Wondering What People Didn’t Tell You About Starting a Construction Business? Read This!
All truths are easy to understand once they are discovered; the point is to discover them.
Galileo Galilei (1564 – 1642)
We’ve learned that becoming an owner and leader of a prime or subcontractor construction business can come from many experiences. For example, by being:
- a family member in a construction business where day-to-day experiences provide insight and exposure
- a tradesman, starting from apprentice to journeyman to foreman to superintendent
- an architect, engineer or project manager who has designed or managed construction projects and is drawn to the “hands-on” aspect of construction
No matter the exposure or stimulation, once the decision is made to take the risk of going out there and making a “go of it”, the ball game changes and more knowledge is required than previous experience may have afforded.
We get it. It’s exciting, it’s rewarding, it’s your chance to bring that “Bob the Builder” fantasy to real life. But doing the job for someone else is different from running the business for yourself.
So how do you skill-up if you haven’t had years of mentorship from construction owners with years of experience? First, we highly recommend you go out and round up that mentor but, in the meantime, here are a few pieces of salient advice budding construction entrepreneurs should consider:
There’s more to do than hang your shingle.
There are many requirements leading up to submitting a bid on a project. Certain trade-specific licensing and certifications may be required to perform construction work. Business licenses and registration are required by most states. Registration of state tax identification numbers for income tax withholding, sales and use tax, and unemployment insurance tax are also required. But these are just the tip of the iceberg.
So, before performing any construction work, make sure to do the following:
- Check with your state, local city, county or jurisdictions.
- Get to know what the requirements of agencies, owners, or developers are to submit a bid.
- Keep in mind that it takes time to get the required documentation and there are costs involved.
Construction companies are capital intensive.
Becoming a construction business entrepreneur is more than just having a great crew and a few months of work in your backlog. You need a strong, comprehensive financial plan. A good plan starts by knowing and budgeting for all your expected costs. This includes direct and indirect (overhead) costs. The budgeting process should project your annual spending to determine how much revenue you will need to be paid to cover it. If there’s something left at the end of the year, it’s profit!
- Establish the break-even point in your bid to assess whether your budgeted cost will be more than covered by your price to show a profit.
- Be prepared to pay for project costs upfront. Payment is typically received for work that has been completed.
- Seek prompt payment by invoicing immediately after service is rendered. Invoice accuracy will also help avoid payment delays.
- Work with a seasoned professional, like someone from SCORE or a local small business development center to obtain and use projections of key accounting measures utilized in construction.
You must continue to feed the beast.
Once you have started performing construction and have amassed staff, equipment, and a sundry of overhead costs, you will need to keep the projects flowing. Keeping the pipeline full of work is not easy. The purposeful efforts of business development resources will need to be tapped to provide ample future bidding opportunities. Winning 1 bid in 8 or 10 submittals is not uncommon and is often considered the norm. Do not underestimate the power of creating a business development strategy.
- Develop the sources to get on bidders’ lists by signing up for bid notifications through state, federal, and local agencies; Procurement Technical Procurement Centers (PTAC); or from the input of past customers, colleagues, and other professionals.
- Routinely scan business or agency bid opportunity portals.
- Ask for reviews and referrals.
You need to show up in more places than just the job site to generate new work.
Even though at times the construction market may appear to be booming, the work volume ebbs and flows. The competition for projects, particularly of the small variety, can be fierce. As the company owner, you realize how important it is to be present on your current job sites but now; guess what? You need to be seen in other places as well to keep your business on the radar of those awarding work.
Here are some important places to be seen:
- Attend project pre-bid meetings.
- Get to know purchasing managers by setting up an introduction meeting to share your business interests and capabilities.
- Be visible at public agency board meetings.
- Be a participant in agency-sponsored M/WBE programs.
- Show up at trade shows.
These are just a few tips that we hope will help enthusiastic construction entrepreneurs as they begin their journey, but we know there are more questions out there.
Share your construction business start-up questions in the comments below and sign up for the CAI Newsletter where we share more articles and tips to help M/WBEs on their journey to success.
