Benefits of starting a construction company

Whether building homes or commercial centers, tearing down structures or renovating existing buildings, there’s a need for qualified construction teams. Consider these benefits if you’re thinking about starting a construction company.

• Growth: According to the Bureau of Labor Statistics, the construction field is anticipated to grow by 7% between 2023 and 2033, which is faster than average for all industries. 

• Specialization: Your company can specialize in a construction type to appeal to niche customers, focus your skills or maximize profits.

• Positive impact: Construction companies have the potential to positively impact their communities by ensuring local buildings and structures are safe and solid.

• Scaling: You can scale your construction company as your profits grow.

Related: 5 Construction Project Manager Interview Questions and Answers

How much money you need to start a construction company

Starting any company requires capital, but a construction business can be particularly costly. Equipment and labor costs may account for a large portion of your budget. You also have start-up costs, such as professional licenses and business insurance.

Consider the following common expenses when determining how much capital you need to launch your construction company.

Licenses

Each state has specific construction licensing laws. Check with your local Department of Labor or Contractor’s Board to review the requirements for your state. Most states require one or both of these licenses, depending on your company’s specialization:

• General contractor’s license: Construction professionals who hold a general contractor’s license can oversee construction projects.

• Specialty contractor’s license: A specialty license lets your company perform specific jobs on the construction site, such as heating and air conditioning or electrical work.

Labor

Construction crews vary in size depending on the job type and company size. Estimate how many employees you need based on your construction company business plan. Starting with several employees and adding to the team as you grow may help you control labor costs. The median wage for construction laborers and helpers was $44,310 per year in 2023. You might pay highly experienced or specialized employees more.

Insurance

Having the right commercial policies in place helps protect the company against lawsuits, employees against injury and property and equipment against damage.

• General liability insurance: This insurance protects your company from property damage, on-site injuries and accidents.

• Property insurance: Property insurance protects your office space from damage, natural disasters or theft.

• Vehicle insurance: If you own your construction equipment or vehicles, you might insure them against damage. If you rent equipment, determine whether the company or you need to cover the insurance.

• Workers’ compensation insurance: Workers’ comp covers any long-term effects of workplace injuries.

• Unemployment insurance: This type of insurance provides your employees with compensatory benefits if their employment is terminated for reasons outside their control, such as layoffs.

• State disability insurance: State disability insurance provides benefits to employees whose job-related injuries decrease or eliminate their ability to work.

Insurance costs vary depending on location, number of employees and the size of the jobs you primarily work on. Speak with your insurance representative to get estimates on the cost of insuring your company.

Equipment

You can purchase or rent construction equipment. Some construction companies only require relatively low-cost equipment such as ladders and drills, while others need large machinery like backhoes.

As you develop your construction company business plan, consider what you need to perform the job. Buying the items you frequently use could save you money in the long run. Consider renting the items you use occasionally to save money. Perform a cost-benefit analysis to see whether it’s more cost-effective to rent or purchase equipment.

Vehicles

Many construction companies provide employees with work vehicles to travel to and from the job site with their tools and equipment. Consider how many vehicles you want in your fleet and whether you plan to purchase or lease them.

Workplace

Some construction companies have headquarters where the administrative staff works. This office might also house storage space for tools and equipment. Consider whether you want to secure office space. You could start out of your home until your business needs to expand to a commercial space.

Related: How to Hire a Construction Project Manager

How to create a business model

A construction company business plan can help you establish a framework for your company’s operations. Consider these seven steps to build an effective business model.

1. Describe your customers

The first step in creating an effective business plan is identifying your target client base. As a construction company, you might focus on residential housing, remodeling projects or commercial builds. Determine the type of customer you plan to serve.

2. Establish processes

The primary processes cover how you want to communicate with potential clients, oversee on-site work and process payments. Establishing regular procedures can help ease the transition from business in theory to business in practice.

3. Identify resources

Determine the resources needed to accomplish your business goals. For a construction company, this often includes vehicles, machinery and equipment, a website, phone lines and staff. Also, consider how much capital you need to acquire the necessary resources.

4. Create a value proposition

Determine what separates your company from competitors. Perform a competitive analysis of construction companies in the area. This may help you identify where your company can add value.

5. Find partners

Decide if you need partners to perform your business operations. Partners can include financial backers or businesses in your supply chain. For a construction company, partners might include the company where you get your supplies, the vendor who provides your leased vehicles and the business that hosts your website. Establish these partnerships before launching your business. 

6. Consider marketing

Think about the best ways to market your services to your target demographic. Establish an effective brand that clients can recognize and trust. Begin to create a marketing strategy focused on driving customers into the sales pipeline.

