How to Start a Construction Company in 10 Steps
If you have interest in construction, renovation and related property services and a strong work ethic, starting a construction company may be your ticket to long-term success. The market remains strong across the United States with more than $1 trillion spent every year within the industry. Both commercial and residential contractor needs continue to provide steady work for those with the skills to get the job done right. If this sounds like you, the following ten steps can help you start a general contractor business with a strong foundation to build on.
It takes more than knowing how to wield a hammer or a hanging sheet rock to become a general contractor. This is a career that involves both construction knowledge and a strong need for business and team management skills. If you are looking into this opportunity, you undoubtedly have knowledge and experience about building, renovations, restoration, and more. Now you need to understand business operations to the same degree of excellence. Essential tasks include the creation of a business plan, licensing and permits, finding and bringing reliable subcontractors on board, establishment of your company identity, marketing, and more.
Launching a new business is not easy. Most small businesses across all industries fail within the first three years. Becoming an owner means putting in a lot of time, effort, and money to get things going in the right direction. It helps to have a specialized construction management system such as Contractor Foreman alongside all necessary equipment and tools to tackle every type of job. This guide includes the ten essential steps every successful business owner must take before getting down to the daily grind of satisfying customers.
The ten steps to start a construction company business:
- Determine whether starting a business is right for you
- Create an in-depth, professional business plan
- Choose a business name carefully
- Get essential licenses, bonding, and insurance
- Register the best business entity – incorporate
- Open a company bank account and lines of credit
- Hire or establish relationships with subcontractors
- Build your brand identity, story, and mission
- Create a website and strong online presence
- Establish day-to-day operations for handling customers and more
1 – Determine Whether Starting a Business is Right for You
General contractors take responsibility for every aspect of construction projects. Both residential and commercial property owners hire them to plan the building or upgrade steps, hire subcontractors and laborers, and make sure everything is of the highest quality. In order to step into this role and create a viable and respected contracting business, you also need the ability to network and forge connections with other companies and individuals.
Every aspect of company development and launch involves a variety of skills and experience you can leverage for your own and client benefits. You can set your own hours, choose between different projects, and even turn down some you would rather not work on. Although this type of flexibility and self-direction sounds great, it also carries a high degree of responsibility to everyone who counts on you for their own work.
Before making the final decision to start a general contractor company, check this list of essential things you need to succeed.
- Passion, interest, drive, and dedication to being the head of a company.
- In-depth understanding of the construction industry and the general contractor role.
- High degree of skill for managing others, multiple projects, and day-to-day operations.
- Necessary equipment, tools, vehicles, or the funding necessary to acquire them.
- Understanding of personal, professional, and financial risks.
If you can check off all those things, you have the right mindset and essential preparation to start a new career as a general contractor. It takes a lot more work before you can launch your brand, however. The next nine steps will set you on the right path to success.
2 – Create an In-Depth, Professional Business Plan
One of the first, most important, and often overlooked steps in starting a new company is the creation of a business plan. Do not think you can get away without creating one. All companies need this type of blueprint to get started on the right path. Rather than a few simple notes about what you intend to do, when, and why, a professional plan has specific sections filled with in-depth information about everything from company structure to target market research.
A solid business plan is an essential tool for planning, company registration, and seeking investors or startup capital. It outlines long-term goals and designs the foundation of a process to reach them. Just like you need a project plan, designs, material lists, and more to present a building a renovation project to a client and to get it done correctly, on budget, and on time, you need a business plan too.
Make sure your business plan contains the following information:
- Company structure, ownership, control, and management details
- Full description of the business concept and plans
- List of services and project types you intend to offer
- Target market details – residential, commercial, or both
- Use of employees, subcontractors, or network opportunities
- Startup capital needs and existing assets
- One, five, and ten-year growth and profit projections
Each section on your business plan deserves careful attention, research, and specific details in order to give the most accurate picture of how you plan to proceed. Answering the following questions will help you figure out what to include.
What type of services and projects will your business handle?
Contractors offer a wide variety of different services depending on their specialty and market focus. Some narrow their offers to very specific types of projects in order to increase their competitive edge. Others cast a wider net and bid on a huge variety. Although it is possible to change what you do over time as you perfect more specialized skills, it is important to have an idea about the types of services your business offers from the start. After all, you need to know about necessary startup costs, equipment, tools, and employees to finish the work successfully. This also helps you make a positive impact in the local market since you can study competitors more effectively.
Although profits are the ultimate goal, it helps to focus on your passions and interests instead. This increases levels of motivation, utilizes the knowledge and skills you want to develop further, and since you apart from others whose interests lie elsewhere. As you demonstrate your ability to do a great job, trust grows in the community and you retain repeat clients with ease.
How much money does it take to launch a general contractor business?
