Have you spent years of your life building crafts projects and home improvements, whether for yourself or your peers? If so, starting your very own construction business might be appealing. However, having the ability and a network of skilled tradespeople isn’t quite enough to ensure you succeed.
If this sounds like the situation you’re in, it’s time to seriously consider the prominent factors that go into starting a construction business. You’ll have to set a business plan, funding, registrations and licensures, a dependable team, legal contracts, insurance, and so much more.
There are often more hidden variables that can become troublesome later on. Take the time to prepare to learn from others’ mistakes before signing your first contract.
Signing Disadvantageous Contracts:
As a new business owner, it’s natural to be excited about your first projects. You might be willing to sacrifice a percentage of your profit to get approved for the job to get your name out there. Or perhaps you already have a few potential clients interested in your service, waiting for their turn.
However, as word spreads that you’re a small and starting business, you might start receiving proposals from various unrecognized contacts connected or unconnected to your immediate network.
While it can be hard to say no to possible clients, exposure, and revenue, don’t fall for the trap of signing disadvantageous contracts. Signing a contract with a slight financial loss in turn for exposure isn’t a loss since you still gained something.
However, if the contract seems to dip too far into your profits, make sure you seek legal help before you start negotiating. That way, you can ensure incoming proposals check out and won’t leave you in a vulnerable position financially or legally.
Not Acquiring Licenses and Insurance:
A significant misstep most starting business owners end up making is neglecting licensing and insurance requirements. While it might be tempting to postpone such expenses to when your business is off the ground and generating an income, it could be too late.
As a construction business operator, you’d be the responsible party for paying out of pocket in case of accidents, property damages, or liability claims. It’s a good idea to get commercial liability (CGL) insurance if it’s not required in your state. That way, you protect yourself and your workers, so there’s a backup plan to help you out financially if the worst occurs.
Agreeing to a Job Without Knowing the Costs:
While knowing the exact costs of a long-term project can be challenging due to unforeseen difficulties and changes in the market and economy, it’s essential to try your best to get an estimate. There are several cost estimation software programs available, or you can do your own research.
When giving your client a cost estimate, try to inflate the costs to a reasonable level. Accidents and incidents happen, such as a storm breaking your bricks or a miscalibrated saw cutting your wood too short.
This way, you’re able to cover for accidents and incidents without sacrificing the quality and integrity of the project or ending up paying extra out of pocket. Not to mention, if everything goes well, you should have more revenue from said project.
Financing Everything with Loans:
Most startups need some loans to kickstart operations. There’s nothing wrong with that, especially in an expensive industry such as construction, where machinery and equipment cost hundreds of thousands to purchase, license, and insure. However, it’s easy to fall into the trap of living loan to loan and barely making any net revenue without increasing interest rates taking a measurable cut.
Instead of relying on loans for a speedy kickstart, try applying for small business grants from the local and federal government.
Also, there’s no shame in moderate growth when starting a business.
Gradually scale up your company without relying too much on loans. When it comes to revenue, make sure you put aside 15-30 percent of profits into a business savings account. Not only will this prevent you from spending on unnecessary expenses, but you’ll have some money for rainy days, to scale up, and to cover some project costs.
Learning from Other Businesses in Your Industry:
The best way to learn right from wrong when it comes to business is by learning from real-life experiences. Look into other construction businesses, both prospering and failing ones, investigate what they did wrong so you can avoid it and what they did right to mimic it. When forming a new business, research can go a long way.
That being said, it’s essential to discern the information you receive. Since every business is different and grows in a different economy and market, think critically of all advice and see whether it could benefit your business before adopting it.