7. Be flexible

Once you’ve completed your initial business model draft, assess it for areas for improvement. As you register your company, insure it and hire employees, your plan might shift. Be prepared to adapt and adjust your plan as needed.

Related: 5 Construction Worker Interview Questions and Answers

Registering your construction company

Registering your construction company is an important step in establishing your business. In most states, construction companies must comply with specific laws when registering their business. Consult with your local government to determine what’s necessary. 

Choosing a business structure

Four business structures to consider for your company’s needs include:

• Sole proprietor: This structure makes you the only owner of the company and gives you full control. 

• Limited liability company (LLC): An LLC still gives you primary control of your company with the benefit of separating your personal assets from your business assets.

• C corporation: C corporations separate personal and professional assets like LLCs. 

• S corporation: S corporations function similarly to C corporations with fewer shareholders.

Picking a business name

You want your business name to be easy to remember, clearly explain your company’s mission and be unique. Consider using an online business name generator to help you brainstorm possibilities.

How to hire construction employees

Employees can directly affect your business’ success. They need to have the skills, attention to detail and emphasis on safety to perform the construction work well. 

You might hire employees, independent contractors or a mix of both. Employees usually have an indefinite contract with no end date and might receive health insurance and paid time off (PTO). Contractors are self-employed and typically hired to work on a specific project in exchange for a fixed pay rate. 

When you’re ready to start hiring, consider following these steps:

1. Write a job description

Start by writing a job description. Provide as many details as you can, including:

• Type of employment

• Key job responsibilities

• Necessary skills

• Previous work experience

• Company description

• Benefits, such as health insurance or PTO

• Application instructions

Related: Construction Worker Job Description: Top Duties and Qualifications

2. Post the job

Post your job description for potential employees. Place the job posting on your company website, Indeed and other relevant sites, such as professional social media pages. Reach out to industry organizations to ask about qualified job seekers.

3. Select qualified candidates

Review applications for qualifications and experience. Since you’re beginning a new business, you may hire multiple candidates at once.

4. Hold interviews

Interview potential candidates using a list of construction-specific questions. Here are typical interview questions for construction workers:

• How do you resolve challenges on a work project?

• How would you handle a customer who was dissatisfied with your work?

• Tell me about a recent project you’re proud of.

• What licenses or certificates do you have?

5. Negotiate offers

Select the candidates you want to hire. Make a job offer, but be prepared to negotiate if they have a counteroffer. This process can take some time, especially when hiring multiple people at once. Personnel files can help you organize the specifics of each employee ’s duties and compensation package.

Related: How to Hire a Construction Worker

How to set rates

Setting your rates in advance can ensure consistent quotes. These steps may help you set acceptable rates for your work.

1. Consider labor costs

Labor costs include wages, benefits, time off, training and other expenses related to employees. Labor costs vary based on the size of your team. Each employee might earn a different wage, so you can establish an average labor cost per job or find the average across your employees.

2. Determine direct costs

Next, establish your direct costs. This may include:

• Supplies

• Materials

• Subcontractors

• Permits

• Equipment rentals

You may establish this total per job since direct expenses vary from project to project. Determine how much you need to charge per hour to cover these expenses.

3. Identify indirect costs

Indirect costs are hidden overhead costs, such as:

• Insurance

• Vehicle and equipment depreciation

• Communications equipment

• Taxes

Since these costs don’t typically change, you can calculate them once and apply them to all jobs.

4. Calculate a pay rate

Add the three hourly rates—labor, direct costs and indirect costs— together for the absolute base rate needed to cover expenses.

Determine your intended profit from each job and add that to the hourly rate. This final number is what you may charge your customers per hour.

Related: Construction Project Manager Job Description: Top Duties and Qualifications

Best ways to market your construction company

Construction companies may benefit from a combination of traditional and online marketing .

Traditional marketing

Traditional marketing includes:

• Billboards

• Direct mail

• Radio

• Television

• Newspapers

• Magazines

• Brochures

Most construction companies work in their local area, so it can be highly effective to utilize billboards and direct mail campaigns to target customers in your region.

Online marketing

Online marketing refers to any advertising that takes place online, such as:

• Social media marketing

• Pay-per-click ads

• Emails

• Content marketing

• Influencer marketing

Many people search online when looking for a company or product, so promoting your business online can help you attract potential customers.

Frequently asked questions about starting a construction company

Are construction businesses profitable?

Construction businesses can be profitable with adequate planning. Starting small and controlling your costs can help you earn a profit quickly. Make strategic decisions, weighing the costs and potential profits as your company grows. Specializing may also help you become more profitable by becoming an expert in a particular construction type. 

What are the common tools needed for a construction company?

When starting your construction company, you might rent large equipment, including excavators, compactors and wheel loaders. Small tools, such as various saws, power tools and hand tools may be easier to purchase upfront.