Last Updated on January 27, 2023
Starting a construction business is a lot like starting any other business—you follow a series of steps. Begin by researching the market (including your competition), then devise a business plan (including financial costing). Next, create a brand and a marketing strategy. After that raise funds. You should buy or rent space or set up a home office. Buy equipment also. Then register for applicable licenses, and purchase supplies and any other inputs needed to start the company.
Some states require a license or some other pass/fail system to become a contractor. Find your state, here.
Licenses, Training, and Certifications
There’s more important info to know about starting your business. Operating some equipment such as cranes, commercial trucks, and concrete pumps, will require a license. However, one isn’t required to operate construction-class-sized excavators, loaders, backhoes, telehandlers, boom lifts, pavers, compactors, trenchers, crushers, and buggies (mini dump trucks).
Industry associations help parse knowledgeable and reputable contractors from those below-average with training, industry awards, and acknowledgements. Even being part of an industry association is seen as a commitment to quality work, quality service, and continuous improvement.
Getting trained or certified within certain fields by industry trade associations, will instill confidence in customers. These attributes will communicate that you are a qualified service provider and allow you to charge more for your services. Although you may not need a certification, it may end up being more profitable in the long run.
When managing a project, your company becomes liable for a lot that occurs onsite. This includes physical injury, property damage, safety and human resources compliance, government compliance, and delivering the project on schedule and on budget. Failure to meet minimum expectations will likely result in legal consequences and financial loss. That means starting a construction business should include getting insurance.
Companies buy insurance to protect themselves against some of the aforementioned issues. Here are some examples:
Heavy Equipment Currently at Auction
- General liability – injury claims and property damage
- Workers’ compensation – lost wages and medical expenses from job-related injuries
- Contractor license bonds or surety bonds – these legally bind the contractor to complete a job as promised even at cost and financial penalty to the contractor
- Professional liability – errors in design, value engineering, and on the job or modifications
- Business vehicles and machinery – commercial auto policy and one for heavy equipment
- Cyber – hacker and third-party vendor failure
Once you have your business idea, you will need three essential strategies to grow that business:
- Getting clients and marketing
- Equipment planning and acquisition
- Attracting and retaining talent
Getting clients and marketing
The purpose of every business is to make money. Contractors make money by providing services to clients. Contractors get clients by convincing people they can provide quality work for a price and within an agreeable schedule.
Your first clients will probably be people you know or someone referred to you by someone you know. These early clients may even be a few people who took a chance on you after searching online.
To make both of these avenues successful, you should reach out to as many of your contacts as possible. Let your contacts know whomever they refer will receive a discount. And give your contact something for referring them to you. That way they benefit.
Pick a rate on the higher end of the spectrum you hope to achieve. Low prices can scare people away just as easily as high prices. It’s better to post higher rates and continuously run discounts so you often charge on the lower end. It’s also easier to stop offering or decrease a discount than it is to increase your rates. Receiving a discount gives potential clients the idea they are receiving greater value for their money.
Your first online presence doesn’t need to be fancy or exhaustive, but does need to be attractive and easy to navigate. Clearly communicate your message: the services you provide, your prices, your contact information, examples of your work, etc. Testimonials (video or print) are a great way of persuading people.
When starting a construction business, advertising is a great option too. Advertise on a social media platform—LinkedIn, Facebook, Instagram, and YouTube are the most popular—to increase your company’s exposure online and communicate discounts. You can also post other content that may draw people to one of your pages, such as a how-to video where you’re the expert.
Other advertising options include the publications and web sites of local newspapers, consumer publications, trade industry associations and trade media. Also consider using local shops your potential clients may frequent.
Once you’ve had a few clients, you will begin receiving referrals from those clients, which is good. Ideally, by this point, you’re spending less time tracking down clients and more time doing work that earns money. By now, you can also be more choosy with the type of work you do and how much you charge.
Basically, you want to set up a pipeline of work to create financial predictability. How much is in your pipeline will determine how much effort is focused on getting new clients.
If your pipeline grows too long, you will begin losing clients, because people won’t want to wait too long for your service. At that point, you can increase rates to decrease demand, choose only more profitable projects and refer people you turn away, or scale your business by hiring staff or buying equipment.
Equipment planning and acquisition
A lot of construction activity is improved with the use of heavy equipment. One or two machines, such as a compact excavator or skid steer loader make for a great start-up machine.
A five-year-old, six-ton compact excavator can cost upwards of $5,000. A skid steer loader of the same age will cost about $1,000 less. Most people finance the machine over four years, so you’re paying about $120-$150/month (plus fuel, maintenance and transportation costs).
At the end of four years, you can expect that machine to have cost you $10,000, which means you need to have made at least $10,000 during that time (including its resale) in order for that investment to break even.
This type of calculation needs to be made prior to purchasing a machine. This is how you determine whether to purchase or rent a machine. If you expect to make less than the total cost of the machine (purchase costs, repairs, fuel, travel, etc.), then you should rent. If you expect to make substantially more, you should purchase. This way you can afford to purchase more equipment sooner. If you expect to make about the same or slightly more, rent or plan to keep the machine an extra year to increase the value you get from it by using it for one year without making payments.
