.}
- The U.S. Small Business Administration may be able to help you with financing, even if you are not approved for traditional loans.
- Be sure to check out grants.gov to see if your business qualifies for any government grants.^{[6]
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Part 2

Part 2 of 3:

Adhering to the Law

1
Register your business at the state level. The first step to creating a legitimate business is to register it with the state in which you plan on operating. The process for registering a business in the United States is slightly different in each state, so consult your state's Secretary of State's website for complete instructions.^{[7]
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U.S. Small Business Administration
U.S. government agency focused on supporting small businesses
Go to source}
- Be sure to come up with a name for your business before you start the paperwork. You can check with your state's filing agency to make sure no other business is using that name. You should also check with the U.S. Patents and Trademarks Office to ensure that the name has not been trademarked by another business.^{[8]
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  U.S. Small Business Administration
  U.S. government agency focused on supporting small businesses
  Go to source}
- There are many business structure options to choose from, and each comes with its own pros and cons, as well as its own legal requirements and fees. Sole proprietorships and partnerships offer tax benefits, but not protection from personal liability. Corporations protect the company's owners from personal liability, but they are taxed at a higher rate. Limited Liability Corporations (LLCs) offer a combination of tax benefits and liability protection for small businesses.^{[9]
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  U.S. Small Business Administration
  U.S. government agency focused on supporting small businesses
  Go to source}
2
Register with the IRS. In order to comply with federal tax laws you need to apply for an Employer Identification Number (EIN) from the IRS. Applying for an EIN is very easy! You can do it on the IRS's website, by fax, by mail, or over the phone. All you need to do is answer a few simple questions about your business.^{[10]
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Internal Revenue Service
U.S. government agency in charge of managing the Federal Tax Code
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3
Get licensed by your state. In order to legally operate your business, you will need to apply for a general business license in the state in which you operate. In addition, you will most likely need to apply for specialty licenses based on the specific types of services you offer. For example, a tradesman license is required in many states to provide certain types of construction services, like electrical, plumbing, and HVAC services.
- Licensing laws vary from state to state, so check with your state's business license office to find out what you need for your business.
- You may also need contractor's license to operate a construction company.^{[11]
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  Perryn Olson
  Construction Specialist
  Expert Interview. 3 August 2021.}
4
Get insured. In order to protect yourself and your business, you will need a variety of comprehensive insurance policies, including general liability insurance, commercial vehicle insurance, and property insurance.^{[12]
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Expert Source

Perryn Olson
Construction Specialist
Expert Interview. 3 August 2021.} Your insurance needs will depend on the specific nature of your business, so meet with an insurance agent to discuss what kind of coverage you require.
- There are additional insurance requirements if you have employees. Depending on what state you operate in, you may be required to carry workers' compensation insurance, unemployment insurance, and/or disability insurance.
5
Secure the necessary surety bonds. Surety bonds protect your clients by paying them in the event that you do not complete your work as agreed upon. Surety bonds are legally required for construction companies, but the specific requirements are different in each state. Look up your state's requirements online or meet with a reputable surety bond agent to find out what kind of coverage you need.
- In order to be approved for a surety bond, you need to be able to prove to the provider that you are experienced, capable, and financially secure.
- If you can't get approved by a third party surety bond provider, the Small Business Administration may be able to provide you with a bond.
- Surety bonds typically cost between 0.5% and 2% of the total project cost.
6
Follow all industry regulations. Once you begin working on projects, you need to make sure you are in compliance with the myriad of laws that regulate the construction industry. It is a good idea to become familiar with energy efficiency standards, proper procedures for dealing with and disposing of hazardous materials like asbestos and lead, Occupational Safety and Health Administration (OSHA) regulations, Housing and Urban Development (HUD) standards, and the Environmental Protection Agency's stormwater pollution standards.
- Don't forget about building permits! You will need to know the proper procedure for applying for permits in your area and your work will need to be up to local building code standards in order to pass the inspections.
7
Meet your tax obligations. As a business owner, you will be responsible for paying business taxes, so it's very important for you to keep careful track of all of your expenses and costs.
- You might want to hire an accountant or bookkeeper to manage this aspect of your business if you don't have the time to do it yourself.

