How To Run A Contracting Business – Starting your own construction company can be an exciting but overwhelming experience. After tons of research, reports, and paperwork, it’s easy to get lost in the administrative details and forget about the passion that inspired you to start your own business.
In fact, 68% of small business owners regret not spending enough time in their first year learning the basics of running a business. Fortunately, the process of starting a construction business is very simple, as long as you know where to start. Construction companies take time to design and build, so starting early can help you succeed later.
How To Run A Contracting Business
While manufacturing has stalled in major cities due to COVID-19, there are 36 states where construction is considered an essential activity at the time of publication.
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We’ve rounded up everything you need to know about starting a company, how to write a solid business plan, what type of insurance you need and more. Here’s how to start a construction company in 5 steps. Click on the links below to access each section:
Thanks to the Internet, there is a wealth of free, public data available if you know where to look. Here are some great sources of information you can use for market research:
Doing your research ahead of time is optional, but it will make the rest of starting your construction company a lot easier. Completing the research makes it especially easy to complete the next stage of the process: writing the business plan.
Every startup needs a business plan, not only to guide you through the process of building your company, but also to raise investment funds, get credit approvals, etc. help. To write a business plan for a construction company, follow these steps:
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The resume is the introduction to the business plan. Be concise (one or two pages), comprehensive and effective.
The Small Business Administration recommends that you include a mission statement, basic biographical information about your company, the products and services you offer, key financial events and funding goals, relevant past accomplishments, and future plans for your business. The rest of the business plan contains the elements mentioned in its summary, but in more detail.
After finishing, give an overview of your company: who are the founders, when was it founded and what does it do. Also write a value proposition statement that explains why the company’s offering is in demand in your particular market.
It’s also important to consider whether your business is an S-Corp, C-Corp, or LLC, and how ownership is divided if you’re not a sole proprietor.
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In this section, you should present research that proves there is real demand in your target market and that your company is uniquely positioned to meet it.
In this section, you explain in detail what products and services you offer. If possible, talk about current or past projects that can serve as examples of what your company offers. Since construction is also related to material procurement, it is important to work with construction industry suppliers, subcontractors, etc. highlights existing partnerships.
It is also worth indicating what type of contracts you wish to conclude with potential customers. Lump sum, unit price, cost plus, and time and materials contracts all handle the procurement of materials differently, so your supplier needs will differ depending on the type of contract you want to use.
Take a comprehensive look at your company’s current finances and where you want to be financially in the future. If you don’t have historical financial data, include draft versions of your documents and document the market research and analysis used to create your forecasts.
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You should also document all of your debt obligations – including other investments you’ve made, mortgages on any company property, equipment loans, etc. including.
Finally, provide the financial details of the funding you need or hope for. List the funding you are currently applying for and any additional funding rounds you may need in the future. Each amount is used to purchase equipment, rent real estate, and more. to allocate for a specific purpose, such as
Appendices can include any charts, notes, studies, or other information that is related to your business plan but is too long or does not belong in the document.
Once you have your business plan, it’s time to make it official by legally registering your business with federal, state, and local governments.
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1. Decide on a business entity: Choose a business name and decide whether to register as an LLC or a corporation.
2. Get an Employer Identification Number (EIN): Your EIN is the federal tax ID you need to file taxes, hire employees, open bank accounts, and apply for business licenses. It can be filed online through the IRS website.
3. If you file as an S-Corp, file Form 2553 with the IRS: Corporations must file with the federal government if the LLC is controlled by a state.
4. Register with state agencies: Some states require paper registration, while others allow online registration. You can use the SBA’s state search database to find out what your state requires. (Note that if your company operates in more than one state, you must register with each state’s government.)
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5. Register with local agencies: Visit local government websites to determine what, if any, registration is required.
One of the biggest hurdles for new business owners is deciding how to build their company. There are 4 main business structures to choose from, each with their strengths and weaknesses.
Sole Proprietorship: As a sole proprietorship, you have full control over the company. You are also fully liable, which means that if your business defaults on the loan, the bank can seize your personal assets.
Limited Liability Company (LLC): A limited liability company is designed to reduce the risks associated with sole proprietorship. As an LLC, you separate your personal assets and liabilities from your company’s finances, protecting you as an individual.
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The downside to registering as an LLC is that it can be more difficult to attract investment capital. If you plan to rely heavily on investment capital to start a construction company, you may want to consider company registration.
C Corporation: A traditional corporation is a C corporation. Like an LLC, a C Corp protects business owners from personal risk, but makes it easier to raise capital by allowing ownership of the company to be shared among shareholders.
Of course, involving shareholders complicates the process, so the disadvantages of filing as a C corporation include more paperwork and higher filing fees. A C corporation is also subject to double taxation – dividends are paid to the corporation and dividends are paid to the shareholders.
S Corporation: Another common type of corporation is the S Corp, which is similar to the C Corp with a few key differences. An S Corps can have up to 100 shareholders, and each shareholder must be a US citizen or resident.
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Registering your company as a legal business organization is only half of the administrative process. As a construction company, you need to do your research and need the necessary licenses, permits and certificates to carry out various types of work.
You should look for special licenses and permits required by your state and, in some cases, your municipality. Check with your state contractor’s board and/or local labor department to find out what permits you need. There are considerations that vary from state to state, such as liability and workers’ compensation laws.
Before starting any work, make sure your construction company has accident or emergency insurance. You will also need a variety of specialized insurance policies to cover different aspects of your business, such as real estate and employees.
Now that you’re fully registered, licensed and insured, you’re ready to start thinking about the most important part of your business: the money.
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Most construction companies need financing to lease or purchase equipment and materials to get started. Our guide to renting or buying construction machinery can help you navigate the process.
The SBA offers a variety of low-interest loans to help small businesses thrive. Generally, SBA loans are only available to business owners with a long credit history and good credit.
Certain loans can also be taken out for very specific purposes, such as a working capital loan specifically to cover day-to-day operating costs such as salaries or office overheads. Working capital loans are popular in highly seasonal industries where most of a company’s annual revenue is generated in a few months. During the rest of the year, companies can apply for working capital loans to cover expenses if business slows down.
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