The answer to this question varies widely depending on your intended services, company size, location, and other details. It can cost quite a lot to get off the ground successfully. Explore your existing assets and narrow things down to a list of essential items and equipment. Do not hire more people than you need at the start. You have a lower chance of failure if you start small and grow over time using profits to invest back in the business.
General contractors need high-quality tools and equipment to perform their duties. This also includes reliable, heavy-duty transportation to move materials and gear to worksites. Also factor in legal costs, licensing, insurance, administrative fees, and set aside enough for marketing. Most estimations put the necessary startup amount between $10,000 and $20,000. Funding methods include your personal savings, small business loans, and outside investors. Before considering all your options, research them fully and understand the risks and requirements. Understand responsibilities, repayment terms, and what happens if you fail to satisfy the financial agreement.
What ongoing expenses exist for a general contractor?
This another question that does not have a definitive answer. In the beginning, you may reinvest most of your profits back into the business so it grows successfully. Replacement of equipment and tools are some regular expenses to consider. Material and hardware costs are factored into project invoices and payments. You may spend money to hire subcontractors or other independent professionals like plumbers, electricians, and masons either in unique circumstances or on a regular basis.
Do not forget about the expense of administrative tasks and responsibilities. You must pay for a dedicated phone service, invoicing and payment processing systems, office equipment, and the people to handle all of these tasks. An affordable construction management system such as Contractor Foreman can be used to organize every aspect of business operations and can be a smart investment to keep things running smoothly. Marketing your contractor services also requires funding. You cannot rely on word-of-mouth to get the news out about your company.
Who is your target client base or audience?
Identify potential clients by studying local demographics and determining who is most likely to want the services you provide. Also, it is important to target potential clients based on available funding for construction and renovation work. Wasting time and money marketing your business to people who will never hire you is a huge waste. Accurate targeting also helps you manage work volume and estimate annual earnings.
Who is your competition and what are they doing right and wrong?
Chances are other general contractors already operate in your geographic area. If you want to compete, take a look at the services they provide, their target audiences, and anything specific they do that leads to their success. Arm yourself with data about what works and what does not so you can avoid making the same mistakes.
Studying the competition also helps you create a unique selling proposition. What will your brand bring to the market that other companies do not? What will set you apart and convince more clients to hire you? There is room for more than one general contractor in an area if you find a way to make yourself stand out from the crowd.
3 – Choose a Business Name Carefully
Since the company name you choose will stand for integrity and high-quality work now and in the future, take the time to pick one that makes an impact. People you market to and clients must remember your name and get information from it to help them make a hiring decision. Of course, the business name must be available in your area and ideally as a website address online. Avoid any names that sound confusing or do not give the right impression about your services.
Some common naming conventions include using your first or last name, adding the terms “general contractor” or construction, or indicating specific types of projects you do. Popular ideas include renovation, building, restoration, or any similar things. Do not limit client expectations by calling yourself Smith Painting or Jackson Drywall if you perform other services or may expand to do so in the future.
One of the easiest ways to figure out if your name is available involves searching on Google for the website address or URL and through local business directories. It does not matter if a contractor across the country has the same company name because you will have different target markets. However, you do want a memorable .com address, so check that too.
When it comes time to registering your business with your local municipality or city government and for state licensing and tax purposes, you will not be able to do so if someone else has the same name. Many online sources have search capabilities to ensure you are not stepping on a competitor’s toes.
4 – Get Essential Licenses, Bonding, and Insurance
Required licenses, bonds, and insurance protect you, the company itself, subcontractors and employees, and clients and their property. Not only is this an essential part of doing business responsibly, but many people will also not hire a general contractor without these things in place. These include general business licenses, state licensing for contractors, and other potential requirements for specific services. If you operate in more than one state, you must get a license for each. The 40-plus classifications for contractors include, but are not limited to, the following:
- Insulation and acoustical work
- Drywall installation
- Concrete contractors
- Fire protection and prevention
- Demolition and building transport
- Earthwork and paving
- Structural steel construction
When you first apply for a contractor’s license, the process will depend on your classification, the state, and other factors. Most include a written exam to show that you know what you are doing, financial records to demonstrate your ability to launch and operate a company, reference letters from banks, employers, or clients, and a form of resume to demonstrate apprenticeships and on-the-job experience.
Bonding – After getting appropriate licenses, you also need to procure surety bonds in order to operate legally. These protect your client if you do not fulfill the terms of any contract you make with them. They are held by third party bond companies and are regulated by the state you do business in. Learn more from the Small Business Administration’s surety bond program.
