February 19, 2024

How Do I Set Up My Own Construction Business?

With our step-by-step guide, you can confidently tackle the obstacles that come your way. Our guide will provide you with the knowledge and tools you need to succeed. Are you up for the challenge?

Feeling the Itch?

Sooner or later, many people working in construction feel the itch to want to start their own business. It is a natural instinct to want to pursue this growth and expansion outside of just employment. Before you do so, I would like to ask you a few questions to make sure starting a construction business is right for you. 

  1. Are you willing to work crazy hours? 

Starting a business requires you to take on multiple roles at once, including sales, project management, payroll and administrative tasks. This can be quite overwhelming and time-consuming, especially if you don't have a team to help you. Putting in 60-90+ hours a week is common. 

  1. Are you ok with risk?

There are ups and downs and risks with starting your own business, and it's important to be aware of them. When you work for someone else, they bear most of the risks. But when you're running your own business, you're responsible for everything, including the financial and legal risks. If you're not comfortable with this level of responsibility, starting your own business may not be the best fit for you.

  1. Are you ok with ebbs and flows in work?

Unlike working for an established company, running your own business can have unpredictable ebbs and flows in terms of work. As you scale, you can get busier and get rid of the ebbs and flows, but there can be a decent amount of ebbs and flows when you start. 

  1. Are you good at sales and marketing?

When you run your own business, your focus shifts from doing the work to selling and marketing your services. This means you'll need to be comfortable with pitching your business to potential clients and finding ways to stand out from the competition. If you're not confident in your sales and marketing skills, you may struggle to grow your business.

If you are unsure after answering these 4 questions, it may be worth reconsidering whether starting a construction business is right for you. But if you're up for the challenge, you could have what it takes to succeed. 

How To Do It

Starting a construction business can be a rewarding venture. You can start a smaller construction company, or scale it to a business doing tens of millions a year in revenue. Regardless, starting your own construction business also comes with its fair share of challenges. Whether you're an experienced contractor looking to branch out on your own or a newcomer to the construction industry, this step-by-step guide will help you navigate the process of setting up your construction business successfully.

Step 1: Research and Preparation (The ideal is to do this before you start full-time so you can hit the ground running)

Before starting your own business, you will want to take time to research and prepare. To begin with, you need to decide on the type of construction work you want to pursue. Are you going to be a general contractor or a trade specialist? Are you planning to do a trade you are familiar with or venture into something new?

Analyzing business strategy for starting a new business

Analyzing business strategy for starting a new business

There are both advantages and disadvantages to being a GC or a trade specialist. You will want to chat with experienced business owners who are GCs and different trade specialists, and get their opinions of what they like or don’t like before you decide. Just remember, you can’t try to do everything. If you do, you will be setting yourself up for a high probability of failure. When you start you need operational simplicity. The operational complexity of trying to be everything to everyone does not work. 

If you want to focus on a trade you don't know a lot about, you should spend time learning first, either by working at another company or doing some side projects at your home or the homes of friends and family. The other option is to hire a trade expert to be an advisor or join your team. But if you are just starting off, this can often be an expense you can’t afford. 

You should also take some time to put together a simple one or two-page business plan. Come up with a business name, create a logo, work on a website, and start with some basic marketing functions before launching your business.

Step 2: Legal Considerations  (Ideal is to do this before you start full-time so you can hit the ground running)

To operate, you'll need to handle a few legal matters.

Business Structure: 

Choose a legal structure for your business, such as sole proprietorship, partnership, LLC, or corporation. Each has its own tax implications and liability protections. Consult with an attorney or other industry experts for advice given your specific business situation and goals. 

Register Your Business: 

To operate, you will need to register your business with state and other local authorities. Each state has its own process for registering a business. You will want to visit your state site and get in contact with the agency that handles that for your state-specific process. 

EIN:

Once you establish your business, you will need to apply for an EIN with the IRS. This stands for Employer Identification Number and you must have one to start your business. You will need to have it to fill out a W9 for your clients or if you are a subcontractor on a larger project. Think of it as a social security number for businesses. You will need to use it all the time. 

Obtain Any Licenses Needed: 

Depending on your trade or if you are a GC, you may or may not need a license. Every state has a contractor licensing board. You will need to call them, let them know what you plan on doing for your business, and ask them specifically if you will need a license or not for your business. 

