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How to start a construction company

How to start a construction company

The construction industry is experiencing a rebound after the pandemic-driven recession that began in 2020. All indicators suggest that the construction industry will surpass $1.53 trillion as the demand for private construction increases. 

Residential remodeling is all the rage in 2022 as many Americans continue to work from home. In 2020, the industry saw a 58% increase in residential construction projects. 2022 is an opportunity for new contractors to enter the market. 

Creating a business is always an uphill task, which also applies to construction. 90% of construction businesses fail in their first two years, a phenomenon attributed to a lack of proper knowledge on running a business. To succeed, you will need proper planning and execution.

Here are ten things to consider when starting a construction company to make things easier for you. 

Analyze the competition

First, you must determine if a construction business is viable in your area. An oversaturated market is not worth entering due to the difficulty of establishing a foothold. Market research will help you develop a comprehensive business plan and give you a competitive advantage when you hit the market.

Find out how many local construction companies exist in your area, their areas of specialization, prices, and reputation. Understand your potential customer base in terms of their interests, median age, and status. 

You can begin with the U.S Small Business Administration, which provides free resources with complex data on business markets and customers. The SBA will provide you with hard data such as age, gender, employment status, and spending habits of your intended audience. 

More specific information is available in online local industry publications. Type the name of your city and the phrase "construction industry publications" into Google to pull up the information you need. 

Finally, consider speaking directly with your potential consumer base. Use surveys, focus groups, individual interviews, or surveys to get direct customer feedback. This type of market research can be costly and time-consuming, so it is critical first to determine what questions to ask. 

General questions on what they consider necessary when hiring contractors, their challenges, and the frequency of hiring contractors will be most helpful. The answers will provide insight into how to develop your business plan. 

Create a business plan

A comprehensive business plan is essential to ensure a successful launch. A business plan can be extensive or straightforward but must include business objectives and goals, services, competitive analysis, market opportunities, sales and marketing, financial analysis, and operations and management. 

A well-developed business plan allows you to tap into the potential outcomes of your business and outline the steps necessary to scale the construction company. A business plan also helps you make important financial decisions such as equipment financing and construction loans.


Choose a location

Choosing a location for your new construction business can be daunting, and there are countless variables to consider. Factors such as proximity, local businesses, logistics, brand image, and cost all affect your choice of location. 

It is advisable to consider the proximity of your new offices to good establishments such as roads, local partners, homes of potential staff members, and shippers. 

Consider the location and similar businesses in the area. You do not want to be in an area with too many competitors. However, if you are close to complementary businesses, it might increase sales and brand recognition. 

Logistical feasibility is critical for a construction business. Choose a location that suits your vision. For instance, staying away from older parts of the city would be best if you plan to build an exciting, hip startup. 

Finally, consider the cost attached to the location as some areas will be more expensive than others. Keep in mind additional costs due to required prep work and renovations. 

Understand the legal parts

After drafting your business plan and identifying a location, you must register your business to make it a legal entity. Registering your business will help you avoid run-ins with the law but also provide legal benefits, tax benefits, and personal liability protection. 

A construction company can legally operate as a sole proprietorship, a general partnership, a limited liability company (LLC), or a corporation. It is essential to understand these business entity types and choose one, then register your business. 

In some states, you will only need to register your company's name with local and state governments. However, other states require you to register your business with the federal government. 

Once your business is fully registered, you will get a federal tax ID or Employer Identification Number (EIN). You will then be able to trademark your business name and logo. Additionally, the EIN allows you to open a business bank account and separate your business and personal assets. 

Put insurance in place.

Once registered your business and acquired all the necessary permits, you must put insurance in place. Your insurance choice will be determined by the size, structure, and type of your construction business. 

The types of insurance you may need include; property insurance, general liability insurance, vehicle insurance, workers compensation insurance, state disability insurance, and unemployment insurance. 

If you plan to hire employees, you must get an employer's liability insurance as mandated by the federal government. Besides, clients may refuse to hire you if you do not have sufficient insurance coverage. You will also need insurance to cover your business against damage, theft, and injury. 

Know your finances

You must ensure you have the funding needed to run your construction business. If you do not have enough savings to start you off, you can secure funding through government funding programs, private lenders, government loans, bank loans, or credit unions. 

Once you have figured out the basic financing, you need to determine how you will fund your projects. Being able to front some costs will help cushion you against irregular cash flows during a project. 

Set up an operating budget for your company to cover expenses such as rent, insurance, utilities, staff, lead generation, technology, and marketing expenses. These costs will depend on your goals and needs. 


Establishing good relationships with other contractors is essential when starting a construction company. It would help if you had a network of construction professionals around you to call upon to help you complete projects. Start by establishing credit with several suppliers. 

Networking helps you identify new opportunities and gives you a competitive edge by raising your profile compared to your competitors. It also helps you make connections that result in opportunities and might help you leverage better deals.

use contractors

To hire or use contractors.

Construction companies typically rely on subcontractors, employees, independent contractors, and labor brokers to meet their business objectives. Your labor choice will have unique legal, regulatory, tax, and budget implications. If you hire employees, consider the cost and duration of training required. 

Get your name out there.

The construction industry is very competitive and winning a contract takes more than offering the right price. Determine your strengths, weaknesses, opportunities, and threats. A SWOT analysis will help you target the right audience and use marketing tactics and messages. 

After conducting an analysis, you can decide whether to go with simple signage or something more elaborate like online marketing, a website, a blog, or radio and TV adverts. Using promotional items like brochures and business cards, you can also get your name out there. 

Invest in construction software

The construction industry has evolved from the traditional brick-and-mortar industry, and so must you. Invest in construction management software to efficiently run your company.

Construction software is useful in project and document management, risk assessment, cost control, and service delivery. They also make data easily accessible among stakeholders, thus creating a platform for business development and growth.

It is, therefore, best to allocate some funds to invest in the right software solutions to reduce project time. 


Starting a construction company is an exciting but risky venture. Creating a successful construction business requires a lot of planning to ensure that every aspect is covered. Financial planning is also crucial in ensuring your new business runs smoothly. 

Construction companies can be very rewarding but have some of the highest closure rates. It is therefore important to start on a solid foundation to stay successful.