In 2022, there are over 3.7 million construction businesses in the U.S., a 3.4 percent increase from 2021. This tells you one thing: the construction business is booming.
If you’re planning to start a construction company, you’ve made a smart decision. However, just because the industry is booming doesn’t necessarily mean the path to success is straight and smooth. The failure rate of small construction businesses is just as high as those of other sectors of the economy.
So, what does it take to start and run a successful construction company? In a nutshell, a lot! But don’t worry, because we’re here to help.
Read on for practical tips and advice on how to find success in the construction business.
Find a Niche in the Construction Industry
The construction industry is vast, but it’s segmented into three main markets:
- Commercial construction
- Industrial construction
- Residential construction
There are many construction conglomerates that offer all types of construction services, but as a startup, it’s advisable to narrow your focus on one of these markets.
How do you choose the right niche?
First, consider your skills and knowledge. If you have vast residential construction experience, it’s best to start a company that focuses on building homes. You know the ins and outs of this market, and you can use your expertise to steer your company in the right direction.
Second, look at the capital requirements. Commercial and industrial construction are capital-heavy, which means you’ll need more capital to start and run your company. Residential construction is capital-intensive as well, but certainly not at the scale of commercial and industrial construction.
Once you’ve found your best niche, it’s time to move to the next step.
Draw a Construction Business Plan
You probably know a few entrepreneurs who have started businesses without a business plan. Even if some of them have been successful, don’t follow their method.
A construction business has many moving parts. Without a business plan, it’s difficult to get them working seamlessly.
Importantly, a business plan details vital information about your upcoming business, including ownership structure, sales and marketing strategies, capital requirements, and financial projections.
A business plan isn’t any good if it was drawn by a person who doesn’t have adequate experience. As such, hire a construction business consultant to help you write your business plan. This way, you’ll end up with a plan you can follow with confidence.
Register Your Construction Company
The registration processes for construction companies vary from state to state. In general, though, you must obtain a business license, get liability insurance and other types of insurance that might be required by state law, and special permits depending on the nature of the construction you’ll be undertaking.
An important part of registering your company is choosing the legal structure. You’re free to choose from any of the following entities:
- Sole proprietorship
- Limited liability company
As a small construction business owner, it’s understandable that you might want a sole proprietorship. It’s cheap to register and doesn’t have a lot of paperwork requirements. You just need a business name and you’re pretty much ready to get started.
However, a sole proprietorship isn’t the best structure for a construction business. Considering the risks involved, such as injuries and property damage, you want a structure that shields you from personal liability. In most instances, this is a limited liability company.
Secure Adequate Startup Capital
Now that you already have a detailed business plan, you already have an idea of your startup capital and working capital requirements. Whether it’s $20,000 or $50,000, ensure you have all of it before opening your doors.
One of the common mistakes some construction business owners make is starting out when they’re short on capital. The consequence of this is you might run out of money before the company starts generating sufficient revenues.
Or, you might secure a construction project that’s above your current capital capacity and fail to deliver it. Talk about biting more you can chew!
If you’re self-funding the entire business, well and good. But if you’re short on capital, pursue other fund-raising avenues.
For example, you can go in for construction business loans. Debt financing has its disadvantages, but if it’s the only option you have, take it.
You can also enter into a partnership so that you can pool capital and co-own the business.
Build a Business Website
With the capital secure, you’re ready to break the first ground. Start with a business website.
In a world where almost everyone is shopping online, there’s no doubt that your prospective clients are there. According to surveys, about 65 percent of consumers use the internet to find construction contractors and engage with them.
Although there are tools to help you construct your website on your own, it’s not recommended. A website is like a storefront or business office. If it’s not looking the part, a potential client can decide to look elsewhere.
Hire an experienced web developer to build a construction company website that’s not only professional-looking but also search-engine friendly.
Besides a website, there are other technologies you need to acquire before you can start dealing with clients. For example, you need construction estimating software. This will enable you to give quality estimates to construction clients.
Others may include project management software, inventory management software, and payroll software. The good news is it’s possible to find one software with a suite of all the services you’d need. Acumatica Construction Edition is one such example.
Build a Strong Team
In the early days of a construction business, it’s not uncommon to find that it’s only the owner doing all the heavy lifting. But as your business starts getting clients, you’ll need to bring in more people to help you.
The success of your construction business will, to a large extent, be defined by the quality of the team behind it. As such, it’s vital to ensure you’re hiring people who will add value to the firm.
For a start, you probably need a receptionist or customer service rep. They’ll help with inquiries and other administrative duties.
Gradually, you’ll need to build the technical team. This includes different kinds of construction workers and project management pros.
Running a construction company is a full-time job, so you might not have all the time to focus on recruitment. There’s a way around it. You can outsource the function to a construction recruitment firm.
Step Up Your Lead Generation Efforts
Here’s the hard truth of being in the construction business: finding clients isn’t a walk in the park. Don’t expect potential clients to walk into your office and give you work. You have to look for them.
While a website can be an effective lead generation machine, you must implement more strategies. Networking is one of the most effective ways to secure new clients. Attend industry events and network with other contractors and professionals.
You also need to invest in social media marketing. A digital agency can design and implement a strategy that will put your company in front of your potential clients’ social media feeds.
Stay Abreast of Construction Industry Trends
Although the construction industry doesn’t change rapidly, new trends do emerge from time to time. Staying abreast of what’s happening in the industry nationally and locally will enable you to build a new-age business.
You especially want to keep an eye on construction technology trends. Clients want to hire companies that are utilizing the newest technologies, including drones and 3D printing.
Sustainable construction is also becoming a major trend. People want buildings that are eco-friendly. Your company should find innovative techniques for sustainable building construction; otherwise, attracting the modern construction client will be a nightmare.
Offer Excellent Customer Service
Dealing with difficult clients is part of a regular day’s job in the construction industry. However, it’s your responsibility as a company owner to ensure you’re offering impeccable customer service.
Having a great customer service team is a good place to start, but all that will be of little value if the company doesn’t have policies that support quality customer service delivery. For instance, there should be policies on how your staff should respond to various customer complaints.
Start a Construction Company That Will Succeed
Every day, there are new buildings coming up around us. Construction companies are at the heart of this environment, and that’s not going to change anytime soon.
Starting a construction company is clearly a sound business decision, but there’s more to it. These tips will help you build a company that will make a difference and earn you big profits.
Explore our blog to learn more about building successful businesses.