Building a new business is always challenging and requires close attention to the fundamental steps. The process can be even more complex in the construction industry because it’s such a competitive market. Recent studies have shown that more than $1 billion was spent on new construction projects during the last decade. But even with the competition, there’s still room for a new construction business to succeed with the right planning and preparation.
While there are plenty of numbers to show substantial growth in the construction industry, other statistics shed light on a more grim truth—only 35 percent of new businesses in the construction industry last beyond five years. That’s 15 percent lower than the overall number of new businesses that survive the five-year mark. Another perspective, however, is that more than one-third of those new businesses did succeed by lasting more than five years—so it’s possible for new business owners to thrive in one of the fastest growing industries in the nation.
A Firm Foundation
Any building, whether residential or commercial, begins with a firm foundation; without a solid support system, the structure will not endure. A new business is no different.
Before work on any projects can begin, the groundwork must be laid. Following are six steps to building a solid foundation.
1. Craft a strong business plan. Every business needs a map that details the owner’s vision for the business and how it will grow.
2. Select a name for the new business and apply for an EIN with the IRS. Although seemingly simple, the name and the EIN are necessary for attracting clients and remaining compliant with the IRS.
3. Secure the necessary financing to start and operate the business. Cost projections for the new construction business should be included in the business plan. Before starting a new business, the founder must make sure there is access to capital or enough savings to get the company off the ground.
4. File the correct paperwork to form an LLC, S-Corp or C-Corp. Even though most small businesses in the United States are formed as LLCs, there may be additional benefits for a new construction business to incorporate as an S-Corp or C-Corp. New business owners would be wise to consult a tax professional before making a decision on how to form the company.
5. Obtain the necessary insurance policies for a new construction business. In addition to standard liability insurance, a business owner may also need additional coverage for employees and equipment, as well as an umbrella policy. The premiums can cost as much as $5,000 each year.
6. Acquire the correct licenses and permits for the new business. The required list of permits for a new construction business can vary by city and state. Operating without proper certification can mean hefty fines and even legal issues for the business owner.
Additional note: Some states also require business owners in the construction industry to be bonded. State governments likely require a surety bond for the new business to be properly licensed. Later down the road, some customers may request either payment or performance bonds (or sometimes both).
Additional Details to Consider
Beyond the initial setup and planning of the new business, there are still a number of administrative details to address. Employees will need to be properly categorized as either W2/permanent employees or independent contractors. The tax ramifications related to employee classification make this a continually important issue for the business owner. Misclassifications can result in fees and fines. Additionally, it is always important for construction business owners to ensure that his/her business follows dictated state regulations regarding employee documentation.
New business owners in the construction industry are also highly encouraged to join industry and local associations. Networking is a vital tool for any small business owner who wants to grow his/her company. In addition to any marketing that is implemented to promote the business, making connections in the local community and with other business owners in the same industry can sometimes be the difference as to which group of statistics a new company finds itself—either the 65 percent that did not make it or the 35 percent that did.
A Strong Foundation Paves The Way for Longevity
While laying down a solid foundation does not guarantee a successful building project, it helps prevent cracks and failures from appearing down the road. The same applies to business. If the basic building blocks are taken care of at the outset, the business owner does not have to worry about cracks forming when there is growth. It is much cheaper to take care of those basics at the outset rather than going back and trying to repair them after the fact.
