Do you want to start a general contracting business? If YES, here is a complete guide to starting a general contracting business with NO money and no experience.
Okay, so we have provided you an in-depth sample general contracting business plan template. We also took it further by analyzing and drafting a sample general contracting business marketing plan backed up by actionable guerrilla marketing ideas for general contracting businesses. In this article, we will be considering all the requirements for starting a general contracting business. So put on your entrepreneurial hat and let’s proceed.
Why Start a General Contracting Business?
The contracting industry is a very lucrative one as you have unlimited number of customers to patronize you. You can get contracts to complete jobs for the government just as you can get jobs from private clients like local businesses, schools, private individuals and several others.
It is also a fairly easy business to start with limited risks. As long as you are able to carry out necessary research and feasibility studies before starting the business, you can easily excel at it.
The construction industry in the United States is currently experiencing a boom. A report released by Sageworks revealed that in 2016, the fastest growing industry was the residential building construction industry and this was due to the increase in the value of real estate and demand for housing in the country.
If you are looking to start a booming business in the United States, contracting business is one of the best businesses you can start. This article is a step by step guide to help you set up your contracting business with ease.
Starting a General Contracting Business – A Complete Guide
- Industry Overview
A report by Ibisworld recently revealed that the contracting industry in the United States records annual revenue of about $195 Billion with an annual growth rate of 11.7%. The research report also revealed that there are over 650,000 businesses operating in the industry, with about 6 million employees.
The industry is a major contributor to the economy of the country and creates about $1 Trillion worth of structures every year.
Facts and Figures
- There are about 729,345 contracting companies in the United States according to StatisticsBrain.
- About 7,316,240 employees are currently employed in the industry.
- California has the highest number of contracting companies followed by States like Florida, New York, Texas, Illinois, Pennsylvania, North Carolina and New Jersey.
- Specialty Trade Contractors are the highest percentage of contracting companies in the US.
- The average construction company employee salary is $45,200.
- The United States has the largest contracting market worldwide.
- Most new construction projects come from New York, which has the highest construction expenditure amongst American cities.
- The largest contracting firm in the US is Bechtel.
- The value of US local and state government non-residential construction expenditure in 2016 was $257.6 billion USD.
- The value of new privately owned construction projects started in 2016 was $1,166,400 USD.
- The value of new private non-residential building projects started in 2016 was $420 Billion USD.
The contracting industry in the US is one of the fastest growing industries in the country and it is expected to continue to grow at a rate of about 10% between 2017 and 2020.
Starting a General Contracting Business – Market Feasibility Research
- Demographics and Psychographics
Understanding who your clients are and how they make their purchasing decisions is very crucial for survival in this business.
For contracting business, your potential clients include all businesses operating within your local area, Federal, State and Local governments, home owners, as well as private individuals who are currently carrying out projects or have the potential to carry out construction projects in the nearest future.
The services that the government generally need contracting companies to carry out include construction and renovation of facilities including buildings, roads and other specialty projects, procurement of goods, offer of specialized services such as security, consulting and other specialized services.
Basically, government contracting services can be divided into goods, services and technical or research assistance. As for private individuals, contracts are majorly building contracts or service contracts. Home owners would typically need you to carry out construction, servicing or repairs within and around their private residence.
The needs of business clients are similar to those of the government. You would basically be required to carry out procurement services or offer technical or research services, only that this time, you would be offering your services to local businesses and not the government.
List of Niche ideas Within the US Contracting Industry
The contracting industry is one of those industries where there is an unlimited number of niche ideas that you can tap into. Some very viable ones to consider include:
- Government Contracting
- Electrical Contractor
- HVAC Contractor
- Road Construction
- Utility Line Construction
- Structural Engineering Design
- Security Installation
- Landscaping Services
- Procurement Services
- Water and Childproofing Services
- Aluminum Door and Window Manufacturing
- Ceramic Tiles Sales and Installation
- Demolition Services
- Construction Project Management
- Plumbing Contractors
- Sales and Rentals of Construction materials and Equipment
- Consulting Services
- Basement Remodeling
- Carpet Installation
- Roofing Services
- Civil works
- Painting Contractors
- Concrete cutting and Stamping
You can also consider setting up a construction clean-up service.
