How To Start Your Own Construction Company

When starting out, your success rate may start pretty low, even lower than the chart above. But as you gain more experience bidding for projects, you can analyze your bids and see what works and what doesn’t in order to obtain a higher success rate. So keep close watch of your bids and analyze them!

For more information on winning more bids, read the following:

Sage: Improve Your Bid-Hit Ratio

Plangrid: Bid Less, Win More: How to Master the Construction Bidding Process

Margins and Rates

Part of your business plan also involves figuring out your margins and your T&M (time and materials) rate. Construction is a young man’s game. So while you may heavily discount yourself at first to get into business, you will need to mark your prices up enough so that you can take yourself out of doing the physical labor eventually. 

According to Next Insurance, the gross margins can be as high as 42 percent for remodelling, 34 percent for specialty work ,and 25 percent for new home construction. Your T&M rate will vary according to the market you are in. In hot markets in the West Coast of the United States (like Seattle), it is not unusual to charge $80 to $120 for T&M.

Putting In The Work And Building Connections

Construction is one of those niches where you need to have a lot of extensive experience in the field before going out on your own. It is not one of those businesses where you can just take a course and then start (like internet marketing). This reason is two-fold. 

First, construction is a very general term. It encompasses a lot of the building process. Thus, you will have to get a bit of experience doing a little bit of everything so the ropes. 

Second, working construction for someone allows you to network. The people you network with are co-workers, homeowners, and general contractors. They can all feed into your business once you start it. Build good relationships with them and they can provide you with business, referrals, expertise, and labor. 

Aside from the main people you employ, you should also build connections with people that are outside your realm of expertise and scope-of-work, such as structural engineers, electricians, architects, and roofers, etc. Additionally, you need to establish relationships with multiple suppliers so you can get your materials cheaply and quickly.

Start-Up Cost

There are five major expenses in starting your own construction company. These fees are related to registration, licensing, obtaining insurance, hiring employees, and purchasing equipment. Equipment by far is the largest startup cost. If you already own a lot of equipment from your prior work in construction then you’re good to go. Then there are other small miscellaneous costs such as billing software and such.

As far as labor goes, most construction companies starting out use contract labor so you don’t have payroll worries until you start a contract.

If you already have a truck, rely on contract labor, and have most of the equipment, you can probably start your own construction company for as little as $5,000.  

Business Formation

The following five steps explain how to start your own construction company. These steps will assist you in getting your company on its feet and earning money.

#1 Business Structure

Determining the structure of your business is an important step. There are three main structures. The first is a Limited Liability Company or LLC. You also have the option of starting a sole proprietorship or corporation. The difference between these business structures is your level of responsibility and accountability.

In a limited liability company, your personal assets are protected. This structure allows you to classify your company as a separate entity. This allows your corporation to hire employees, open a bank account, and obtain licenses and permits.

An LLC is similar to a corporation in a few ways. Both protect your personal assets and allow the business to operate separately. The main difference is the company’s organization and structure. A corporation must have some kind of board that assists in running the company.

A sole proprietorship essentially makes your company an extension of you. If something were to go wrong, your personal property could be put at risk. Basically, you will be personally responsible for the debts of the company.

When making this critical decision, it is best to get help from a professional. Companies such as Legal Zoom will assist you in building the structure of your company.

#2 Employer Identification Number

An employer identification number is essential for tax reasons. This identification number is extremely important for licensing. The use of an employer identification number is required for most corporations and LLC’s. Even sole proprietorships benefit from having an EIN.

To apply for an employer identification number, you must first check your eligibility. After determining that you are eligible, you will need to find the time to fill out the application. The entire application must be completed at once. You can not save it and come back to it later.

Once the application is complete, you simply submit it. There are certain companies that will complete the employer identification number application for you. One of these companies is Legal Zoom.

#3 Business Licenses and Permits

Beyond your business license, construction contractors will also need to be registered with the state as a contractor. In most states, contractors are required to take examinations in order to obtain a license. Washington state is the only state that doesn’t require construction contractors to take an examination in order to get a license. States will dictate what kind of license you need based on the scope of work you are performing. 

#4 Insurance and Surety Bond

The best thing you can do to protect yourself against unexpected expenses is to ensure that you are insured. There are a variety of insurance options available to help you in managing large, unexpected expenses.

Businesses, in general, require additional insurance. A construction company is no different. When your company is adequately insured, clients are more likely to utilize your services. This is because the insurance minimizes risk.

General Liability Insurance is essential. Construction is an incredibly risky business, and this insurance minimizes the risk dramatically. It covers the risk of visitor’s injuries and the clients’ property.

Professional Liability Insurance protects your company from lawsuits. Sometimes errors happen; these errors could cause a defect. These defects could encourage a client to file a lawsuit.

Most construction companies could benefit from Builder’s Risk Insurance. This insurance protects the property in case of fire, vandalism, or natural disaster.

An obvious insurance aspect that many companies overlook is auto insurance. It is important to ensure the company vehicles in case of an accident. It may also be a good idea to ensure your company’s expensive equipment.

In addition, construction companies are required to have surety bonds in nearly all localities. The bond is a financial security that guarantees contracts signed for projects and can be used in the event of non-completion or shoddy work by the contractor. 

#5 Business Bank Account

One of the first things you should do is open a business bank account. Doing this can help protect your personal assets. Using a business bank account, regardless of your business’s structure, can prevent confusion.

Utilizing a business bank account can assist you in separating your personal and business finances.

Accounting and Payroll

Understanding basic accounting principles and being able to handle payroll are just two of the many new skills you need to learn. These two aspects are likely the most important things to sort out when opening your own company.

Payroll mistakes cause unhappiness among the employees. It is common knowledge that happy employees who feel taken care of work harder and are more loyal to the company.

Managing your company’s accounts is key to financial success. It is also important to ensure that you are fulfilling government regulations in case of an audit.

Luckily, we live in the golden era of technology. There is so much software available to assist you in both accounting and payroll.

Quickbooks is an excellent software, capable of helping you keep your company’s finances in order. Quickbooks offers you the ability to give estimates, send invoices, send payment reminders, change orders, and take down payments. It has really almost everything you need to get your construction business off the ground.

In some cases, it can feel impossible to manage these two critical aspects of your business. If this is the case, there is an abundance of qualified accountants, HR specialists, and financial experts for hire. Add one of them to your team.

Marketing and Promotion

Your business is only as good as it’s marketing. As a business owner, it is your job to handle the marketing and promotional aspects of your business. These two aspects are what make you money.

Understanding marketing and utilizing promotional materials and deals will help you attract clients.

Advertising Your Business Online

The easiest way to promote your business is through advertising. The internet provides you with a variety of platforms to do this. Advertising your business online also increases the amount of attention your advertisement receives. 

There are two main avenues when you are going about advertising for your construction business online. 

The first way is to advertise on Facebook and Google. We used these two platforms with great success as they allow such targeted advertising. If you want to see what we can do for your construction business, get in touch with us.

The second way is to use a homeowner lead generation platform like Angie’s List, Houzz, Home Advisor, Porch, etc. These platforms all run a bit different. Some of them have a pay-per-lead model while others have self-serve advertising solutions. It is best to try all of them to see which one works best for you. Some contractors have zero luck on these platforms while other contractors swear by them. If you aren’t sure how to use these or want marketing experts to handle your marketing on these sites, talk to us and we can get you started.