How to Start a Construction Company Successfully in 11 Steps

by | Mar 1, 2023

How to start a construction company

If you want to learn how to start a construction company, this page will guide through essential steps to get started. This comprehensive guide will provide you with all the information you need to begin building new projects or renovating existing structures. 

Building construction is always in demand as the population grows, and there is a housing shortage in the US. Additionally, building components require replacement or repair over time, making construction a field that will continue to thrive.

Starting a contracting business can be a long and winding road without proper guidance. This page will guide you through the basic steps you need to take so you know how to start a construction company. 

What Is a Construction Company?

A construction company, which encompasses over 40 different trades in the construction industry, requires different skills and expertise depending on the type of work you want to specialize in.

If you’re interested in learning how to start a construction company, it’s essential to understand the different types of contractors. A general contractor, also known as a “prime contractor,” oversees construction projects that require multiple specialty contractors. They are responsible for hiring, coordinating, managing, and supervising subcontractors to ensure the work is performed correctly and efficiently.

Specialty contractors, on the other hand, specialize in a particular trade, such as plumbing, electrical work, or roofing. When a specialty contractor is hired by a general contractor, they are referred to as a “subcontractor.”

To start a construction company that will be successful, you need to follow several administrative steps. Read the 11 steps below so you know how to start a construction company using a straightforward path.



1. Choose a Construction Trade

Choosing a construction trade is the first step in how to start a construction company. 

If you do not have any construction experience, it is necessary to learn the trade, gain experience or partner with someone who has that experience. Some jurisdictions, like California and Arizona, require years of experience and passing an exam to qualify for a contractor’s license.

2. Develop a Business Plan

As you learn how to start a construction company, developing a business plan is the second crucial step. A well-crafted plan will provide direction for your new venture, ensuring that you’re on the right track. A great business plan should include a mission statement, a marketing strategy, and financial projections.

When creating your business plan, you must identify the type of construction projects you will bid on. You can categorize these projects into four types: residential, commercial, industrial, or public work. This will help you determine which types of construction projects are in demand in your area.

Additionally, include a market analysis in your business plan. It is necessary that you determine whether there is a demand for the services your construction company will provide. Create a list of competitors in your construction trade and find out if your construction company will be able to compete for work. 

In preparing your business plan, make sure to highlight the experience you or a partner, if any, have in the construction trade. Sufficient qualifications are necessary to perform construction work since it is technical and regulated. You’ll also need these qualifications to obtain local government approval for your construction work. This information will be an essential part of your marketing plan to attract potential customers.

Finally, estimate your expected revenue and operating costs on a monthly basis. This information will help you determine if your construction company is economically feasible. With a well-crafted business plan, you’ll have the confidence to start your construction company and take the first steps toward success.

3. Form a Business Entity

As you learn how to start a construction company, forming a business entity is a smart decision to shield yourself from personal liability. The most common business entities for contractors are corporations and limited liability companies (LLCs). It is recommended that you consult with an attorney who specializes in business start ups to determine the right entity for your situation. They can provide guidance to ensure you follow all the appropriate steps to operate as a business entity in your jurisdiction.

4. Apply for Tax Identification Numbers

After your business entity is formed, obtaining a Federal Employer Identification Number (EIN), also known as a Federal Tax identification number (TIN), is the next step. This can be easily completed online at the IRS website. This number is required to open a bank account, which is necessary to manage your business finances.

It’s also important to obtain a tax identification number from the state government if the state where you start your construction company charges corporate taxes. By researching the tax requirements in your state and consulting with a tax professional, you can ensure compliance and avoid potential legal issues. These are other essentials steps as you learn how to start your construction company on the right foot and set yourself up for success.

5. Open a Bank Account

The next step in how to start a construction company is opening a bank account once the IRS assigns an EIN assigned to your construction company an EIN. The bank account will be opened in the name of your construction company and It’s important to have enough money in the bank account to ensure adequate capitalization. The laws of the state where you start your construction company and the type of work you engage in determines what is adequate.

While there is no specific dollar amount that qualifies as adequate capitalization, it is essential to have enough funds to cover operational costs. If you’re unsure about whether your construction company is undercapitalized, consult with a legal or finance professional licensed in the jurisdiction where you plan to start a construction company.

Once your construction company has a bank account, you can use it to pay its operational costs such as paying for licenses.

6. Obtain Licenses and Permits

Before you can perform construction work, it is essential to obtain several licenses for your construction company. The first license you need is a contractor’s license, which can be issued by the state, county, or city, depending on where you start your construction company. For instance, in California, a single state department issues contractor licenses, while Florida contractor licenses are issued by counties in that state, and in Texas, certain contractor licenses are issued by cities while other specialty trades require a license from the state.

Apart from a contractor’s license, you also need to obtain a business license and construction permits from your local government. The specific licenses and permits you need may vary depending on the location of your construction company. For instance, if your business is situated within a city, you need to get a business license and construction permits from that city. On the other hand, if your business is located in an unincorporated area, you need to obtain a business license from the county where your business is located.

This is a very important step in the process of learning how to start a construction company. Failing to hold necessary licenses may prevent you from getting paid for work you performed. Consult with a professional with experience in your jurisdiction, or ask your state, county, and local governments about their requirements to ensure you have all the necessary permits to start working.

