How to Start a Construction Company

Step 1: Name your construction company

Naming your construction company is an important first step in establishing your brand identity. When choosing a construction name, there are a few basic rules to keep in mind, although it’s important to note that specific naming rules can vary by state. Here are some common guidelines to consider:

• Unique and distinctive: Select a name that sets your construction company apart from others in the industry. Aim for a unique and memorable name that reflects your company’s values and services.
• Relevant and descriptive: Choose a name that conveys the nature of your construction business. Incorporate keywords that highlight your expertise, such as “construction,” “contracting,” or specific construction specialties, like “residential” or “commercial.”
• Check for availability: Before finalizing your name, conduct a thorough search to ensure it’s not already in use by another business in your state. You can check with your state’s Secretary of State office or use online business name databases to verify availability.
• Legal considerations: If you plan to structure your construction company as an LLC or corporation, you may need to include a specific designator in your name, such as “LLC” or “Inc.” Check the naming requirements of your state’s business entity filing office to comply with the regulations.

If you decide to operate under a different name than your legal business name, you can consider filing a “doing business as” (DBA) name or “fictitious name” registration. This allows you to use a different name while keeping your legal entity intact. Typically, these names aren’t exclusive, and they require renewal. But you’ll need to check your state’s guidelines.

Step 2: Develop your construction business plan

A well-structured business plan is essential for your construction company’s success. While no two company plans will look exactly the same, they’ll have a lot in common. A good plan includes key components of your construction business idea like an executive summary, company description, market analysis, organization and management, services offered, marketing plan, funding, and financial projections.

Last but not least, remember to include a lead generation strategy in your business plan, outlining how you will pursue potential projects and secure construction contracts. A well-crafted business plan demonstrates preparedness and increases your chances of securing funding, avoiding mistakes, and attracting clients to your construction company.

Step 3: Choose a business entity type

When starting a construction company, it’s crucial to select the right business entity type. Let’s walk through the main options to consider, along with some of their pros and cons. 

• Sole proprietorship: This is the simplest and most common business structure. As a sole proprietor, you have complete control over your company. However, you are personally liable for any debts or legal issues your construction company may face.
• Partnership: If you’re starting a construction company with one or more partners, a partnership structure allows you to share profits, responsibilities, and liabilities (partnerships have unlimited personal liability, too). It’s important to have a well-defined partnership agreement in place to clarify roles and obligations.
• Limited liability company (LLC): An LLC provides personal liability protection while offering flexibility in terms of taxation and management. It’s a popular choice for construction businesses as it shields personal assets from business liabilities. Additionally, it allows for pass-through taxation, meaning that, unlike a typical corporation, profits are only taxed on the owners’ personal tax returns without first being taxed at the business level.
• Corporation: Like an LLC, a corporation is a separate legal entity from its owners (shareholders). It offers the strongest level of personal liability protection but involves more complex legal and administrative requirements. Corporations have a more formal structure and are subject to double taxation on profits.

When choosing a business entity type, consider factors such as liability protection, tax implications, ease of management, and long-term growth plans. Consulting with a business attorney or tax professional can help you make an informed decision based on your specific circumstances and goals.

Step 4: Find a location for your construction business

Finding the right location for your construction business contributes to its success. When considering a location, several factors should be taken into account. First, ensure that the location is easily accessible for both clients and employees. Additionally, verify that the chosen location complies with local zoning regulations.

You’ll also want to assess the competition in the area and determine if there is a demand for construction services, as well as any potential competitive advantages the location may offer. Finally, carefully analyze the cost considerations associated with leasing or purchasing a location, including rent or mortgage payments, utility costs, insurance, and any necessary renovations. By doing thorough research and selecting the right location, you can enhance the visibility, accessibility, and growth potential of your construction business.

Step 5: Obtain licenses and permits

When starting a construction company, obtaining the necessary licenses and permits is crucial to operate legally and ensure compliance with state and local regulations. We’ll walk you through the various licenses and permits typically required for a construction company. But keep in mind that these requirements vary a lot by state, so you’ll need to check your area’s specific rules.

