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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 9, 2016

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:

Do you have any advise on what registrations you should do with regards to State Tax, FICA tax, and the 1065 form.. I'm wondering if we could use the old 2015 forms to fill out the quarterly, since I cannot find the 2016 1065 form anywere..
Can I claim an insurance in case something in my home gets broken in the renovation and/or construction process?
Hello, I am helping a business grow. Where can i look to get contacts and submit bids for project?We are a fully licensed class A business. Mainly focus on painting, drywall. Thank you
Thanks for sharing the useful post with us. As we all know many banks are available forConstruction Loans Montgomery AL,at that time .when we need than easily can take a loan. This information is useful to think before taking any kind of loan.
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?
I'm no expert but I thought I would chime in here- there are a lot of "find a contractor" websites where you can add yourself to a list of approved contractors like if you are in California check out Calfinder.com or another one I came across, reliableremodeler.com Also, check out RenoworksPro.com as their software will help you close the sale for residential remodel jobs and also upsell more projects in the process. You can create before and after photos of a homeowners home before starting the remodel process, so it helps the homeowner visualize their project. Hope that helps!
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.

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