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How to Start a Small Construction or General Contracting Business

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How to Start a Small Construction or General Contracting Business

By Caron_Beesley, Contributor
Published: January 4, 2012 Updated: February 18, 2015

The construction business is booming once more.

In fact, the residential building construction industry was the number one fastest-growth industries for small businesses in recent years (source: Sageworks) thanks an increase in housing demand, lending activity and real estate values.

In addition, six of the 10 fastest-growing industries among small businesses are tied to construction – including contractors, real estate agents and architects.

The commercial construction market is also experiencing a rebound. IBISWorld predicts that the next five years with see a period of robust growth for commercial construction companies. Demand for more business office space and the resurge of disposable incomes will also raise the demand for retail buildings.

If you’re interested in making the move into the construction, now is the time. Here are eight considerations and resources that can help you get started.

10 steps to starting (any) business

Start by familiarizing yourself with the basic steps involved in planning and forming any kind of business, including planning your business strategy, incorporating and registering with the right government agencies. These 10 Steps to Starting a Business should cover all you need to know.

Get help and be mentored

You don’t have to go it alone; small business assistance programs such as SCORE Mentors or your local Small Business Development Center or Women’s Business Centers can help you understand the ins and outs of the planning process and offer tips for getting started. SCORE can even pair you with a mentor from the construction industry, at no cost. If you are a veteran, contact your local Veterans Business Outreach Center. They offer workshops, mentorship and financing advice.

If you need help writing a business plan, check out SBA’s step-by-step online business planning tool.

Access financing

If you don’t have savings or access to a traditional bank loan, you might want to consider an SBA loan program. Other financing options for small businesses include credit unions, community banks or a business line of credit.

To understand your options, visit Business.USA.gov. Its Financing Wizard can help pinpoint available government resources that can help get you the financing you need.

To understand more about how small business financing works, read:

Get licensed, bonded and insured

Protect yourself, your business and your clients by ensuring you have the right licenses and permits, business insurance and surety bonds. Here are three reasons why and information on how to obtain them:

  1. Business Licenses and Permits – In addition to a general business license, most construction or contracting businesses need specific licenses to operate. For example, a tradesman license is required for electrical, plumbing, HVAC, gas fitting and other construction trades. Check with your state business license office for information about what you’ll need. If you headquarter your business out of your home, you’ll also need to obtain a home business permit from your city or county.
  2. Surety Bonds – Typically, construction businesses need construction bonds in order to operate legally. You arrange for a surety bond from a third party who promises to pay your client if you do not fulfill your work obligations under a contract. Learn more about surety bonds from the Surety & Fidelity Association of America and take a look at their bonding resources for small and emerging contractors. Bond regulations vary by state, so research your state’s requirements or speak to a reputable surety bond agent. If you are unable to secure a bond through a commercial channel, SBA offers its own Surety Bond Guarantee program.
  3. Insurance – Depending on the nature of your work and whether you employ workers directly, you will need several types of business insurance – general liability, vehicle and property insurance. Individual states also require businesses to carry specific insurance, such as workers' compensation insurance, unemployment and state disability insurance. For a better understanding read: What Kind of Business Insurance Do You Need?

Familiarize yourself with construction industry regulations

From energy efficiency standards to workplace safety regulations, the construction industry is heavily regulated. Read SBA.gov's Construction Industry Guide for more information.

Develop an occupational health and safety plan

The Occupational Safety and Health Act (OSHA) requires that construction workers are provided a safe workplace free from recognized hazards. Take a look at SBA’s Workplace Safety and Health guide for information about resources that can help you establish a safe and compliant workplace.   

Finding and hiring labor

The construction industry generally secures labor from four sources – subcontractors, hired employees, labor brokers or independent contractors. To get you started read these steps to hiring your first employee and then check out the particular laws and tax ramifications of hiring independent contractors.

Take advantage of industry tools and resources online

There are many online resources that can help small construction companies and contractors who can’t afford the headcount or infrastructure that larger companies enjoy. Here are just a few:

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Comments:

Once you have set up your construction business, how would you go about applying for construction projects - what type of documentation would you need to send to them? I know the basics like the company's paperwork and insurance, but what else?
The construction industry marked an increase just recently for the first time in four years, adding over 20, 000 jobs in July. It appears to be picking up after a slow down which lasted for a long time. Before jumping into the construction industry, though make sure you get all of your documents in check, as well as your surety bond, as licensing can be a hectic task when unprepared.
One of the important part of any construction requires heavy machinery for excavation. Starting out as an independent excavator operator can be a good idea for a business. It does not take long to learn to operate an excavator (some tech schools even offer heavy equipment operation courses. You can start out by renting a backhoe from you local construction material dealer then buy a used excavator online once you start making enough money.
Thanks for the tips. I think the construction industry is one of the most reliable and rewarding fields anyone interested in starting their own business can join. I am new at this, I am a bit scared yet also excited to join this dynamic field.
There is a great site that is wonderful for a construction company that is just getting started. Construction Office Online has contracts, estimate tools, schedules and many other formulated excel documents that you would need at VERY low cost. This really does help when you can't afford the more expensive software to start.
I am located in Northern VA and have some connections within some government entities to get work contracted. I am 31 and grew up in residential/commercial construction 3rd generation. Currently a superintendent and am hoping to obtain my Class A with BLD and MHIC and be a GC. I have a lot of subcontractors at my disposal but starting off I do not have a large cash flow for equipment, trucks etc. I am a minority so I hear there are set aside monies for these businesses. What is an 8a cert and is it something I should look into? Please point me in the right direction regarding how to structure my company from ground up. Thanks
With the projected increase in both residential construction and private non-residential construction, many people are bound to try and take advantage of that and make some money. Another way you can do so is to become a real estate agent, but of course that depends on the property for sale in your area.
It is so important to do everything right. I see so many companies trying to start without taking the necessary steps of getting licensed and insured. Then, they end up giving up giving small construction companies a bad name. Thanks for encouraging others to do things the right way!
The increase in building will certainly be welcome, I am not sure if now is the time to start General Contracting, at least not in the Midwest. In fact General Contractor has become synonymous with laid off plumber or sub-contractor can't find work. We are fortunate enough to have invested in our reputation as a community leader in Green Home Construction early on. Green homes are really just starting to take root in Springfield Mo and the surrounding area but we are keeping ourselves busy. It takes a lot of money to keep the General Contractor gig going and I know I would have been in trouble if I was just starting out in this economic climate.
Its not easy to develop a new or small business in starting. There are lots of problems in the starting because we are new in that field and its difficult to put down our feet in new city. _________________________ digital printing Toronto This post was edited to remove a link. Please review our Community Best Practices for more information about how best to participate in our online discussions. Thank you.

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