• General contractor’s license: In many states, a general contractor’s license is required to undertake construction projects. This license demonstrates your competence and knowledge in managing construction work across various trades.
• Specialty contractor’s license: Some states differentiate between general contractors and specialty contractors. Specialty contractors focus on specific trades, such as electrical, plumbing, or HVAC. Depending on the state, obtaining a separate license for each specialty may be necessary.
• Federal contractor registration: If you plan to work on government contracts, you may need to register as a federal contractor. This process involves obtaining a unique identifier, known as a DUNS number, and registering with the System for Award Management (SAM).
• Bonding: Depending on the state and project requirements, a construction company may need to be bonded. Bonding provides financial protection to clients in the event of non-completion or issues with the construction project.

In addition to construction-specific licenses and permits, other licenses and permits may be required. These can include:

• General business license: A general business license is often required at the state, county, and/or city level to legally operate your construction company.
• Sales tax license: If you sell construction materials or services, you may need a sales tax license to collect and remit sales tax.
• Zoning permits: Depending on the location, you may need zoning permits to ensure your construction business is in compliance with local zoning regulations.
• Environmental and safety regulations: It’s critical to know and comply with federal and state regulations such as those set by the Occupational Safety and Health Administration (OSHA), the Environmental Protection Agency (EPA), and the Department of Housing and Urban Development (HUD). Consulting an attorney can help ensure your business is in compliance with these laws.

To navigate the complex landscape of licenses, permits, and regulations, it is advisable to consult with an attorney familiar with construction and business laws. Our business license report can also help streamline this process.

Step 6: Register for taxes

Registering for taxes is an important step when starting a construction company, and there are lots of steps to tackle. For most construction businesses, the first step is to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). An EIN is a unique identification number assigned to your business for tax purposes. You can apply for an EIN online through the IRS website, and it’s typically required for various tax filings and hiring employees.

State and Local Taxes

Your construction company will likely need to register for a number of state and local taxes. This can include sales tax, income tax, and unemployment insurance tax. The specific requirements vary by state, so it’s important to research and comply with the tax obligations in your state.

• Sales Tax: If your construction company sells materials or services subject to sales tax, you will need to register with the appropriate state agency to collect and remit sales tax.
• Income Tax: Depending on the legal structure of your construction company, you may need to file income tax returns as a sole proprietor, partnership, LLC, or corporation. Consult with a tax professional to understand your specific tax obligations.
• Unemployment Insurance Tax: If you have employees, you may be required to pay unemployment insurance tax to provide benefits to eligible workers who become unemployed.

Ensure you understand the tax requirements in your state and consult with a tax advisor or accountant to help ensure compliance with all federal, state, and local tax obligations. Keeping accurate records and staying up to date with tax filings and payments is crucial to avoid penalties and maintain good standing with tax authorities.

Step 7: Plan your financials

A solid financial plan is important for the success of your construction company. After all, you’re probably hoping to make a good profit with your business. To make that happen (ideally sooner rather than later), there are a few crucial aspects to consider.

Determine your pricing

When determining pricing for your construction services, consider various factors such as material costs, labor expenses, overhead, and desired profit margin. Common pricing models used in the construction industry include fixed pricing, time and materials pricing, and cost-plus pricing, though there are also other pricing strategies. Analyze market rates, competitor pricing, and the value you provide to clients to set competitive yet profitable rates for your services.

Calculate your start-up costs

To help ensure you have a realistic financial plan, calculate the start-up costs of your construction company. Start-up costs may include buying or leasing necessary equipment, obtaining licenses and permits, marketing expenses, insurance premiums, office space, and initial inventory. Create a detailed list of all anticipated costs, research market prices, and consider whether you will purchase new equipment or opt for used or leased equipment to manage expenses effectively.

Open a business bank account

Separate your personal and business finances by opening a business bank account. This will help you keep accurate financial records, track income and expenses, and simplify tax filings. Research different banks to find one that offers business-friendly services, such as low fees, online banking options, and the ability to link your account with accounting software.

