Tips to Build a Solid Construction Business Foundation
BY Travis Crabtree
Starting a business in any field can be an involved and complicated process, but the construction industry can be even more arduous. New construction business owners don’t necessarily need years of related experience in the industry, but they will need a solid and well-studied plan of action.
Recent studies show that almost half of all new businesses fail within the first five years; for the construction industry, only around 35 percent make it past five years.
The statistics may seem grim, but somehow over one-third of new construction companies did succeed, so it’s possible (and preferable) to be part of the positive stats.
Even with the competition of both new and established construction businesses, the United States is still one of the top markets for the construction industry in the world with over $1 Billion spent on new projects in the last 10 years. This means there’s plenty of room for new businesses to grow and succeed if the business owner is prepared and plans ahead.
Before hiring employees and bidding on jobs, there are some initial building blocks that must be put in place:
1. Create a business plan.
Every business needs a blueprint for how it will grow and succeed. The business plan is your guide for growing your business and includes strategies for how you’ll succeed and what it will cost to run the company.
2. File the paperwork to form an LLC or C-Corp with your state.
Although the majority of small businesses formed in the United States are limited liability corporations, you may want to discuss the differences and benefits between an LLC and C-Corp with your tax professional.
*Note: Even though you do not technically have to incorporate yourself in order to do business as a contractor or handyman, forming an LLC will protect your personal assets in the event that your business is ever sued. Additionally, if you own any of the worksites or projects where you are working, you may also want to consider creating an LLC for each project. For example, if you purchase a house with the intent to repair and resell it, you can make that project/house its own LLC.
This will further protect your business and assets in the event that anything happens during that particular project so that it does not impact your other projects.
3. Obtain the necessary insurance for your business.
In addition to liability insurance, you may also need insurance for your employees and equipment, and an umbrella policy. The annual premiums can run between $2,000 and $5,000.
4. Dot your I’s and cross your T’s.
After you build the foundational blueprint of your business through a plan, you must also address the administrative details. In addition to filing the proper paperwork with the state, ensuring that your employees are properly classified (W2 employees or independent contractors) is a key issue to think about from the beginning. Check out the article on the differences between fulltime employees and independent contractors here. You also need to be careful to follow all of your state’s regulations with regard to documentation. In short, you have plenty of I’s and T’s to keep dotted and crossed.
Travis Crabtree is the president and general counsel of online business filing company Swyft Filings and counsel with the law firm of Gray Reed & McGraw LLP, Houston, Texas. His law practice focuses on assisting start-up and technology companies with all of their legal needs.