The Level of Competition in the US General Contracting Industry
The US contracting industry is a very competitive one as you would be literally competing with the giants. The low barriers to entry in the industry have made it very tough to compete as some contractors do not mind setting unreasonably low prices to help them compete in the industry.
The key to survival in this business is to be outstanding. You have to offer the best services that your clients can possibly get. You don’t have to price yourself too low or run at a loss, you simply need to up your marketing strategies and efforts and place yourself at the top of your client’s choices by offering them impeccable services.
List of 20 Well-Known Brands in the US Contracting Industry
It is important to know who your competitors are in the industry. Some of the brands that have been able to stand out in the industry include:
- Betchel Corp
- Fluor Corp
- Turner Construction
- PCL Construction Enterprises
- KBR Inc.
- Northrop Grumman Corporation
- Human Inc
- Los Alamas Natural Security
- Amerisource Bergen Corporation
- Textron Inc
- Geo Group
- Atlantic Diving Supply Inc.
- Patriot Team
- Chemonics International Inc.
Economic Analysis of the United States Contracting Business Industry
The United States contracting industry witnessed a period of decline whilst the economic recession lasted but with the recession behind us, the industry has continued to boom at impressive rates. This is partly due to the increase in government spending and the increase in financial lending.
The favorable lending rates in the country have made it easier for more people to access loans for building and home improvement projects. More business owners are also able to assess loans for business expansion. This has led to a general increase in the demand for contracting services in the country.
However, according to a research report by PPO Outsourcing, some of the economic trends to look out for in the industry include:
- Shortage of Skilled Labor: During the economic recession, a lot of skilled employees had to be relieved of their jobs and most of these employees never returned. Industry experts believe that shortage of employees might remain a challenge for the foreseeable future and this means that as a new business, you might be faced with the challenge of finding skilled labor for your business.
- Pre-fabricated Construction: Experts also believe that pre-fabricated construction solutions are expected to gain momentum within the next few years and this might lead to a decrease in demand for traditional contracting service providers for building projects.
- Green Building and Technology: New entrants into the industry are expected to embrace green building and latest technologies in construction such as the use of software, drones and mobile phones as these trends are expected to take over the industry within the next few years.
Summarily, the US contracting industry has fully recovered from the effects of the economic recession and is expected to continue to grow at a very fast pace for the foreseeable future.
Starting a Contracting Business from Scratch vs Buying a Franchise or an Existing Business
Business analysts believe that 80% of businesses fail within first five years while 40% would most likely fail within the year the business commenced. Buying an existing contracting business or franchise can help you cut down these risks considerably.
You would also be able to leverage on the businesses’ tested and proven concept and ideas, brand name and goodwill as well as the business relationship between customers and vendors.
However, buying an existing business or franchise is not without its own unique set of challenges; your reputation as a contractor could suffer due to the actions or inactions of other franchisees and you would be unable to run your business independently. The success of the business in the future may also depend on the skills, experiences or past actions of the previous owners of the business.
Starting your own contracting company from the scratch however, is no walk in the park. The industry is a highly saturated one and you would need a lot of marketing and networking skills to be able to stand out and make profits but if you start your business from the scratch, you would be able to start with minimal amount of capital, and you would be able to apply your personal ideas, concepts and strategies to your business as you please.
Threats and Challenges of Starting a General Contracting Business in the United States
It is true that the contracting industry is very lucrative and demands for services are at an all-time high, however, it is also true that companies that prepare adequately to face the threats and challenges in the industry head on are able to survive in the industry.
One of the major challenges in the industry is low profitability. As mentioned earlier, there is a very high level of competition in the industry due to the low barriers to entry. This has led to shrinking profit margins. Project performance is also a challenge because project complexities can be very high and a slight mistake or project surprises may wipe out the already razor-thin profits.
There is also a shortage of skilled labor because the construction industry was affected by the recession and employees that retired or left, never returned.
