How to Get Your Construction Business Started TodayWritten by Bernard on June 07, 2017
Anyone thinking of starting their own construction business has chosen the right time.
In the last few years, the world economy has begun to recover very well from the Great Recession.
The construction industry is no different. In fact, the recovery may be even greater for the construction industry than other industries for the simple fact that it was hit the hardest.
Lots of construction that was already in progress was put on hold for years or months as investment dried up and businesses went bankrupt.
For smaller construction sites, it was no different.
Luckily, that’s all changing now. According to the Bureau of Labor Statistics, the projects for the construction businesses will grow an impressive 5% until 2024.
What this means is that now is a fantastic time to get started on your own construction business.
However, it can be hard to know where to start or what steps to take. That’s why we’ve created this full guide just for you.
Take a look at the Table of Contents below (you can click to jump ahead).
Table of Contents
I. The Advantages and Disadvantages of Starting Your Own Construction Business
Let’s get into the nitty gritty about the construction business.
While it’s great to know all the good parts of the business, in order to fully prepare yourself for what will actually happen, you also need to be aware of the disadvantages.
1. The Advantages
Although you’re probably quite familiar with these construction business advantages, let’s review them quickly.
You own your own business
Of course, one of the greatest aspects of opening your own business in general is that you’ll be owning your own business and deciding everything.
That means you get to determine what your prices are, the customers and jobs you want to do, and even when to work (and when to take a break).
Build a client relationship
Another of the many advantages of having your own construction business is that you’ll be able to build up a great relationship with your clients.
Many larger companies simply don’t have the ability to do this, meaning that you have a huge advantage.
A great advantage to starting a construction business now (compared to about 7 years ago) is that the industry is constantly growing.
This is because the housing and development economies are growing stronger each day. New construction is always needed, and older buildings will need to be remodeled, retrofitted and even rebuilt.
You can specialize
Opening your own construction business means you can stay competitive by specializing in your own niche. This will allow you to have ground to stand on when it comes to growing your own business amongst the bigger guys.
You can do the increasingly-popular green construction, where you are using green materials, processes and appliances in the buildings.
There are many more options, and you can find the ones that suit you the best.
2. The Disadvantages
Of course, we must, as responsible human beings, look at what the downsides are of starting a construction business.
You have all the responsibility
When you are the owner of your own small business, you find out really quickly that there are quite a lot of responsibilities.
You are the marketer, customer service representative, sales representative, human resource manager, and many more.
And if you don’t do one of those jobs right, you’ll negatively impact your business.
High upfront costs
Another disadvantage of the construction business is that it can be quite expensive to start. After all, you will need the necessary tools, trucks, cranes and more. This is not to mention actual workers to help you.
Of course, you don’t need all these tools, and many can be rented as needed. However, these are costs you should be aware of.
While you can go niche, that does require you to have special knowledge. If you are more in the general construction field, you will find it quite difficult in the beginning to find a good amount of clients.
While that’s true for pretty much every single person starting a new business, it can be tough to compete with the bigger guys in the construction industry.
Lots of risk
Lastly, one of the biggest cons of the construction business is that it does involve quite a bit of physical risks.
Pretty much anything can happen on a construction site, ranging from a splinter or paper cut all the way to freak accidents that can cost someone their lives.
Beyond that, since you’re building a property that people will use, you also have the responsibility to ensure it’s strong and safe.
II. The Fundamental Parts of Your Construction Business
Let’s look at what the most important parts of the construction business are: the fundamentals.
These include your business plan and pricing strategies.
1. Your Construction Business Plan
Your construction business (or any other business, really) can only go as far as your planning and strategy go.
If you don’t plan for it, you just won’t be able to achieve it in the proper time. That’s why it’s so important that you get your business plan out of the way immediately.
Many modern guides and bloggers have latched on to the trend that states that business plans are in fact quite antiquated. The idea is that no one needs it, unless you need funding.
Your construction business will probably need funding to get some basic or advanced equipment.
However, the most significant purpose of your business plan will be for you to get all your ideas down on paper and look at the validity.
Also, it will help you set a course for where you want your business to go, how you’ll get there, and what your next steps will be.
Your construction business plan should include:
- Executive Summary: this is a part of the business plan that informs the reader about your business’ strengths. Because it summarizes everything, you should do it last.