Insurance – Insurance protects both the client and you from any unforeseen events, accidents, or errors. There are many different types of insurance that a general contractor business should acquire. For example, you should ensure all the company vehicles, equipment, and tools against damage in accidents, theft, and liability. With employees on your payroll, you will need to comply with all state workers compensation insurance needs as well as disability and unemployment insurance. Work with a professional policy provider to determine the best levels of protection that makes sense for your specific business operations and assets.
5 – Register the Best Business Entity – Incorporate
After you have decided on a company name and have started the process of getting insurance, bonding, and all licenses, you need to choose a business entity and finalize the legal aspect of creating a company. Some independent contractors start out as self-employed individuals or sole proprietors of a one-person company. This may suit a soft launch of a handyman business or a smaller subcontractor situation. If you want to become a highly professional and sought-after general contractor, choosing a more formal legal entity makes sense.
The following two business entities provide various levels of personal and professional protection. They separate the company from your personal finances, assets like your house and family car, and legal responsibilities. The last thing you want is to endanger the security of yourself or your family in case your business gets sued or has some other trouble in the future.
Limited Liability Company (LLC) – LLCs are relatively easy to set up, have flexible structure options, less paperwork and red tape, and fewer complications overall. They work well for single owners and partnerships.
- Choose tax status as a partnership or corporation
- Fewest formal requirements for annual actions in reporting
- Protects personal property for taxes and legal responsibility
Corporation – These business entities may appear more attractive to third-party investors. They also provide benefits for inter-state or global enterprises, although that is less common for general contractors. In return, their formation usually includes a lot more paperwork and formal requirements like stakeholder meetings, regular reporting, and more.
- All taxes are separate from personal income and responsibilities
- Requires meetings, investor and stakeholder updates, and more
- Virtually no personal responsibility for business debts or other issues
These two legal business entities are the most common for general contractors. If you operate solely for educational, religious, or charitable organizations, it may be possible to register as a nonprofit. However, this is extremely rare for builders, renovators, and other construction industry specialists.
6 – Open a Company Bank Account and Lines of Credit
As you went through the process of illegally registering your business as its own entity, you also need to separate company finances from personal ones. Open a business bank account before you make any purchases of equipment, tools, or hardware or take payments from clients. It is also important to use money designated for the business to pay subcontractor agreements. If you intend to use credit, cards, loans, and more should also exist in the company’s legal name.
A business bank account and lines of credit allows you to legally complete financial transactions using the business name rather than your own. It adds a distinct layer of professionalism and trust to any dealings with vendors, subcontractors, and especially clients. People can make out a check or complete a digital money transfer to the company name rather than your own. This makes them feel more comfortable because they know you are not doing under the table deals or serving your own interests instead of theirs. This also helps when tax time comes around and you have to file paperwork with the IRS and the state for your company specifically.
Every person has a credit score and report that reveals their worthiness for additional loans, credit cards, or financing opportunities. When you start your general contractors business, the company itself gets this type of record too. Establishing credit history as a business will help immensely when the time comes to seek third-party investments, apply for loans, and take action specifically designed to expand your reach in the local market.
Above all else, opening a business bank accounts and lines of credit will protect your personal assets in case anything goes wrong. The point of registering a legal business name and forming an LLC or corporation starts this process. Separating your money from company money adds another layer of security. If something goes wrong and you end up getting sued or fined, your home, personal vehicle, and family assets will stay safe.
In order to manage professional finances legally, you may have to file for an employer identification number (EIN). This is a tax identification number given by the IRS to companies that employ people. If you do not have any employees, it is still a good idea to get one because it identifies your business as the legal entity owning the bank accounts and lines of credit. Also, it makes it much easier to expand in the future and hire employees when your company is ready for them. An EIN acts just like a Social Security number for a business instead of a person.
7 – Hire or Establish Relationships with Subcontractors
You cannot complete construction jobs on your own and expect to build a successful general contractor business. Most businesses do not start out with a large number of employees. Therefore, build relationships with subcontractors who will handle most of the clients’ work. This requires careful research into who has the skills and professionalism you people to expect from your company. This is one of the most important aspects of building positive reputation in your area for trustworthiness, reliability, and excellent results. Contractor Foreman makes it easy for you to generate Sub-Contracts to better protect you and your client.
Whether you use subcontractors or employees, learn everything about the tax implications and paperwork requirements. This involves everything from payroll or contract payments to workers compensation insurance, unemployment, and more. The decision between hiring employees and using short-term contract workers involves many legal and financial issues you must understand before taking your first step. In fact, independent subcontractors may legally become employees if they work a certain number of hours for you or if they meet other criteria. Taxes, benefits, wage requirements, and potential penalties all change if the contractor is legally considered an employee. If in doubt, look to the IRS or state government websites where you do business.
