Construction Companies That Offer Financing - Deciding to start your own construction company can be an exciting but overwhelming experience. With so much research, reporting and paperwork to do, it's easy to get lost in the administrative details and forget about the passion that inspired you to start your own business.
In fact, 68% of small business owners regret not spending enough time learning the basics of running a business in their first year. Fortunately, the process of starting a construction business is actually quite simple, as long as you know where to start. Construction companies need time to plan and build, so starting early can set you up for success later.
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And while COVID-19 has caused manufacturing to shut down in major cities, there are still 36 states where construction is considered an essential service as of this writing.
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We've rounded up everything you need to know about starting your own business, from how to write a solid business plan to what types of insurance are needed and more. Here's how to start a construction company, broken down into 5 steps. Click the links below to jump to each section:
Thanks to the Internet, there is an abundance of free, publicly available data available to you as long as you know where to look. Here are some great sources of information you can use during your market research:
Doing your research beforehand is optional, but the rest of the process of starting a construction company will be much easier. In particular, completing your research will make it much easier to complete the next step in the process: writing your business plan.
Every startup needs a business plan, not only to guide you through the process of starting your company, but also to help you raise investment funds, get approved for loans and much more. Here are the steps you will need to take to write a business plan for your construction company:
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The executive summary is the introduction to your business plan. It should be short (one or two pages), comprehensive and convincing.
The Small Business Administration recommends that you include your mission statement, basic biographical information about your company, the products and services you offer, financial features and financing goals, relevant past successes, and your future plans for the business. The rest of your business plan will contain the same elements mentioned in your executive summary, but with more detail.
After the summary, give an overview of your company: who are the founders, when was it founded and what does it do. You should also write a value proposition statement that describes why your company's offerings are sought after in your specific market.
You should also note here whether your company is structured as an S-Corp, C-Corp or LLC and how ownership is divided if you are not a sole proprietor.
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In this section, you will need to provide research that demonstrates the existence of a specific demand in your target market and why your company is uniquely positioned to meet that demand.
This section is where you will go into detail about the products and services you offer. Discuss current or past projects that can serve as examples of what your company offers, if possible. Since construction also relies heavily on the procurement of materials, highlight any existing partnerships you have with construction suppliers, subcontractors, etc.
You can also include the type of contract you plan to use with potential clients. Lump sum, unit price, cost plus, and time and materials contracts manage the procurement of materials differently, so your supplier needs will differ depending on the type of contract you plan to use.
Provide a comprehensive overview of your company's current finances and where you plan to be financially in the future. If you don't have past financial data, include forecasted versions of the same documents and include the market research and analysis you used to make those forecasts.
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You should also document all your debt obligations - this includes other investments you've secured, mortgages on business assets, equipment loans, etc.
Finally, you'll include financial details about the financing you need or hope to get. Include the funding you are currently applying for, as well as any additional rounds of funding you anticipate will be needed in the future. Make sure you earmark each amount for a specific purpose, such as buying equipment, renting a property, etc.
Any charts, notes, research or other information that you think is relevant to your business plan, but is too long or does not belong in the document itself, can be added as an attachment.
Once your business plan is complete, it's time to make it official by legally registering your business with federal, state, and local authorities.
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1. Decide on a business entity: Choose a name for your business and decide whether to register as an LLC or as a corporation.
2. Get an Employer Identification Number (EIN): Your EIN is a federal tax number that you'll need to pay taxes, hire employees, open a bank account, and apply for a business license. You can apply for one online through the IRS website.
3. If you register as an S-Corp, file Form 2553 with the IRS: While LLCs are governed by the state, corporations must file with the federal government.
4. Register with state agencies: Some states require paper registration, while others will allow you to register online. You can use the SBA's state database to search to find out what your state requires. (Note that if your business operates in multiple states, you must register with each state's government.)
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5. Register with local agencies: You will need to visit local authority websites to determine what, if any, registration is required.
One of the biggest hurdles for new business owners is the process of deciding how to structure the company. There are 4 main business structures to choose from, each with their own strengths and weaknesses.
Sole proprietorship: As a sole proprietorship, you have complete control over your business. You are also fully liable, which means that if your business defaults, the bank can seize your personal assets.
Limited Liability Company (LLC): A limited liability company is designed to reduce the risk associated with doing business as a sole proprietor. As an LLC, you will separate your personal assets and liabilities from the company's finances, which protects you as an individual.
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The downside of registering as an LLC is that it can be more difficult to raise investment capital. If you intend to rely heavily on investment capital to start your construction company, you should register as a corporation.
C Corporation: The traditional corporation is the C Corporation. Like an LLC, a C Corp protects business owners from taking on personal risk, but makes it easier to raise capital by allowing ownership of the business to be divided between shareholders.
Of course, shareholder involvement complicates the process, so the disadvantages of filing as a C corporation include a lot of paperwork and a higher filing fee. C corporations are also subject to double taxation - the corporation will be taxed as an entity and the shareholders will be taxed on the dividends.
S Corporation: Another common type of corporation is the S Corp, which is like a C corporation with a few key differences. S Corps cannot have more than 100 shareholders and all shareholders must be US citizens or residents.
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Registering your company as a legal entity is only half of the administrative process. As a construction company, you will need to research and obtain the necessary permits, licenses and certificates to perform various types of work.
You will need to look for specific licenses and permits required by your state and, in some cases, your municipality. To find out exactly what licenses you need, check with your state's Contractors Board and/or local Department of Labor. There are numerous considerations that vary from state to state, such as liability and workers' compensation laws.
It is imperative that you check that your construction company is insured before starting any work so that you are covered in the event of an accident or emergency. You will also need different specific insurance policies to cover different aspects of your business, such as real estate and employees.
Now that you are fully registered, licensed and insured, you are ready to start thinking about the most important element of business: money.
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Most construction companies need financing to rent or buy the equipment and materials needed to get started. Our guide to renting or buying construction equipment can help demystify the process.
The SBA offers a variety of low-interest loans designed to help small businesses thrive. Generally, SBA loans are only available to business owners with a long credit history and a good credit score.
Certain loans can be purchased for very specific purposes, such as working capital loans, which are specifically designed to cover day-to-day operating expenses such as salaries or office overhead. Working capital loans are popular in highly seasonal businesses where most of the company's annual revenue is generated over a period of several months. During the rest of the year, businesses may request working capital loans to cover expenses while business is down.
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