A Simple Guide to Starting a Small Construction Business in 2020

Are you thinking about starting a construction company? If so, now’s a good time. The construction industry is predicted to grow by 3.7% this year.

Plus, you might benefit from generous financial backing as banks increased their small business loans in 2018.

But, although construction seems to be an industry with everything going for it, the success of any new start-up relies on thorough preparation and planning.

So, to help you out with that, we’ve put together a quick guide on how to start a small construction business. There’s lots to cover, so let’s dive straight in!

1. Draft Your Business Plan

A solid business plan is the foundation of every successful business. It does more than simply define your company’s vision. Your business plan should make sure all the fundamental ideas behind your company are sensible and can lead to revenue.

It should answer the hows, whens, and whys, where launching your business is concerned. This includes detailing all the necessary steps for transforming your plans into reality.

A business plan is also essential for applying for business loans. Drafting the plan isn’t too challenging, as you can follow a specific template. There are loads available from banks and government websites, which often provide actionable suggestions on what to include.

2. Register Your Business

Once you have determined a business plan, you will need to acquire the necessary licenses and register your business. These can vary depending on your location. The construction industry has its own unique procedure.

Make sure you’re fully aware of all the legal requirements before you register and include these in your overall considerations.

3. Decide on a Business Entity

Various business entities could be suitable for your company. The most common and applicable in the case of a small construction business is a limited liability corporation (LLC).

This enables you to pay business taxes and operate as an official entity while covering your personal assets. In case your company goes bankrupt or faces legal issues, the LLC is held responsible as a separate entity, as such, personal assets like your home are protected.

4. Apply for the Right Licenses

Construction companies in nearly all municipalities require specific licenses to work within their boundaries. These may be as simple as becoming licensed as a recognized contractor within the town, county, or state.

Depending on your specialties, you may require specific licenses—for example, a permit to install HVAC equipment, or one that permits you to subcontract work. Specific licenses may also be necessary for you to bid on government contracts.

5. Insure Your Business

Insurance for your construction company is just as important as registration. When you work on projects on other people’s properties, they will want to know that they won’t face liability should an accident occur.

You’ll also want to be protected against losing equipment or being unable to work. This could ensure your business doesn’t go down when an obstacle arises.

There are different types of insurance your business will need, most notably:

General liability insurance: This protects you against worksite injuries, accidents, and other legal liabilities.

Vehicle and property insurance: These policies ensure the protection of your company’s equipment and machinery.

Employee insurance: If you plan to hire employees, you’ll need worker’s compensation, unemployment, and state disability insurance.

6. Access Small Business Loans

To kickstart your company, you’ll need materials, tools, and equipment. You may even need to pay overheads on company property.

Luckily, there are many business construction loans available. Some offer a lot of flexibility, such as a business line of credit. Others provide you with a sum of cash, like loans from the Small Business Administration (SBA).

7. Consider Your Premises and Equipment

Many construction start-ups have humble beginnings in the owner’s home. However, you may eventually wish to move into official business premises. Consider this when you plan for costs and bear in mind future requirements. 

You may need office equipment and suitable facilities. To stay connected, you may even wish to invest in a 2000 kW generator for your commercial property. For equipment purchases, equipment financing is available.

The loan amount is tied directly to the cost of the equipment and is suitable for borrowers without a long-standing credit history. Bear in mind that the lender may repossess machinery if you can’t make payments.

8. Network with Suppliers and Contractors

You’ll save money on materials if you establish a good relationship with local suppliers and contractors.  Open accounts with several suppliers and start building credit with them.

It would be best if you also tend to relationships with other contractors. That way, you’ll know who to call upon if you don’t have the time to finish a job within a deadline. Sometimes it also pays to rely on someone else’s expertise.

Do You Now How to Start a Small Construction Business?

We hope having read this blog post, you have a better idea about how to start a small construction business. With the right preparation, this daunting but exciting venture could be made all the easier.

Just be sure all your documentation is in order and educate yourself as to the legal requirements in your state regarding insurance and licensing. Then, all that’s left to do is to present your airtight business plan in front of the right lenders. Good luck!

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