Start It Up: Getting the Business Ready to Go

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This is the second in a three-part series on starting and growing your own construction business. Here, we'll discuss the planning and administrative tasks that anyone starting his or her own business should complete before starting work. Next month's article will address how to keep your business prosperous and growing.

Last month, we reviewed the experience requirements and personal characteristics an aspiring contractor should have — or think carefully about — before attempting to start his or her own construction business. If you think you have the right stuff, this month's article will give you a good idea of the steps to get started.

1. Develop a Plan for Your Business.

The first step is to create a plan that will guide you in your first year. The plan need not be complex but will provide a framework for you to follow and help you determine just what you want and need for your business to grow and be successful.
  • Scope it out. In order to develop a viable plan, you must determine exactly what kind of work you intend to do. Will you focus on basement finishes or complete overhauls of older homes? Additions or new construction? While you may indeed be a “jack of all trades,” start by homing in on the specific areas of initial concentration and grow from there.

  • Where? Identify the geographic area you intend to serve. Do your homework to evaluate if it offers sufficient demand for your specialty.

  • What’s in a name? A company name is your interface with the world and deserves careful thought. Consider a name that describes what you do, or create a tagline for that purpose. Check with your secretary of state to be sure your proposed name is available.

  • How’s the financial climate? Talk with established contractors. Ask about ballpark profit levels and outlook for future construction in your proposed service area. Research the local economy and business climate. Check building departments for building permit issuance rates. Use a simple spreadsheet or purchase business software to help determine your cash flow requirements.

  • Go hour by hour. To determine your hourly rate, one simple method is to decide how much you want to — and can realistically — make, add in equipment and business expenses (exclude expected material purchases), and divide by the number of hours you expect to charge in a year. This will give you an hourly rate.

  • How are your savings? Determine if you have enough to live on for six to 12 months. Understand that you may need to rent tools and equipment at first.
In your planning, be conservative. Expect to start small with expectations for future growth. Create concrete, attainable goals, assuming that not everything will go perfectly in every situation.

2. Form an Advisory Team.
  • Accountant: Whether you decide to use your own spreadsheets or a purchased software program to track your revenues and expenses, you’d be wise to work with a good accountant. He or she can advise on the system that works best for you and can help you determine the best business structure for your company. A proprietorship can keep things simple for a new, solo contractor, with minimal setup paperwork. Income taxes are straightforward but often require relatively high payment of self-employment tax.

    An S corporation or limited liability company structure will offer ways to keep more of your profits in private savings and in the company and can provide some protection for your personal assets. Tax reporting requirements are, however, more complex for corporations. With your accountant you will be able to quickly determine which option is best for you.

  • Banker: You will need a company account in order to keep business and personal finances separated. Because you want to avoid credit card use at all costs if you cannot pay off the entire balance every month, you also may need a line of credit to draw on as your business develops. Make sure you do not use credit cards as your alternative for obtaining a loan.

  • Insurance agent: In most areas contractors must retain liability insurance to obtain licenses. If you have employees, you’ll also need workers’ compensation coverage. (If you use independent contractors, they each must have their own liability insurance.)

  • Attorney: You will need a simple, standardized contract for your clients. Where applicable, you may also need a partnership agreement.

  • Marketing and communications specialist: This professional can help increase awareness of your business and help promote it to your target market(s). Watch for more detail on this area in next month’s article.
3. Obtain Your License(s).

Appropriate licensing is essential for conducting your business on a professional level. Failure to get a license may exclude you from consideration by a significant percentage of potential clients.

Most municipalities use the standard International Building Code (IBC) test for contractor licensing. To pass the test and receive your IBC certification, you will need to learn the code as well as how to use the code book. With your certificate in hand — as well as proof of insurance and a list of client and contractor references — you can then apply for a license at local building departments.

If you get through these steps successfully, you’ll be well on your way toward your new business. All you need now are clients. Next month, we’ll focus on how to build a client base and grow your business.

About the Author

Dean Bennett is president of Dean Bennett Design and Construction Inc., a design/build firm based in Castle Rock, CO. Specializing in custom residential design and construction, the firm’s projects include remodeling, interior and exterior additions, conversions, basement finishes, landscaping and fencing, and custom finish carpentry.

Dean Bennett Design and Construction offers concept-to-completion design, including working drawings, blueprints, securing of permits, and inspection coordination. Working with a business model of a single principal on site throughout the project, from architectural design through final construction, Bennett effectively integrates design and construction while eliminating the need to hire separate general contractors, subcontractors, and architects.

Bennett has worked with a national client base, including many clients for whom he has worked for multiple years, since 1996. He holds Master of Architecture and Bachelor of Environmental Design degrees from the University of Colorado. Bennett is also an accomplished fly fisherman, golfer, skier, and snowboarder and enjoys swimming, running, cycling, cooking, and photography.

He can be reached at 303-513-2065 or
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