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How to Start a Construction Company

Updated on January 19, 2022

How to Start a Construction Company

How to Start a Construction Company

Construction is one of the largest sectors of the US economy, worth a stunning $1.3 trillion and influencing several other industries, from trucking to appliances, and from utilities to real estate and more. If you’re good with your hands and enjoy working outdoors, you could start your own construction company and carve yourself a slice of that vast market.

What could be better than helping people build the home of their dreams? By starting your own construction company, you could do just that, and watch the money roll in.

Of course, starting a construction company won’t be easy. It will take hard work, time, and most importantly, knowledge. Fortunately for you, this step-by-step guide provides all the information and insight you need to start hammering away at your new entrepreneurial venture.

Fast Facts

Investment range

$17,000 - $64,600

Time to build

3 – 6 months

Industry trend

Growing

Revenue potential

$600,000 - $2,000,000 p.a.

Profit potential

$150,000 - $500,000 p.a.

Commitment

Full-time

Step 1: Decide if the Business Is Right for You

PROS and CONS; Wooden blocks with "PROS" text of concept.

Pros and Cons

A construction company has pros and cons that you should weigh before deciding if starting one is right for you.

Pros

  • Follow Your Style – Choose from any number of construction specialties
  • Positive Impact – Helping families by building homes and community
  • Start Small – Start with a few employees working on smaller projects

Cons

  • Costly – Tools, materials, and labor will be expensive
  • Legal Hassles – A lot of licenses, permits, and codes
  • Risk – Construction can be dangerous; wear your hard hat!

Industry trends

Market research firm Statista values the U.S. construction market at $1.36 trillion[1]https://www.statista.com/topics/974/construction/ and points out that new construction has more than doubled over the past decade.[2]https://www.statista.com/statistics/184363/value-of-new-private-construction-put-in-place-in-the-us-since-1999/

The outlook for the broader US construction industry is strong, thanks in part to the recently passed $1.2 trillion infrastructure bill. With massive projects to upgrade roads, railways, and airports, the construction industry is expected to grow nearly 4% annually through 2025, according to market research firm Research and Markets.[3] … Continue reading

How much does it cost to start a construction business?

Startup costs for a construction company range from $17,000 to $65,000 or more. The largest costs are for tools and heavy equipment like excavators. You can buy used equipment to keep costs at the low end, and in some cases, you can rent equipment.

Start-up CostsBallpark RangeAverage
Setting up a business name and corportation$150 - $200$175
Licenses and permits$400 - $600$500
Insurance$250 - $500$375
Business cards and brochures$200 - $300$250
Website setup$1,000 - $3,000$2,000
Deposit on office/equipment storage facility$5,000 - $10,000$7,500
Tools and heavy equipment$10,000 - $50,000$30,000
Total$17,000 - $64,600$40,800

How much can you earn from a construction business?

The average profit margin for a residential-focused construction company is 25%. New home prices run from about $100,000 to half a million or more, but let’s peg your average home sale price at $200,000.

In your first year or two, you could build 3 homes a year, bringing in $600,000 in annual revenue and $150,000 in profit, assuming that 25% margin. As your brand gains recognition and you add workers, you might build as many as 10 homes in a year. With annual revenue of $2,000,000, you would make about $500,000.
You can use Step By Step’s profit margin calculator to examine the potential income.

What barriers to entry are there?

There are a few barriers to entry for a construction company:

  • Startup costs, particularly for equipment, are high
  • Some construction knowledge and experience required
  • With no track record, attracting clients will be tough

Step 2: Hone Your Idea

Now that you know what’s involved in starting a construction company, it’s a good idea to hone your concept in preparation to enter a competitive market.

Why? Identify an opportunity

Research construction firms in your area to examine what they build, their price points, and which homes sell best. You’re looking for a market gap to fill. For instance, maybe the local market is missing a lower-priced housing builder to meet the demand of younger people looking for starter homes.

You might consider targeting a niche market by specializing in a certain aspect of your industry, like green construction. This could jumpstart your word-of-mouth marketing and attract clients right away.

What? Determine your products or services

Determine first if you want to do residential or commercial construction. In general, residential construction is going to be a much easier market to enter without a track record. If you choose residential homes, decide what types and sizes of homes you want to build.

You may end up designing your own home models. Look at what features are in demand, such as first-floor master bedrooms or en-suite bathrooms. You may decide to do custom homes to a customer’s specifications instead, or offer that as an option.

How much should you charge for new homes?

The average price of a new home is about $285,000. You’ll need to look at market prices in your area to determine a range for your prices. You’ll also need to determine all the costs involved in building a home, including labor and overhead, and price the homes for your target margin.

Once you know your costs, use the Step By Step profit margin calculator to determine your price points.

Who? Identify your target market

Your target market will depend on the prices of the homes you build. If you decide to build lower-priced starter homes, your market may be young professionals. You can probably find these people on Instagram as well as business-related sites such as LinkedIn.