Part 3

Part 3 of 3:

Running and Growing Your Construction Business

1
Buy equipment. It's very important to have the right kind of equipment to complete the projects you are hired for. The required equipment will vary greatly depending on the types of projects you plan on accepting. Buying used equipment is a great way to save money, especially when you're just starting out.^{[13]
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- Renting might be economical as well for equipment that you seldom use.
2
Hire employees. Unless you plan on starting very small and doing all of the work yourself, you will need to have a team of skilled and reliable workers. You can find employees by posting job listings on popular job boards like Craigslist or Monster. Make sure you only hire qualified people for skilled jobs.^{[14]
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- If you have lots of steady work, hiring your own team of full-time and part-time employees might save you money. Hiring employees also means you will have some additional responsibilities, like paying payroll taxes and providing benefits.
- Another option is to hire independent contractors or subcontractors. This offers you more flexibility because you don't have to keep paying a staff during a quiet period. Additionally, if you didn't like working with a specific contractor, you don't have to hire that person again.
3
Network. It's very important to get out there and engage with the local community if you want to be successful. Try joining community organizations to make connections with people who will be able to help you grow your business. The more connected your are to the local community, the easier it will be to spread the word about your business.^{[15]
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- It's just as important to build relationships with suppliers, subcontractors, building inspectors, and developers. These people will be instrumental in helping you complete your projects, and they may be able to refer new business to you as well.^{[16]
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4
Establish a marketing campaign. Marketing your construction business business should be one of your priorities when starting out, so be sure to dedicate the necessary time and money to doing it right.^{[17]
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- It is absolutely essential to have a user-friendly website that shows up in search engines. A strong social media presence is a good idea as well. This will allow potential customers to see pictures of your work and read reviews from other customers.^{[18]
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- Invest in good quality printed marketing materials like flyers, postcards, and business cards. Make sure you have a professional logo that is consistent across all of your marketing materials.
- Don't underestimate the power of word of mouth and simple advertising, like putting up signs in front of houses you are working on and on all of your construction vehicles.
- If you have a larger budget, you might want to consider television, radio, newspaper, or billboard advertising.
- Go to trade shows whenever possible. This is a great way to meet potential customers and let them know what you have to offer.
- Your marketing can be much more targeted if you know what kind of customer you are looking for. Think about factors like the scope of the work desired, budget, and lifestyle, and target your marketing campaign to people who meet these specifications. You will probably be able to become more specific in your marketing once you have established yourself a bit.^{[19]
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5
Learn the art of bidding. In order to secure jobs, you will need to be able to provide accurate price quotes and deadlines to potential customers. A good construction management software can help you manage this process.^{[20]
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- Keep in mind that most customers prefer fixed-price quotes.
- Don't make promises you can't keep! It's much better to finish a project earlier than expected than to finish it late.
- Your prices need to take into account the cost of materials and labor, as well as your profit. At the same time you need to remain competitive.
- Consider hiring an administrator who is experienced in bidding projects. Your administrator can quote jobs in a timely fashion, while you focus on completing projects. You could also have the same person submit invoices and collect your payments on time so you have the funds to pay for materials without accruing excessive interest.
6
Write comprehensive contracts. Before you start any job, you should always have a client sign a contract. Be sure to include specifics regarding the scope of the work to be done, the costs and payment terms, and the scheduled completion date. You may also want to include terms regarding additional work the client requests or unforeseen expenses.^{[21]
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- It's a good idea to talk to a lawyer about the kind of language you should include in your contracts in order to best protect your business.

Expert Q&A

Question

What documents should you have?

Perryn Olson
Construction Specialist
Perryn Olson is a Construction Specialist and the VP of Marketing for REX Construction Services, REX Engineering Group, and REX Technology Solutions. He holds a BA in Visual Arts from Loyola University New Orleans and is a Certified Marketer with the Society of Marketing Professional Services and the Construction Marketing Association.

Perryn Olson

Construction Specialist

Expert Answer

In most places, all you really need is a contractor's license and insurance.
Question

How do I start a construction company with no experience?

Perryn Olson
Construction Specialist
Perryn Olson is a Construction Specialist and the VP of Marketing for REX Construction Services, REX Engineering Group, and REX Technology Solutions. He holds a BA in Visual Arts from Loyola University New Orleans and is a Certified Marketer with the Society of Marketing Professional Services and the Construction Marketing Association.

Perryn Olson

Construction Specialist

Expert Answer

Plan ahead before you get started! Put together a business plan where you flesh out your vision and develop an operating budget to figure out your expected expenses for the first year.
Question

All the members of my family work on contraction jobs and they have more than 5 to10 years experience. I want to open a business but I don't have experience, is that okay?

Community Answer

Yes if you have the brains and patience in reviewing each contract, then you're golden. You obviously already have the muscle but also don't forget to familiarize with the tools and people of you desired hire you might learn a few things from them.