- Business Description: here you will discuss the most important parts of your business
- Industry & Competition Overview: in this part you’ll go over all the important parts of the construction industry based on your careful, in-depth research
- Operations & Management Plan: now you’ll need to discuss what your business operations will be and how you’ll structure your management
- Service Description: you’ll now need to discuss what competitive benefits your business will have
- Marketing Strategy: in this section you’ll simply describe what you’ll do to get your construction business to the right customers
- Financial Projection: Lastly, you’ll look at the all-important numbers, including the revenues you expect to make within a certain time period. You should also determine what kind of financing you’ll need
While it can be of any size, your business plan can still be quite difficult to put together comprehensively. That’s why we’ve already created an 8,000-word business plan guide to help you out.
2. Your Construction Business Pricing
In order to make sure you have the most competitive offering, you need to have the most effective pricing strategies.
For your construction business, you have generally five different ways to price your work:
- Fixed price
- Cost plus fixed percentage
- Cost plus fee
- Target estimate
- Guaranteed maximum cost
Let’s look at each in turn.
In this type of contract, the amount agreed upon will not be based on the resources or time used.
The amount is fixed and cannot be changed (unless by a formal change order). If there are any cost-savings occurred during the job, the construction business will keep that as additional profits.
However, if there are any cost overruns, the contractor will have to pay for those.
Cost plus fixed percentage
For your construction business, you may use cost plus fixed percentage pricing method.
In this pricing strategy, the client pays the contractor an additional amount of money (as a percentage) in order to cover your overhead costs.
In order to use this effectively, the client will normally require a very strict method of expense accounting.
Cost plus fee
The cost plus fee for your construction business will be relatively similar to the cost plus fixed percentage mentioned above.
This strategy, which is also known as a cost reimbursement contract, is a payment contract whereby the client will pay you for all of the allowed expenses. Additionally, there is another payment for profit.
That ensures that you have a profit in the end, regardless of how many expenses you’ve racked up in the process.
This type of pricing strategy is intended more for you, the contractor, to share the benefits of cost savings. Alternatively, if there are cost overruns, you will have to share the client’s cost.
In this scheme, your target costs are set up early on in the project. You and your client will then agree to share the cost savings or overruns on an agreed-upon formula.
Guaranteed maximum cost
This type of pricing strategy is also known as GMP or NTE/NTX (not-to-exceed price).
Here, you as the contractor will set a maximum price for the construction job. If you exceed this price for whatever reason, you will be responsible for these cost overruns.
Only if the GMP was formally increased via a change order will you be accountable for these costs.
III. The Qualifications, Licenses and Insurance You’ll Need to Start
Now that we’ve got the basics of the construction business out of the way, we need to look at what you need to have in order to in order to fully succeed.
These include the qualifications, licenses and certifications, and finally your insurance needs.
1. Basic Construction Qualifications
In order to be a qualified construction contractor, you will need to be able to plan, direct and coordinate activity on all construction sites.
This includes needing to oversee the project design, as well as find and employ workers and subcontractors.
You will also need to supervise those workers and purchase and manage the necessary supplies. Additionally, you will need to be able to prepare accurate estimates and budgets for each job, and work with the clients and legal requirements.
For this, you will usually need at least to have a bachelor’s degree in civil engineering, building science or related field.
As far as certifications, while it is not absolutely necessary, it’s a good idea for you (and your business reputation) that you have adequate certifications.
This includes, primarily, getting a Certified Construction Manager (CCM) certificate.
This will show that you have met the recommended criteria for such things as your formal education, hands-on, actual experience and the capability and full understanding of the necessary construction manager knowledge.
There will be some licenses you’ll need to get for your construction business.
You will need to decide what type of business license you’ll need to get in your state (as well as if you need to open up an LLC, corporation, or other form).
For each state in the US, the requirements for your licenses and permits will be different.
For that reason, you’ll need to do your homework and find the exact requirements for your state. Luckily, the US SBA has a great, comprehensive list of the licenses and permits needed for your state.
There’s no overstating this point: if you plan on opening a construction business, you will need to get insurance.
As we mentioned above, the construction business is quite a risky one, and can lead to small, medium, and large injuries, and even death.
These are the most important types of insurance that you’ll need.
This type of insurance is a pretty fundamental, crucial aspect of any construction business insurance.
It will help bring you protection from lawsuits and any other sort of financial liabilities that may come from accidents on-site.
General liability may often be packaged with other types of coverage in a Business Owners Poicy.
Workers’ compensation insurance
If you have any workers whatsoever (and, as a construction business, you will), you need to have wokers’ comp.
