Strategy, Legal & Operations

How to start a construction business

I once heard a successful contractor describe how he started his company with just a pickup truck and his dog. On the surface, launching a construction company can seem pretty simple. In fact, construction is one of the most popular segments for startups. But for anyone venturing into this challenging and rewarding business, there are some basics you need before setting up shop as a construction contractor.

Start with a business plan and proper business structure

It’s easy to overlook this step, especially if you’re more interested in building things than actually managing a business. Your business plan is your roadmap to where you want your construction company to go and shows how you will achieve your goals. It also helps secure financing. The main components of a business plan  include an executive summary, business description, market strategy, operations plan, and financial factors.

Find financing

There are a number of ways to obtain funding, starting with looking at your own pocketbook. But if you can’t rely on your own savings or even a traditional loan, there are other avenues to explore. The Small Business Administration (SBA), for example, offers a “wizard” to help you find government resources for financing.

Obtain licenses

As a construction contractor, you will need more than just a business license. Start with your local county courthouse to determine what permits and licenses are required for the type of work you will be doing. You will also need to secure specific state licenses. The SBA provides a convenient spot to look up state license and permit requirements.

Put the right insurance in place

Most states and construction contracts require contractors to carry valid workers’ compensation insurance. Other coverage to consider includes general liability, auto, builder’s risk, and professional liability (if you are doing any design work). Understanding the insurance landscape can be daunting. An insurance provider with proven experience working with contractors can show you how to protect your company from the start.

Get bonded

In many states, contractors are required to obtain a surety bond in order to be licensed. The amount of this license bond varies by state. Your customers can also require you to obtain additional performance and payment bonds for specific projects. While performance and payment bonds are most often used on government projects, their use is increasing on privately funded projects.

When starting a construction business you don’t have to go it alone. Locally you’ll find chapters of helpful organizations such as the National Association of Home Builders (NAHB), Associated General Contractors of America (AGC), Construction Financial Management Association (CFMA), and other groups that provide great networking opportunities and expert advice specific to construction. There are also special programs available for businesses owned by minorities, women, and veterans. And finally, it’s always a good idea to get professional advice from an accountant who specializes in construction to assure your business sits on a strong financial foundation.

Editor’s note: This article was first published in May 2015 and has been updated for relevance.