Set up accounting systems

Implementing effective accounting systems is essential for managing your construction company’s finances. Consider using accounting software that suits your needs and allows you to track income, expenses, invoices, and financial reports. Set up a chart of accounts to categorize expenses accurately and reconcile your accounts regularly. If needed, consult with an accountant to help ensure compliance with tax regulations and to receive professional advice on financial management.

By carefully considering your pricing, accurately calculating start-up costs, opening a business bank account, and implementing robust accounting systems, you can set yourself up for financial success in your construction company. Regularly monitor your financial performance, adapt your pricing strategy as needed, and seek professional guidance to help ensure your financial plan aligns with your business goals.

Step 8: Fund your construction company

Securing funding for your construction company is crucial to its success. One option is to use personal savings to finance your construction company, allowing you to retain control without taking on debt. Another avenue is to apply for business loans from banks or financial institutions, using the funds to cover start-up costs, equipment purchases, and working capital. Presenting a strong business plan and financial projections can increase your chances of obtaining a loan.
You can also consider investors who are interested in supporting your construction company in exchange for equity. This not only provides financial support but also brings valuable expertise and connections. Crowdfunding platforms offer another avenue, allowing you to pitch your business idea to a wider audience who can contribute small amounts of money to support your venture. Last but not least, you can explore government grants and programs that cater to small businesses or the construction industry.

Step 9: Get insurance

Securing the right insurance coverage is vital for a construction business to protect against potential risks and liabilities. General business liability insurance, for example, safeguards your business from accidents, property damage, and bodily injuries on the construction site. Workers’ compensation insurance is a legal requirement to cover medical expenses and provide disability benefits for employees if an accident happens on the job. Unemployment insurance offers financial support to eligible workers during periods of unemployment. State disability insurance provides temporary disability benefits for non-work-related injuries or illnesses. 

Property insurance protects construction equipment, tools, and materials from damage or loss. Vehicle insurance is necessary for company-owned vehicles used for business purposes. Other relevant insurance options include professional liability insurance, builder’s risk insurance, and surety bonds. These are just a few of the many options you might need or want to protect your business.

Step 10: Find construction company suppliers and negotiate prices

To find reliable suppliers for your construction company, research and identify reputable options through online directories, industry trade shows, and referrals. Request quotes from selected suppliers, comparing factors like product quality, reliability, and customer service alongside pricing. Prioritize value for money rather than solely focusing on the lowest price.

Establish strong relationships with chosen suppliers by maintaining open communication, providing feedback, and addressing concerns promptly. Negotiate contract terms that benefit both parties, including pricing, discounts, payment terms, and delivery schedules. Continuously monitor supplier performance and evaluate their reliability and adherence to agreements. Regularly assess your supplier network to ensure it meets your construction company’s needs and objectives. Building successful relationships with suppliers is essential for a thriving construction business.

Step 11: Hire employees

When hiring employees for your construction company, follow these key steps. Advertise job openings, conduct interviews, and select the most qualified candidates. Also, make sure you have workers’ compensation insurance to protect both your employees and your business. Prioritize workplace safety by following OSHA regulations, providing training, and maintaining a safe work environment. 
Establish a thorough onboarding process to familiarize employees and recruiters with company policies and procedures. Stay compliant with employment laws, including those related to wages, overtime, discrimination, and employee rights. By hiring and retaining skilled employees while prioritizing their well-being and legal compliance, your construction company can thrive.

Step 12: Implement marketing and advertising

To market your construction company effectively and secure projects, follow these key steps. First, define your target market and develop a comprehensive marketing strategy that includes online and offline channels. Build a professional website and logo, optimize it for search engines, and leverage social media platforms to engage with potential clients. Cultivate relationships with industry professionals for networking and referrals. Learn the bidding and proposal processes to compete for construction projects successfully.

By implementing a targeted marketing approach, establishing a strong online presence, networking with industry peers, and mastering the bidding process, your construction company can increase its visibility and attract valuable projects. Regularly assess your marketing efforts, adapt your strategies as needed, and consistently seek new opportunities to promote your business and secure lucrative contracts.