Starting a Profitable Construction Business

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Despite the recession and the housing bubble; the construction business remains popular. It is a very diversified sector that incorporates both small-scale investors and multinational corporations. In recent years this has turned out to be one of the fastest growing business sectors. This is due to increased housing demand and better lending facilities. As the value of real estate rises, many are looking for businesses to assist them during the construction process. The other related business sectors (such as realty marketing, architecture, planning and contracting) are also consistently ranked among the top ten growth areas. Starting a construction business is a profitable and highly rewarding business venture. This article describes some critical issues that are relevant when first starting out your building construction company.

Develop your competencies, skills and experiences

If you do not know what you are doing, then you have no business joining the construction business industry. It does not matter whether you hire people. Without the right technical skills, the construction business is bound to fail. You cannot ensure top quality for your customers if you do not even know what you are assessing. That is why it is recommended that you attend a training course before starting a construction business.  You can also participate in an apprenticeship related to the construction business industry.

Some people have successfully relied on mentors as a means of improving their competencies and capacity. Examples of these mentorship resources include the SCORE program and the small business development centers. Other sources of support include construction sites, experienced workers and professional artisans. Construction is a highly specialized skill . Thus it relies on good craftsmanship and business discipline.

Planning for, accessing and utilizing financial resources

The budget for a first time construction business varies considerably. Some experts argue that for the first single house, you should have a lot of money at hand. This means that you will have sufficient funds to cover contingencies and administrative costs. Do not be tempted to use the administrative fund for the actual construction work. The reason being this is within the remit of the budget that the client has approved.

Most of the people that enter the construction business will require a loan at some point. This is because the business size is directly linked to the amount of capital that you have. The first choice would be a bank or building society. However, if you do not have the right credit rating you might apply for a small business loan. You can also use a credit union. The money that is required is not only for the materials and labor. You also require money for the administration of your business. Some entrepreneurs prefer a hybrid system in which they provide the finance for the administrative tasks. They then borrow money for the building projects.

Construction business
House under construction

Where a client has provided you with funds for the purpose of constructing their property, it is imperative that you follow their instructions. One of the most frequent complaints about builders is that they tend to underestimate the true cost of construction. They also include so many incidentals that the budget is overspent as soon as the project starts. A construction business owner must have project planning and management skills. Most customers would prefer to rehire a contractor that was on budget and did a good job within the allotted time. This is how you build a positive reputation within the construction business industry.

The importance of insurance and permits in Construction Business

Construction business is one of those industries where adequate insurance is required. Lack of insurance can bankrupt the entire business within a matter of days. Indeed, many regulators demand that you have insurance from the outset. The insurance should cover the materials that you are using and the building itself. It should also cover the construction workers. You are responsible for ensuring that the package selected is comprehensive enough to cover all your potential losses. The insurance package should also be kept up to date. One missed payment of a few hundred dollars could end up costing the construction business millions of dollars.

Clients feel reassured when they know that you are covered. Surety bonds by third parties are one of the important prerequisites for working in the construction business industry. So many things can go wrong on a building site including fires, sabotage and other accidents. Thus you have  to be prepared for them.

You will certainly need permits and licenses before you can be allowed to open up a construction business. Sometimes the clients will demand background checks to ensure that you are not going to run off with their money without doing the job. In fact, the insurer needs to know who is working before they can offer them insurance. Do not forget the trade-specific licenses for people who do the plumbing, electrics and gas.

construction work
Construction workers

Building inspections

By law the construction project must be inspected by qualified professionals including the town planner, architect, engineer and rating surveyor. These are protections against poor quality work. They are useful to all affected parties including the government, locality, community and building owner. Make sure that you arrange these inspections and respond appropriately to any feedback that they provide. One of the reasons why buildings are demolished is where the constructor has failed to follow the terms of the planning permission or alternatively the requirements of their clients.

Make sure you have a comprehensive construction business plan

The failure to plan is the beginning of business failure. The construction business plan must be clear and succinct enough to give your potential partners, clients and investors an overview of what your objectives are. At the same time, it must be detailed enough to explain the nuances of the business that you propose. At the very minimum you need to have the following included:

  1. The mission, vision and operational strategy.
  2. Market Analysis And Customer Segmentation.
  3. A business case showing that the business is financial viable and sustainable.
  4. A marketing and customer care plan.
  5. An organizational chart and human resource policy.
  6. A three-year expansion outlook.
  7. A risk and rewards Analysis.

You will need to make an informed decision about the business type that you will adopt for your company. For example, you may decide to be a sole owner or may open up a Limited Liability Company (LLC) or even a Public Limited Company (PLC). Each of these options requires very specific application processes for permits and registrations. The business type you select will determine who owns, runs and supervises the operations of the company. It’s also better to have a professional website for your construction business.

A business on the mend

The construction company sector suffered catastrophic losses during the housing crash of 2008-2012. However, the industry is rebounding nicely on the back of increased demands for good quality family homes. According to IBIS World; the industry has recorded revenues in excess of $170 billion from nearly 70,000 businesses within the USA during 2016. The industry annual growth rate stands at 8.7%.

Do not let the high capital outlay put you off. There are plenty of reasonable funding solutions for the entrepreneur. What’s required is to have have the skill, passion and drive for the respective construction projects. Above all a good reputation in this industry is worth its weight in gold. It is precisely what the clients consider when selecting a future construction specialist.

We wish you the best in your construction business! Check out our collection of business plans , and more business ideas



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