How To Start A Framing Business – Deciding to start your own construction company can be a fun, but overwhelming experience. With so much research, reporting, and paperwork to complete, it’s easy to get lost in the administrative details and forget the passion that inspired you to start your own business to begin with.
In fact, 68% of small business owners regret not spending enough time learning the basics of business management in the first year. Fortunately, the process of starting a construction business is pretty easy, as long as you know where to start. Construction companies take time to plan and build, so by starting earlier, you can set yourself up for success later.
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And even though COVID-19 has caused delays in construction in major cities, there are still 36 states where major construction is underway as of this article’s publication.
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We’ve compiled everything you need to know about getting your company off the ground, from how to build a solid business plan to what type of insurance you need and beyond. Here’s how to start a construction company, broken down into five steps. Click the links below to jump to each section:
Thanks to the internet, a lot of free, publicly available data is available to you, as long as you know where to look. Here are some great sources of information you can use when doing market research:
Doing your research ahead of time is optional, but it will make the rest of the process of setting up your construction company much easier. Importantly, completing your research will make it much easier to complete the next stage of the process: writing your business plan.
Every startup needs a business plan, not only to help guide you through the process of starting your company but also to help raise investment money, get approved for loans, and more. Here are the steps you will need to take to build your construction company business plan:
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An executive summary is an introduction to your business plan. It should be short (one or two pages), comprehensive, and compelling.
A Small Business Administration proposal includes your mission statement, basic bio information about your company, the products and services you offer, financial goals and fundraising targets, past accomplishments, and your future plans. for the business. The rest of your business plan will contain the same elements touched on in your executive summary, but in greater detail.
After the executive summary, do an overview of your company: who the founders are, when it was created, and what it does. You should also write a value proposition that explains why your company’s offerings are in demand in your particular market.
You should also be sure to note here whether your business is structured as an S-Corp, C-Corp, or an LLC, and how ownership is divided if you are not the sole founder.
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In this section, you will need to provide research that confirms the existence of a specific demand in your target market and why your company is uniquely positioned to satisfy that demand.
This section is where you will go to details about the products and services you offer. Discuss current or past projects that can serve as examples of your company’s offerings, if possible. Since construction also depends on handling materials, highlight any existing partnerships you have with building suppliers, contractors, etc.
You may also want to include the types of contracts you plan to use with potential customers. Lump sum, unit cost, cost plus, and time and materials contract all handling equipment differently, so your vendor’s needs will differ depending on the type of contract you plan to use.
Give a detailed description of your company’s current finances and where you plan to spend in the future. If you don’t have previous financial data, include project versions of the same documents and link the market research and analysis you used to make those forecasts.
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You should also document all your debt obligations – this includes other investments you have secured, mortgages on any company property, utility loans, etc.
Finally, you will include the financial details of the funding you need or hope to raise. Include the funding you are currently applying for and include additional rounds of funding you expect to be necessary in the future. Be sure to tag each amount for a specific purpose, such as utility purchases, property rentals, etc.
Any charts, notes, research, or other pieces of information that you believe are important to your business plan but are too long or not in the book itself can be added to the appendix.
Once your business plan is complete, it’s time to make it official by registering your business legally with the federal, state, and local governments.
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1. Decide on a business entity: Choose your business name and decide whether you will register as an LLC or a corporation.
2. Get an Employer Identification Number (EIN): Your EIN is a federal tax ID that you’ll need in order to pay taxes, hire employees, open a bank account, and apply for business licenses. You can apply for one online through the IRS website.
3. If you are registering as an S-Corp, file Form 2553 with the IRS: While the state regulates the LLC, corporations need to file with the federal government.
4. Register with state agencies: Some states require paper registration while others will allow you to register online. You can use the SBA state search database to find what your state requires. (Remember that if your company operates in more than one state, you need to register with each state government.)
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5. Register with local agencies: You will need to visit your local government websites to determine what registration is required, if any.
One of the biggest stumbling blocks for new business owners is the process of deciding how to set up the company. There are 4 main business units to choose from, each of which has its own strengths and weaknesses.
Sole Proprietor: As a sole proprietor, you have total control over your company. It is also fully liable, which means that if your business defaults on a debt, the bank can seize your personal assets as a result.
Limited Liability Company (LLC): A Limited Liability Company is designed to reduce the risk associated with operating as a sole proprietor. As an LLC, you will separate your personal assets and liabilities from your company’s finances, which protects you as an individual.
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A drawback to registering as an LLC is that it can be difficult to raise investment capital. If you are planning to rely heavily on investment capital to start your construction company, you should consider registering as a company.
C Corporation: A traditional corporation is a C Corporation. Like an LLC, a C Corp protects business owners from taking on personal risk, but makes it easier to maximize income by allowing the company’s ownership to be shared among shareholders.
Of course, including shareholders complicates the process, so the drawbacks to filing as a C corp include a lot of paperwork and a higher filing fee. C Corps are also subject to double taxation—the corporation will be taxed as an entity, and the shareholders will be taxed on dividends.
S Corporation: Another common type of corporation is the S Corp, which is similar to a C Corp with a few key differences. An S Corps cannot have more than 100 shareholders and all shareholders must be US citizens or residents.
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Registering your company as a legal business is only one half of the administrative process. As a construction company, you will also need to research and obtain the necessary permits, licenses, and certifications required to perform different types of work.
You will need to look at the specific licenses and permits required by your state and, in some cases, by your county. To find out exactly which licenses you need, contact your state’s Labor Commission and/or your local Department of Labor. There are a few considerations that vary from state to state, such as liability and workers’ compensation laws.
You really need to make sure your construction company is insured before starting any work whatsoever to make sure you are covered in case of an accident or emergency. You will also need several specific insurance policies to cover different aspects of your business such as property assets and employees.
Now that you’re fully registered, licensed, and insured, you’re ready to start thinking about the most important thing in business: money.
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Most construction companies need funding to lease or purchase equipment and supplies necessary to begin work. Our guide on renting or buying construction equipment can help simplify the process.
The SBA offers a variety of low interest loans designed to help small businesses thrive. Generally, SBA loans are only available to business owners with a long credit history and a good credit score.
Certain loans can be obtained for specific purposes, such as working capital loans, which are specifically designed to cover day-to-day operating expenses such as payroll or office supplies. Working capital loans are popular in high season companies, where most of the company’s revenue for the year is in a period of a few months. During the rest of the year, companies may apply for working capital loans to cover expenses while business is slow.
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