Where? Choose your business premises

In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office. Find commercial space to rent in your area on Loopnet, Craigslist, Crexi, and Commercial Cafe.

When choosing a commercial space, you may want to follow these rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
Should You Start a Construction Company

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better
  • The name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords, such as “homes” or “construction”, boosts SEO
  • Choose a name that allows for expansion: “Jim’s Bakery” over “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step business name generator

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names at a web cataloging site such as NameChk. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. And if you’ve exhausted all your creative juices but still don’t have a business name, don’t stress! Instead, check out our business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Step 4: Create a Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

  • Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe your offerings in detail.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
  • Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
  • Appendix: Include any additional financial or business-related documents.

If you’ve never created a business plan yourself before, it can be an intimidating task. Consider hiring an experienced business plan writer on Fiverr to create a professional business plan for you.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to construction companies.

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your construction company will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the four main options:

  • Sole proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. 
  • Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the pre-tax profits and are liable for losses.
  • Corporation – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.

We recommend that most new business owners form an LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can quickly and cheaply form an LLC using ZenBusiness’s online LLC formation service (it can take as little as 5 minutes). They will check that your business name is available before filing, submit your Articles of Organization and be on hand to answer any questions you have about the company formation process.

Business structure comparison infographic

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online. It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

  • Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Venture capital: Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
  • Crowdfunding: Websites like Kickstarter and GoFundMe offer an increasingly popular low-risk option, in which donors fund an entrepreneur’s vision.
  • Personal: Self-fund your business via your savings, the sale of property or other assets, and support from family and friends.

Step 8: Apply for Licenses/Permits

Starting a construction company requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as, health license and permit from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.

Most states will require that you have a general contractor’s license. You may also need specialty licenses to do certain jobs like plumbing or electrical, as well as state-level licenses and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. You could also check this SBA guide for your state’s requirements.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

For peace of mind and to save time, we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state, and provide them to you to make sure you’re fully compliant.

Step 9: Open a Business Bank Account

Before you start making money you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your construction business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.

Step 11: Prepare to Launch

Checklist with completed tasks. Checkboxes in the items

As opening day nears, prepare for launch by reviewing and improving some key elements of your business.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.

You can create your own website using services like WordPress, Webflow, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.

You can use industry-specific software, such as HCSS, PROCORE, or FieldWire, to help manage your projects, costs, billing, and scheduling.

Marketing

Some of your business will come from the casual online visitors, but still you should invest in marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.

Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area.
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales.

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
  • If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Equipment

You’ll need a handful of items to successfully launch your construction business. Here’s a list to get you started:

  • Basic hand and power tools
  • Excavators
  • Bulldozer
  • Backhoe loaders

Step 12: Build Your Team

If you’re starting out small, you may just need a few laborers initially. But as your business grows, you will likely need workers to fill various roles. Potential positions for a construction business would include:

  • Construction Workers and Foreman
  • Sales Manager
  • General Manager
  • Marketing Lead

The plumbing and electrical work is generally done by subcontractors.

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.

Step 13: Start Making Money!

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your construction meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your construction business could be:

  • Quality starter homes that are easy on your wallet
  • Custom homes to fit your family
  • The greenest, most eco-friendly homes in town
USP venn diagram

Kickstart Marketing

Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:

  • Competitions and giveaways – Generate interest by offering prizes for customers who complete a certain action, such as free appliances when you sign today.
  • Optimize calls to action – Experiment with text, color, size, and position of calls to action such as “Schedule Now”. This can sharply increase purchases.
  • Signage – Put up eye-catching signage at your store and website
  • Flyering – Distribute flyers in your neighborhood and at industry events
  • In-Person Sales – Offer your products/services at local markets, trade shows

Build Affiliate Relationships

Affiliate marketing is advertising in which you compensate third parties (i.e. your affiliates) in order to generate traffic to your website. You can develop long-term relationships with these affiliates and generate traffic for each other on an ongoing basis.

Wrap-up

Worth more than a trillion dollars, construction is full of opportunities! You can start with a small residential business and build your construction empire over time. You’ll have a huge impact on people’s lives and your community, and make an excellent living at the same time.

You’ve established a great entrepreneurial foundation of knowledge, and you’re now ready to build your own successful construction company!

Construction Business FAQs

How much does it cost to start a construction company?

The major costs to start a construction company are tools and equipment. You need excavators, bulldozers, backhoes, and other equipment. If you buy just basic, used equipment you can probably start for under $20,000.

Is a construction company profitable?

A construction company can be very profitable. The average profit margin for a new home builder is about 25%, so if you build one $200,000 house, your profit should be around $50,000.

What licenses do I need to start a construction company?

Most states require that you have a general contractor’s license and specialty contractor’s licenses for things like plumbing and electric. You may also need licenses and permits at the state and local levels.

How do I decide what kinds of homes my construction company should build?

The best thing to do is research your local construction market and look for something that’s missing. For example, maybe your area lacks affordable housing or quality green construction.