7. Buy Insurance

Another critical step to pay attention to when learning how to start a construction company is having adequate insurance before performing any work. Here is an overview of insurance policies that are commonly required for a construction company.

Commercial general liability (CGL) insurance is the most common insurance policy that all businesses should buy. This type of policy typically protects against claims for personal injury, bodily injury, and property damage. It may also protect your construction company against claims for construction defects.

Commercial auto insurance is another policy that you should consider when starting a construction company. As a contractor, you will likely be driving to different locations to perform work, or picking up and delivering materials. If you have a vehicle dedicated to your construction company, it requires commercial auto insurance coverage. Any vehicle you will operate for your construction company will need a separate commercial auto insurance policy to be covered for any damages that occur.

Workers compensation insurance is required by law by almost every state. If your construction company hires employees to perform the work, then you will be required to buy workers compensation insurance. A few states, like Washington, require companies to buy workers compensation insurance from the state’s own workers’ compensation fund. It’s essential to understand the legal requirements for workers’ compensation insurance in the state where you are starting your construction company.

Professional liability insurance, also known as errors and omissions insurance, may be required if your construction company performs any construction designs. Consulting with a licensed insurance broker can help you determine if this policy is necessary for your specific construction company and the appropriate coverage limits.

A licensed insurance broker can help you navigate the complex world of insurance and ensure that your construction company is adequately protected.

8. Get Business Equipment

Now that you have moved past administrative steps of how to start a construction company, it is time to consider buying or leasing necessary equipment to perform work.

In addition to tools and equipment specific to your contractor trade, it’s also essential to use technology. A computer will be useful for tasks such as preparing construction bids and schedules, creating advertisements, and communicating with clients. It can also help with accounting if you decide to handle bookkeeping yourself.

As you begin to evaluate how to start a construction company for yourself, be sure to assess your technology needs and invest in the appropriate equipment that aligns with your business goals and objectives.

9. Advertise Your Construction Company

Marketing is important with any business, so this step is a crucial step to focus on when you are figuring out how to start a construction company. Fortunately, there are several options for advertising your business using the internet.

Your first marketing step should be creating a website that showcases your qualifications and work. This website will likely be the first place potential customers look for information about your business. Fortunately, there are several low-cost options available to quickly build a website.

In addition to a website, you should also establish an online presence by adding your construction company to platforms such as Yelp and Google Business Profile. This will ensure that your business shows up in local searches for contractors.

You can also consider listing your construction company on websites that connect businesses with potential customers, such as Angi’s List, Houzz, Home Depot, or Lowe’s. There are also platforms like Thumbtack, Porch, adopt-a-contractor.com, contractors.com, and 1800remodel.com where you can list your construction company to reach a wider audience. When deciding which platforms to use, be sure to consider the target audience for your business and choose the ones that align with your goals and objectives.

10. Submit Bids to RFPs

Submitting bids in response to Request for Proposals (RFPs) is another potential source of work for your construction company. However, it’s essential to prepare a well-organized bid that outlines the costs and is competitive to increase your chances of being awarded the construction contract.

Construction cost estimating software can be incredibly useful for this step. It can help you accurately calculate the costs and prepare a competitive bid that aligns with your business goals and objectives.

To further increase your chances of winning the bid, consider submitting a well-written proposal along with your bid. If you struggle with writing proposals, consider taking a business writing course or using AI writing tools to save time and provide a competitive advantage. A well-written proposal can help showcase your business’s strengths, professionalism, and highlight how you can meet the client’s needs.

11. Review Your State’s Mechanic’s Lien Laws

Preserving your right to file a Mechanic’s Lien is the last step in this series about how to start a construction company. Of all the steps you need to learn to start a construction company, this is one of the most critical.

To ensure you’re prepared to file a Mechanic’s Lien when necessary, become familiar with your state’s laws and requirements before starting any project in your contracting business. You need to know what to do if you’re not paid for work your construction company performs.

In several states, there is deadline for sending a Preliminary Notice before when you start work. Properly sending a preliminary gives you the right to file a Mechanic’s Lien on the property where your construction company performed work.

It’s essential to follow the rules precisely when sending a Preliminary Notice; otherwise, it may be invalid, and you may lose the right to file a Mechanic’s Lien. Make sure you closely follow the requirements or hire a professional to prepare and send one on behalf of your construction company. This step is critical to ensure you’re adequately compensated for your work and protect your business’s financial health.


Conclusion

Congratulations! Now you know how to start a construction company in 11 steps. Armed with this knowledge, you can tackle each of those administrative tasks to get your business up and running.

As you embark on this exciting new journey, keep in mind that the key to success lies not just in getting the paperwork done, but in delivering quality work that exceeds your clients’ expectations.

By developing a strong team of skilled workers, honing your craft, and working hard, you can build a reputation for excellence that will help your business thrive and grow over time.

Starting a construction company is no small feat, but with determination, persistence, and a commitment to excellence, you can create a legacy of hard work and dedication that will benefit both you and your clients for years to come.

About the Author

Jon Chen
Jon is a lawyer with more than 15 years of experience practicing law. His passion for music began when he was a child, which led him to learn how to play the piano, saxophone, trombone, and guitar. He enjoys analyzing music and helping others succeed and live a better life.