Be aware that every state is different in its requirements. Some trades or GC licenses can take time, some have very difficult exams, and some need proof of work experience, among other requirements. Please make sure you have these in place before starting your business. If not, you will have much more risk and issues potentially on your plate. 

Insurance: 

Almost every state will require you to have liability insurance and worker’s comp. If you are a solopreneur, many states have worker’s comp waivers you can register for, in order to waive this requirement. As you grow, this waiver will no longer be an option. 

Get with a reliable insurance agent who has experience working with contractors. Your needs will be slightly different than businesses in other industries. Working with an agent with construction insurance as a background makes a huge difference. 

For your peace of mind and the peace of mind of your clients, you will want insurance regardless.

Contracts:

You will need to have your contracts and estimating templates in place before you start. It is hard to sign on clients without proper paperwork. Having this in place will help you look and feel professional. It will also help make sure you are staying compliant and eliminate potential disputes and other issues down the road.

Step 3: Finances and Funding

The first thing you need to do from a financial perspective is open a bank account. You need a place where you can deposit money, paychecks to your team members, and make purchases, among other things. 

It’s not a bad idea to have 2 checking accounts when you open up an account with a bank. One account you can use for your deposits. The other account you can use for your expenses. It keeps things clean and separate for easier tracking, but also for security purposes. 

Budgeting:

When budgeting, it's important to be realistic. At the beginning, limit your spending and expenses. Don't go for fancy offices or expensive equipment right away. Start lean and focus on generating sales and production. Once you have a steady flow of income, you can gradually increase your expenses. 

To start most businesses you will need a little cash, but you likely won’t need to go get a loan or investment from other people. The best way to do it is to save a nest egg of 3 or 4 months of living and work expenses, and then launch. If you launch with no cash, you will feel too pinched and strapped. Any slight hiccup in your process or cash flows can put you out of business quickly.

Once you go live, try to build up your savings as quickly as possible. This will help you prepare for slow-paying customers or any unforeseen expenses. 

Analyzing business graphs for expenses & revenues

Step 4: Tools and Equipment

Depending on your trade or focus in construction, you will need tools and equipment essential to your business. Make sure to have these in place before you start work. Or, you can buy them as each new job comes up that requires specific tools. This can help with cash flow. 

Step 5: Marketing and Sales

Website:

Set up a clean, professional website that properly reflects your company and brand. This will be one of the most important things potential clients will check and see. They will judge if they want to do business with you based on this site. 

Google:

Make it a priority to set up a Google My Business account. Work to get some 5-star reviews by doing small projects for friends and family first and then asking them for a review. Having this presence with high ratings is another thing that really matters to potential clients. 

Sales Process:

Make sure you take time to create a script from when a customer calls until you get them to sign the deal. Work to dial it in. Sales is the lifeblood of your business. Also, make sure your estimates are on point. You need to be high enough to make a good margin and grow, but also low enough so clients will want to purchase from you. It is a balancing act. The better you are at sales and marketing, the more likely you are to be able to close clients at higher prices with healthier margins. 

Step 6: Accounting Processes and CRM Software

Accounting Processes:

Once you start your business, you will need to keep financial “books” or records of your transactions.  You will be able to give these to a CPA at the end of the year to have them help you file your taxes. Also, if you ever want to sell your business, the most important thing a new owner will look at is your books. It is the strongest indicator of how well you are running your business. There are software programs that help you with account records. The most popular is Quickbooks, but there are others out there as well. 

CRM Software:

In order to stay organized, scale, and close more business, a CRM will be extremely important. Just as with the books, having a solid CRM in place is the other most important thing a potential buyer of your business will look at. The value of your business is in the relationships you have with your clients and that client database. If you don’t have a CRM in place to keep track of these, your business will have almost no value to an outside buyer. 

Alt: Clients database in MotionOps

A construction CRM can do many things such as keeping track of customers' information, their bids, and projects. Also sending estimates, invoices, scheduling, HR management, staging, and event estimate follow up campaigns. All these tools will help you grow your business and make more money. Make sure to take time to find the right solution. 

Summary

In summary, starting a construction business is not for everyone. If you think you have what it takes, you can do it! We believe in you. This guide can serve as a starting point to ensure that you have everything in place.

If you need a CRM software to help you stay organized and grow your business, that is what we are best at. See more at https://www.motionops.com/.

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