Once you know the heavy (and small) equipment you need to bring with you to job sites, you can then choose what performance features your truck (and possible trailer) will need to transport equipment. Your truck needs the power and space to haul the equipment (and crew) to job sites.
More planning and acquisition
A five-year-old truck capable of hauling the aforementioned equipment costs $30,000-$40,000. Over four years at five percent interest, that’s $600-$900/month.
Take care of your truck, so it lasts a long time. All it needs to do is transport equipment and crew. As long as you operate it according to the manual and perform regular maintenance, it should be able to last for years after it’s been paid off.
Since excavators and loaders are versatile machines, you can start offering more services, simply by purchasing attachments for the machines. Forks allow for pallet placement. Grapples help with debris clean up. Mower attachments are used for turf care and brush management. A hammer attachment or pulverizer allows for demolition services. And s concrete mixer attachment is useful for concrete mixing and placement.
This is the most affordable way of expanding your services. The only other option is to purchase more machines so you can have two operating at the same time. Or you can purchase larger machines so you can perform jobs too large for smaller machines.
Attracting and retaining talent
You can only grow so large as a sole proprietor. At some point, if you wish to grow your company, you will need to hire people.
The first people you hire will probably be seasonal general laborers who perform the grunt work while you operate the equipment and take care of all other business aspects.
Hiring is often approached as an afterthought, but companies really can’t grow without employees. Staff shortages in your company could mean turning business away.
You can post jobs through your network, your online presence, or online and local job boards. Word of mouth is also another way if you have good connections.
Take the time to talk to staff about non-business items. This shows you care about them as individuals. Train staff too. This proves you care about their growth. Make work fun when you can. Offer bonuses and incentives, especially for returning next season. Send gifts to desired employees prior to the start of a season. There’s a lot of competition for good workers.
Eventually, seasonal laborers will become full-time laborers and one or two may become supervisors as you entrust a job site to someone else while you are at another job site or taking care of some other business. By then, you will probably start needing help on the office side of the business, and you can take the steps needed to take your business to the next level.
10-Step Growth Chart
The following growth chart shows the steps from being a sole proprietor to a large regional player in the earthmoving and roadbuilding industries. This can be achieved over a 10-30-year period, depending on ambition, skills, and opportunities.
|Sole proprietor||3/4-ton truck, compact excavator||Performs a few services (mostly residential) and markets the company through word of mouth and social media.|
|Sole proprietor plus 1 employee||3/4-ton truck, compact excavator, loader (rented)||The company begins taking on more diverse work and needs a loader, but can’t yet afford one, so they rent. An additional employee contributes to faster finish times and easier work.|
|Sole proprietor plus 3 employees||1-ton truck, trailer, compact excavator, medium excavator, new excavator attachments, rented equipment||The company now has numerous commercial clients whose projects require a larger machine, which requires a trailer to be moved from job site to job site. Still renting equipment for niche applications.|
|Sole proprietor plus 10 employees||1-ton truck, trailer, compact excavator, medium excavator, loader, rented equipment||The company is finally able to purchase a loader, which performs the work of three people. The company joins professional associations to boost their reputation and to market themselves.|
|Partnership plus 25 employees||2 1-ton trucks, 2 trailers, 3 excavators, 1 loader, 1 backhoe, 1 dump truck, 1 paver, 2 compactors||The company has partnered with another construction company with complementary services and expands the services offered. They get their first government contract.|
|Partnership plus 40 employees||2 commercial-sized trucks plus trailers, 5 excavators, 2 loaders, 1 backhoe, 1 paver, 1 compactor||The company sees how expertise is essential to growth and begins recruiting highly skilled personnel and up training current personnel.|
|Partnership plus 60 employees||4 commercial-sized trucks plus trailers, 8 excavators, 3 loaders, 2 dump trucks, 2 pavers, 3 compactors||The company is beginning to take on work farther away from the office. Office staff grows from having just an office administrator/receptionist to include accounting, social media/marketing, human resources and office managerial staff.|
|Corporation (100 employees)||6 commercial-sized trucks plus, 12 excavators, 4 loaders, 4 dump trucks, 2 pavers, 3 compactors, 1 scraper||The company incorporates to better govern itself and sets up a second office at a location several hours away from their main office to decrease equipment transportation costs and increase their market size.|
|Corporation (150 employees)||8 commercial-sized trucks plus trailers, 20 excavators, 6 loaders, 6 dump trucks, 2 pavers, 4 compactors, 1 scraper, 1 motor grader||The company is now a large, regional player in the earthmoving and roadbuilding industries and is a contractor of choice for local governments.|
Starting A Construction Business
What better time to begin starting a construction business than today? Take note of the resources already available to you, and what you still need to attain. After that you have our handy dandy blog to guide you the rest of the way. And when you’re ready to procure some heavy equipment, you can start your search with Municibid.
Starting a construction business isn’t easy. You have to remain dedicated and determined through the ups and downs, but in the end you’ll be happy about your decision.