This will help your business cover any medical costs and a certain part of any lost wages for one of your employees who have either become ill or injured while working.
In many states, this is an absolute necessity, while in some states there are a minimum threshold you must first meet in order for this insurance to become mandatory.
Various vehicle insurance
If you are going to be using or buying any vehicles to be used in your construction business, it’s a good idea to get a type of vehicle insurance.
This can include:
- truck insurance
- pickup truck insurance
- flatbed insurance
- cement mixer insurance
- dump truck insurance
and many more.
IV. How to Get Customers for Your Construction Business
Lastly, you need to figure out how to get viable customers for your new construction business.
This will include finding ways to use traditional marketing, inbound marketing and social media marketing to get the highest value leads to interact with your company.
Let’s go through each form in detail.
1. Traditional marketing
There are quite a few great ways that you can use from the old traditional marketing days which can often be overshadowed by the new digital marketing.
While there are many ways you can go about it, the most effective is still to get involved in any networking opportunities.
Of course, these have to be networking related to your industry. Face-to-face communication still has a high place on the marketing ladder, and getting to network will put you in touch with the right people.
These people could be your actual clients, but more often than not they are people in related industries that can refer clients to you.
Another great way to advertise your services is to get involved in community projects. After all, you are a location-based service, and therefore you need to get more well-known in your own community.
That way, anyone who has any construction coming up, or is considering it, will know who to come to.
When you volunteer, you should not over-commit and therefore cut into your available time for actual clients.
This doesn’t mean that you should only take on small or mini volunteering jobs. Instead, it means that you shouldn’t accept a job that requires you to work full days for many days in a row.
Instead, find volunteering opportunities that will allow you to be more flexible, or have timing that you can determine on a regular schedule.
2. Inbound marketing
Inbound marketing may seem like an odd marketing method for construction businesses (especially based on the stereotype many have about contractors).
However, inbound marketing is for anyone in any kind of business, simply because it is a process, not an end product.
In inbound marketing you are providing valuable information that your ideal customer will find significant.
It involves knowing exactly what your customers need (such as when to decide to renovate your home, emerging trends in green construction, etc.).
But putting out this content, you are essentially drawing customers into your business (compared to traditional advertising where the message is sent out).
This way is also free, meaning all you need to do is have a site (free or paid) and the interesting blog posts.
3. Social media marketing
Lastly, believe it or not, there is a part of the social media machine made just for construction businesses.
Again, social media is not just for teenagers or fashion brands. It’s for any kind of business and for all kinds of people.
Because of that, you have a good chance of finding the right customers on Facebook, LinkedIn, Instagram or more.
However, using social media can be quite difficult, especially when you are new to it. One way to skip the time-consuming burden of naturally growing your social media profile is to use ads, such as Facebook’s advertising.
If you know what your target demographic wants, you can use Facebook ads to get your business in front of them.
If you target your audience very well, you can have very low cost per clicks, meaning you will pay a little to get a huge reward.
Besides just getting your customers, you also need to build up your relationship with your customers.
This involves building a community on your business page. You can normally take pictures of your projects (before and after works very well), as well as pictures of satisfied customers (with their approval).
Beyond that, you should also show off your customer reviews and testimonials. This will provide a lot of incentive for people to seriously consider using your services.
When they see how engaged you are with your social followers, they will be more willing to believe that you are as engaged (and even more engaged) in person.
That means you’re more memorable so that you’ll be on their mind when they need your services.
The construction business industry is bouncing back better than ever. If you want to get started, first review the advantages:
- you’ll own your own business and build strong client relationships
- the construction market is booming
- you can choose your niche and specialize
You should also be mindful of the disadvantages:
- you’ll have all the responsibilities of running the business
- there are high upfront costs and often high competition
- the job comes with lots of physical risk
In order to get started on your new construction business, you should:
- get a strategic business plan to help you map your business path
- choose between the five pricing methods to price your projects
There is certain documentation that you’ll need, however:
- get your qualifications and certifications in order
- determine what licenses your city, state or country require
- make sure you have general liability, workers’ comp and vehicle insurance
To successfully market to potential customers and gain new leads, you can:
- get started with traditional marketing methods like networking and volunteering
- use inbound marketing by answering your potential customers’ most burning questions
- use social media strategically and intelligently
These comprehensive tips will help you to not only establish your new construction business, but also make sure it thrives.