How to Start (and Grow) a Construction Business in 2023
Thinking about starting a construction business? Good for you — but you should know: The odds are stacked against you. That’s because 63.6% of new construction businesses fail within five years of first opening their doors.
That doesn’t mean you should give up. It just means you need to do your research and make sure you are giving your new business everything it needs to succeed. This guide should help. Here’s how to start a construction business in 2023.
How to Start a Construction Business
Starting a construction business is deceptively complicated. When you look at every single thing you will need to know and do, you may feel overwhelmed. But if you break the process up into smaller parts and follow the steps for each part, you will have your construction startup up and running in less time than you might think. Here’s what you need to do:
Do Your Research
To start your construction business in the right place, start from a place of knowledge. Obtain that knowledge through careful research — on both your local market and the construction industry as a whole.
Start with the local construction market. How saturated is your market with construction companies? Make a list of every construction business serving your intended service area, and take notes about each. Write down the following:
- What each company specializes in
- The prices these companies charge
- How highly regarded they are by past customers and other contractors
If you find that your market is already fairly saturated with construction companies, start looking for gaps. Are most of the existing companies doing commercial construction? That may leave a gap for a new residential construction company to enter the market. Ask and answer these kinds of questions to get an idea of your new company’s potential in the local market.
Then, zoom out. It’s time to look at the state of the construction industry as a whole to find your new company’s place in it. Here are some examples of how to approach this:
- Consult the U.S. Small Business Administration to find applicable laws and regulations regarding the kind of construction company you intend to start.
- Familiarize yourself with the data and statistics from the U.S. Bureau of Labor Statistics about the construction industry to understand the overall direction of the market.
- Follow industry publications to stay informed about changes in the industry that could affect the future success of your new construction company. The Construction Marketing Association blog is a great example of such a resource.
Create a Business Plan
If you’re trying to start a truly great construction business, you’re going to need a detailed plan. So, take your time with this step. Devote plenty of thought and research to creating a bulletproof business plan that can set the tone and long-term vision for your new venture.
Think of your business plan as an opportunity to step back from the excitement of talking about how to start a construction business and spending time actually testing your ideas to see if they could lead to actual revenue and a sustainable business model.
We’ll get to the specifics of what to include in a construction business plan in a moment, but make sure that the final product actually addresses why you are starting this construction business and how it will succeed over the long term when so many other businesses fail.
Make sure your construction business plan addresses the following items:
- How you will obtain startup funding
- How the company will be structured and managed
- The types of construction jobs your company will pursue
- How your company will obtain jobs
- The long-term marketing plan for the business
- Your target customers
- The estimated cost of beginning the business and keeping it going
- How your construction business will bill for work and services provided
- The number of employees you will initially need
- How you will source materials and equipment
- Expected first-year revenue and long-term revenue projections
This is important: Your business plan isn’t complete once you finish the first draft. You still need to get feedback on it and make revisions. Ask other business owners and leaders you trust to review your business plan and offer their honest feedback. Share the business plan with any and all relevant stakeholders to make sure everyone agrees on the planned direction of the company.
Register Your Business
A business plan is just an idea until you properly register the business and make it official. So, once you are happy with the state of your construction business plan, register your new company.
The rules for registering your business will depend on your city, state, province or country, but the basic idea is the same. You typically provide your business name, industry and similar foundational information and pay a fee. After successful registration, you will likely need to engage in a separate process to obtain a business tax identification number or employer identification number. If applicable, don’t forget to trademark your business name so that others can’t use it.
If this sounds like a lot of paperwork, that’s because it is a lot of paperwork. But the payoff can be huge for your fledgling business. Registering a business as a legal entity can provide you with protection from personal liability and even deliver some early tax benefits. It also allows you to set up business bank accounts and similar accounts.
Apply for Licenses and Permits
Starting a construction business isn’t like running a lemonade stand. You’re going to be building structures that people live in and use, and that requires a lot of professional training, certification and oversight.
With that in mind, part of successfully getting a new construction company off of the ground involves applying for and obtaining the proper licenses and permits.