Getting business contracts as a beginner is also a challenge. You need to do a lot of marketing and networking to be able to get contracts although once you begin to get contracts; you would find it easier to get clients from referrals and returning customers.
Best Legal Entity to Use for a Contracting Business in the United States
New contractors are always faced with the challenge of deciding the best way to structure their businesses. The truth is that there is no ‘one size fits all’ approach to setting up your construction business. Whilst it helps to talk to your legal adviser on the best legal structure that would work for you, these tips can help you to make a choice:
- Sole Proprietorship: This is the best legal structure to choose when your business is new. It is very cheap to set up and the tax rules are favorable but there are a few challenges with setting up your contracting business as a sole proprietorship. The contracting industry is a very risky one and should you get sued by any of your clients, your personal assets can be used to offset the bills. In other words, sole proprietorships offer very little legal protection for you as the business owner.
Another disadvantage of this legal structure is that you may find it challenging to access huge sums as loan to carry out huge capital projects.
- Partnership: Setting up your business with a trusted person as your partner can help to spread the risks to an extent but you and your partner can still be held responsible for the liabilities of the business.
- ‘C’ Corporation: The ‘C’ corporation offers more protection than partnership or sole proprietorship. Although your personal assets cannot be used to offset the debts of the business, you may have to pay double taxes (personal and income), and also ‘C’ Corporations are more expensive to set up.
- ‘S’ Corporation: You can eliminate the double taxation challenge of the ‘C’ Corporation by setting up your business as an ‘S’ corporation where only the shareholders are taxed and the business itself doesn’t have to pay taxes.
- Limited Liability Company: Limited liability companies offer the perfect protection for the owners as you cannot be personally held responsible for the liabilities of the business. However, set up costs are high and taxes are typically heavier.
To help you make a choice on the best legal structure to choose for your contracting business, here are a few factors to consider:
- How much are you willing to spend on the setup process?
- How much liability are you willing to assume?
- What is your management style like; do you prefer making business decisions yourself?
- How much structure do you want for your business?
- How much taxes are you willing to pay?
- What is your legal/financial advisor saying?
Typically, the more liability protection a legal structure offers, the more expensive and complicated it is to set up and the more taxes you would be required to pay.
Insurance Policies Required for Setting up a Contracting Business in the United States
As a contractor, you would be working on a number of delicate projects for clients and it is very important for you to protect yourself, your employees and your business from any uncertainties or unfavorable conditions. You would need to obtain some of the following insurance policies depending on the nature of your contracting business:
- General Liability Insurance: General Liability insurance is designed to protect your contracting business against the risks of potential lawsuits resulting from accidents, illnesses and injuries sustained by people within your business premises.
- Automobile Liability Insurance: Automobile liability insurance protects all the vehicles used in carrying out your business.
- Worker’s Compensation: Worker’s compensation insurance would cover for lost wages and medical bills of your employees who sustain injuries in the process of conducting business with your organization.
- Employer’s Liability Insurance: Employers liability insurance would protect all your employees from illnesses and injuries sustained during the course of conducting business with you.
- Contractor’s Liability Insurance: This one is used to pay for any damages that may affects a client’s property or project while you and your employees are working on it.
A smart option would be to obtain an umbrella policy or a contractor’s insurance policy which would cover for most of your contracting business insurance needs and would be cheaper than obtaining individual insurance policies.
Is Professional Certification Required to Setup a Contracting Business?
Most states in the US would require that you sit for, and pass some specific examinations to prove your competence as a contractor. It is only after you have passed these examinations that you can become a licensed contractor and start taking up contracting projects.
You should visit the office of the secretary of state to find out how to obtain a professional license that qualifies you as a licensed contractor in your state.