8 – Build Your Brand Identity, Story, and Mission
You have the skills necessary to complete construction projects with a high degree of professionalism. You have registered your business, opened bank accounts, found skilled helpers, and managed all legal and financial matters. All you have to identify your business so far is a name. Now the time has come to create a brand identity to make you stand out from the competition. Potential clients want to know what you stand for before they decide to give you their money and trust you with their property. These steps will help you make the best impression possible:
Choose an Eye-catching Logo – Although you want people to remember your company name, a logo provides another point of interest and attention. Either make a text-based one using a unique font and color scheme or go for a graphic that is easily printed on business cards, trucks, hardhats, and invoices. Your logo must represent the industry but look at the local competitors to make sure you do not have a design too similar. You can easily have a custom logo created for less then $200 from websites such as fiverr.com and freelancer.com.
Create a Brand Story and Mission – Even if you focus on commercial projects, clients want to know who you are, what you stand for, and what your ultimate goals look like. Are you the friendly, family focused contractor or dedicated to sleek, efficient professionalism? Use this brand story on your website, when composing social media posts and newsletter emails, and for all promotional and informational products you used to advertise your company.
Make Memorable Materials – Even though many general contractor businesses have gone digital, paper invoices, handouts, brochures, and business cards are still used in most places. When sending an Estimate from Contractor Foreman, we make it simple for you to include a professional cover sheet that will wow your clients. Of course, you should include your business name, logo, and contact information on all of these things. Making them memorable takes things a step further. Consider fridge magnets, printed pens, hats, T-shirts, and other promotional products to make a great impression.
Network With Your Mission in Mind – When you are just starting out, you may feel compelled to share business information and use the services of anyone who will give you a chance. However, it is important to stay true to your brand identity and purpose so you do not end up with a reputation you did not want. This does not only extend to negative associations but also those that do not align with your professional focus. For example, if your primary skills lie in historical home renovations, partnering with a steel and glass office building company will not provide the benefits you need for building your client list and growing toward success. Joining your local Home Builders Association is a great resource as this will connect you with other contractors as well as other suppliers who may one day be able to refer a client to you.
9 – Create a Website and Strong Online Presence
The majority of homeowners, commercial property managers, and real estate investors research service professionals on the Internet these days. In order to attract their attention, build trust, and encourage the all-important first contact, your general contractor business needs a professional website, social media presence, and effective marketing. These things help you get the word out about your services and the quality of your work while collecting information from potential clients to lead them toward a signed contract.
In most cases, it helps to hire a professional website designer to tackle this job. After all, everyone has their own specialties. Yours is construction and managing building teams. They can create a user-friendly, easily updatable, and engaging platform for your business to thrive online. It does not have to cost a lot to get a custom solution. If you prefer to do it on your own, consider a template from the top web hosting platform. You can always redesign, add content, and grow as your brand reach expands.
A strong online presence requires more than a website these days. Social media pages on Facebook, Instagram, and more help you get the word out to your target audience. A YouTube channel can help, and claiming your page in the popular business directories like Google My Business and Yelp is a necessity. Make sure to set up a company email address at the same time.
10 – Establish Day-To-Day Operations for Handling Customers and More
The time has come to launch your business and put everything in motion to attract new clients and satisfy them all. The last step in the creation of a successful general contractor enterprise is to figure out the day-to-day operations. Do not leave things like customer service, invoice handling, equipment and tool use, and inventory management to chance. A full-featured construction management system such as Contractor Foreman will help you streamline this process considerably so that you always have access to your data from the office or from the field.
Answer the following questions before opening for business:
- Who is responsible for answering phone calls from potential and existing clients?
- How will you create, handle, and store paperwork or digital documents?
- How will you track inventory of materials, office supplies, and more?
- What will management of vehicle access, routes, maintenance, and repairs look like?
- How will subcontractor relationships, payments, and scheduling work?
- Who will handle marketing campaign creation and management?
Dozens of other questions need answers before you can operate a successful general contractor business with an eye toward profit and growth. Some things will change along the way as you increase your client list, network with subcontractors and independent specialists, gain employees, and realized the need for improved organization. Instead of trying to figure it all out on your own, consider one software platform or app-based construction management system to make recording details, creating invoices and reports, and handling communication and marketing much easier.
From the earliest stages of defining your niche focus to registering your business and finalizing day-to-day operational activities, you have laid a strong foundation for a successful general contractor business. Take the time to settle into your new system and focus on satisfying clients before worrying about growth. Over time, make smart changes, introduce new services, network with other subcontractors, upgrade your assets with new equipment and tools, and update your five and ten-year projections to include the types of success that you are sure to achieve.
Contractor Foreman is a web based construction management system used by residential and commercial general and sub contractors to help them manage all aspects of their business. From lead generation to estimating to invoicing and getting paid online, Contractor Foreman has the tools you need to manage your company at a price you can afford.