The precise permits and licenses you will need to acquire will depend heavily on the types of structures you intend to build and the laws of your municipality, state or country. For example, you may need special permits to use heavy vehicles or transport certain materials. Additionally, you may need to acquire certain business licenses to enable you to operate a construction business in the location you have chosen for your headquarters.
This is not a step you can gloss over. Failure to secure the proper licenses and permits can land you in legal hot water, including large fines and the possible shutting down of your brand new business.
There’s no other way of saying it: Construction is a dangerous business. People get hurt, and when they do, you’re going to be glad you have the proper insurance. Failing to get the right insurance coverage for your construction business can leave you exposed to business-destroying liability in the event of a serious accident or injury.
In most places, you will need to get workers’ compensation insurance to cover any injuries that happen to your employees on the job. But you may want to go beyond that. Consider the most valuable things your business will do, and ask yourself whether insurance could or should cover them. You may want to insure your company’s construction equipment and vehicles, for example.
If you have $0 in your business bank account, how are you going to buy or rent the equipment necessary to do your company’s first construction job? You can’t, and that’s why you need to secure funding.
Most construction business owners can’t afford to fund the new business out of pocket at the beginning, so you may be left to seek a business loan or cash from investors. Another option is a bridge loan, which can cover you during the period between when the client signs the work agreement and when they finally pay you.
How to Grow Your Construction Business
You now know how to start a construction business, but do you know how to grow that business? Growth is going to be essential to a secure future for your newborn company, so consider the following strategies to set yourself up for long-term growth:
Hire Great People
Even in a skill- and knowledge-based industry like construction, people make the business. So, you need to hire great people. How you define “great” will depend somewhat on your preferences, but try your best to forget — just for a moment — the raw skills of the people you are interviewing and instead focus on their soft skills.
Will they be dedicated to the future of your new construction business? Will they deliver world-class customer service? Can they communicate well enough to explain complex construction concepts to customers who have questions?
These are all critical considerations as you make your first hires. Ideally, the first people you hire will be in leadership positions a decade or more into the life of your construction company. Choose wisely, and your business will be set up for growth.
Find Your Specialty
Some of the most successful businesses in history figured out how to do one thing better than anyone else. Having a specialty makes you valuable — it differentiates you from the already crowded construction market and makes you the go-to provider of a particular type of construction.
You may already have a specialty in mind, but if you don’t, start by assessing the existing skills and talents on your team. Are you well-positioned to dominate single-family housing in your area, for example?
If you’re coming up short in terms of answers, you can also let your first few jobs guide you to your specialty. Pay attention to the projects that go particularly well, and consider specializing in that type of construction.
Focus on Marketing
You’re a builder, not a marketer, so it’s understandable that you might be inclined to let marketing fall by the wayside. But that would be a big mistake. Marketing is how you make sure people can find your new business — before you have established a reputation or referral network.
So, don’t forget marketing. In fact, focus on it. Make a detailed plan for how you plan to market your new business, including who is in charge of marketing activities and how much of your budget you can devote to marketing in general.
In the early stages of your construction business, you won’t have much cash flow. It might be simple enough to keep track of your accounts payable and receivable in your head. But if your business grows like you hope it will, that won’t last for long. And you will regret not getting organized from the start.
Don’t skip the foundational steps that help you stay organized. Set up your accounting software or procedures, choose a project management platform and learn how to use it and make sure everyone on the team is participating in these processes the way they are supposed to.
Use the Right Technology
Construction is all about having the right tools, and that includes the technological tools you choose to help your company create building designs and floor plans that keep business rushing through your door. So, in the early days, make sure you have found the perfect pieces of software to help you do that.
For example, look for software that will allow you to quickly create floor plans in 2D and 3D to show to clients and colleagues. The ability to save and repurpose existing plans could save you huge amounts of time, so look for that capability, too. And any software you choose should enhance your ability to deliver head-turning presentations and marketing materials with 3D and photorealistic home designs.
Learning how to start a construction business is half the battle. The other half is running the business in a way that enables it to grow in a sustainable manner.
That’s precisely what Cedreo helps countless construction and housing professionals do every day. Cedreo helps businesses like yours work faster and more efficiently, close more deals and save time and money on 2D and 3D floor plan design.
Ready to see for yourself? Sign up for a free trial of Cedreo today .