Legal Documents Required for Setting up a Contracting Business in the United States
The following documents are what you need to set up your contracting business in the United States:
- Business Registration and Incorporation documents
- Business Plan
- Contractor’s License
- Insurance Policy Documents
- Employer Identification Number (IRS)
- Tradesman’s License
- Surety Bonds
- Occupational Safety and Health Administration (OSHA) Compliance Documents
- Housing and Urban Development (HUD) Compliance Documents
- Environmental Protection Agency (EPA) Compliance Documents
Financing a General Contracting Business in the United States
Starting a contracting business seems really easy until it gets to the point where the contracts begin to roll in and you need a lot of money to finance it. There are a few helpful ways to raise the required funds for running your contracting business easily. Some of the options to consider include:
- Bank or Small Business Administration (SBA) Loans: The SBAs is a government establishment that specializes in offering small business owners the required funds to set up and expand their businesses. The interest rates and lending criteria are usually friendlier than they are for bank loans. If you are unable to obtain SBA loans, you can consider getting a loan from your banks to finance the business.
- Equipment leasing and Financing: If you score a huge business and run into some financial constraints, you can get some help regarding equipment by leasing some equipment or buying on hire purchase where you would be allowed to spread payments for the equipment over a long term.
- Using Equipment as Collateral: Another option you can consider is to use your equipment as collateral security to obtain loans from financial institutions. You could also use your lands, buildings or any other equity you own as security for loans.
- Contractor Loans: There are some financial institutions that have special loan packages that are specifically for contractors. If you have a very good credit score, you should consider going for any of these packages.
Choosing a Suitable Location for your Contracting Business
Where you decide to set up your contracting business is not a very important determinant for success. You can even start your business from your bedroom. The most important thing is how to get clients to patronize you.However as your business expands, you may need a larger space because you would need storage space for your equipment and tools as well as an office space for co-coordinating your employees and business activities.
The most important factors to consider when setting up your contracting business therefore are space, zoning laws, proximity to project sites and ease of access by employees and clients although the last two factors are not as important as the others.
Starting a General Contracting Business – Technical and Manpower Requirements
The tools and equipment you would need to set up your contracting business would depend on the type of contracts you plan to start carrying out. Of course, the tools and equipment you would need for carrying out building contracts would be different from those required for carrying out landscaping services. Some basic tools and equipment that you may need for most contracting businesses however include:
- Measuring tools
- Knives and Cutters
- Air Compressor
- Pneumatic Tools
- Air nailer
- Impact Wrench
- Hand Protectors and Gloves
- Nose and Head Covers
- Work Boots
- Heavy Duty Equipment
- Motor Vehicles
- Heavy Equipment
You don’t have to go all out to buy equipment for your business as there are many businesses that specialize in renting out equipment to contractors. This would only cost you a fraction of what it costs to buy the equipment out rightly, and can save you a lot of money.
As for manpower requirements, the size of your employees and the project you are working on would determine your staffing needs. You may only need a few permanent staff to run the office and then employ other temporary staff who you would only work with on a needs or per project basis.
Starting a General Contracting Business – Marketing Plan
Contracting business in the US is one of those extremely competitive businesses and to make headway in this business, your marketing strategies have to be top notch. Marketing your contracting business is not a one-off thing; it is something that you have to continue to do consistently. Some invaluable marketing strategies that can put you ahead of the game include:
- Online Marketing: First, you need to set up a website. Your website represents your company in the online community and makes it easier for people to research your business and know what your company stands for. It is also a great platform to brag about some of the projects you have completed in the past. The next thing you should do after creating your website is to place search engine optimized content that are both informational and educative on your website. This would help to attract more potential clients to your website.
Social media marketing is another powerful lead generation tool for you. Social media platforms like Facebook, Instagram and Twitter are very great social media platforms for targeting clients with specific demographics. You can target clients within a special area or within a specific age grade. You can also use it as a great tool for connecting with, and getting feedback from your clients.
- Traditional Marketing: Traditional marketing strategies like placing adverts on radio, television, newspapers and handbills are still effective for contractors. You should also try to get your business listed on Yelp and the Yellow Pages Directory as a lot of potential clients turn to these platforms when they require services of local contractors.
- Face-to-Face Marketing: From time to time, you should go out there to talk to people about your business and the potential benefits of doing business with you. You can talk to people in group meetings or do a house-to-house or business-to-business campaign depending on the type of services you offer.
The key to long term success in the contracting industry is to ensure that your clients are always satisfied with the services that you offer them as referrals can go a very long way in helping you get new jobs consistently in the future.