Setting Up Your New Construction Company: A Step-by-Step Guide

Take the time to understand how to set up your new construction company properly. This will pay dividends for you in the future and better protect the assets of your new company.

Step 1: Create Your Business Plan

Write a business plan as a roadmap for your company. It doesn’t have to be fancy or long. Take a course or attend a seminar on how to write one. Check with your local SCORE chapter or universities and colleges for such courses. Your business plan is a “living document,” meaning you can change it as needed to meet your company’s goals. If you want to borrow money from a bank, one of the first things they’ll ask for is your business plan. The most important sections are financial and marketing.

Step 2: Get Organized

Company Name & Structure

Determine a name for your company and strongly consider organizing as a Limited Liability Company (LLC) or a Subchapter S Corp (Sub S). Organizing this way will better protect your personal assets in the event of a claim or lawsuit against your company. There is also a tax advantage to using an LLC or a Sub S. The profit or loss from your business is passed through to you and any co-owners to report as normal income on your year-end IRS personal tax returns. An LLC or Sub S does not pay any state or federal income tax as separate business entities, which means no double taxation.

Operating Agreement

If you are going to have partners or shareholders in your new company, make sure you have a written members (LLC) or shareholders (Sub S) operating agreement as part of your organizing documents. This operating agreement outlines the rights, duties, responsibilities, capital input, profit/loss distribution, and obligations of all members or shareholders. You can download example copies of these agreements for a nominal fee from the internet.

Get a CPA

Find a Certified Public Accountant (CPA) near you to handle all the organization paperwork. The CPA can explain the personal tax considerations of organizing as an LLC or a Sub S. The CPA will also apply for an Employer Identification Number (EIN), a DUNS number (for business credit reporting), and if necessary, a Fictitious Name or Doing Business As (DBA) registration. The EIN is the federal number your company needs to use when reporting business income or receiving revenues (payments) from commercial clients. If you resell construction materials, you will likely need a state tax certificate and sales tax number to collect and remit sales taxes to the state. Check with your county for any zoning requirements that may affect your business location.

Step 3: Set up Your Bank Account

Set up a bank account in the name of your company. All revenues received and expenses paid by your company must go through this account. Do not co-mingle personal funds with the business account. Pay all company bills from this account and refrain from using it for personal purposes. If you start this account with personal funds, lend this money to your company through a written loan agreement that pays interest. This is a legitimate business expense for which you can reimburse yourself.

Step 4: Secure Your Insurance

Insurance is an important asset for your construction company. Secure General Liability and Auto/Rental Equipment insurance in the name of your company. This will protect you and your company against claims for bodily injury, including death, property damage, and provide legal defense for claims arising from your company's operations. Talk to a business insurance agent about your insurance needs. Also, strongly consider securing Workers’ Compensation insurance for you and your employees. Workers covered by Workers’ Compensation waive their right to sue you for employment-related injuries. Most clients will not allow you to work at their job site unless you have proper insurance and can provide certificates for the required policies, including Workers’ Compensation. If your company does architectural designs, engineering calculations, or similar work, you should also secure Professional Liability (Errors and Omissions) insurance to protect against claims from mistakes in designs and calculations.

Step 5: Secure Your Licenses

Go to your local county courthouse’s contractor section to find out what types of professional and business licenses are required for your company and the work you intend to perform. Secure all necessary licenses. You may need to take tests to obtain certain contracting licenses. You can find state licensing requirements for contractors at [www.contractors-license.org](http://www.contractors-license.org).

Step 6: Qualify to Provide Performance Bonds

If you plan to work in the public sector, you’ll likely be required to provide a performance bond to ensure you complete the work per the contract. Bonds are provided by surety companies. Start early on getting your company qualified to provide bonds, as the surety company will conduct a due diligence process to determine the dollar value of the work they will write bonds for. You can find bonding companies on the US Government’s Circular Number 570 at [www.ustreas.gov](http://www.ustreas.gov) and [www.alphasurety.com](http://www.alphasurety.com).

Step 7: Find Your Start-Up Money

For a new business without two or three years of success, borrowing money may be difficult. Consider using personal funds, home equity loans, or contributions from investors, friends, and family. If your personal credit is good, you may be able to establish a line of credit or secure a small loan from a local banker. Talk to several banks about loans and their requirements. Beware of rumors—there is little to no grant money available for for-profit businesses. The SBA doesn’t give out grants but guarantees loans made by banks to small businesses. Learn more about the SBA guarantee process at [www.sba.gov/financing](http://www.sba.gov/financing).

Step 8: Create Good Accounting Practices

Get into the habit of collecting and recording all company revenues and expenses early on. Establish a detailed chart of accounts for expenses or develop a relationship with a CPA to handle your books, prepare cash flow statements, profit/loss statements, balance sheets, and annual tax returns. You can do this yourself, but your time is better spent managing and growing your business. Consider hiring a professional for accounting.

Step 9: Develop Your Estimating and Pricing Process

Develop an estimating and pricing process for your work. Clients typically want a firm lump sum price, so understand your direct labor, materials, equipment costs, overhead, and profit expectations. You can find excellent construction estimating guides from RSMeans at [www.rsmeans.com](http://www.rsmeans.com).

Step 10: Create Your Contracts

Develop a simple contract form for use with clients. Ensure your contracts have a well-defined scope of work, payment terms, a realistic schedule, and a clause for handling extras or claims. Never work on verbal agreements—always get everything in writing.

Step 11: Create Your Marketing Plan

Create marketing materials detailing the work your company does and distribute them to potential clients. Join local contractors’ groups and your chamber of commerce. Advertise in community newspapers to network and find new jobs. Marketing is client education. An educated client is a buying client. If you are Veteran Owned, Women Owned, or a Minority Owned business, mention it. To market to the government, register your company at [www.sam.gov](http://www.sam.gov).

Step 12: Develop Your Sales Process

Develop a sales process to convince clients to buy your services. This starts after marketing and involves writing a proposal. Always see clients face-to-face and present yourself professionally. Learn from your competition, and never bad-mouth them—it’s unprofessional and could hurt your business.

Step 13: Labor

The labor necessary to complete your operations generally comes from subcontracts, direct hire, and broker labor:

• Subcontractors: Ensure they have the right experience, licenses, insurance, and bonding. Treat them as equal partners

• Direct Hires: You’ll handle wages, insurance, and taxes like Social Security, Workers’ Compensation, and unemployment insurance

• Broker Labor: You pay a broker a fixed amount for the workers they provide. They handle all taxes and insurance, but check with a legal representative to ensure compliance.

Step 14. Safety

Develop a safety program in line with OSHA guidelines. Publish and distribute it to all employees, subcontractors, and brokers. Make safety a priority by linking compensation to safe work practices. Aim for zero OSHA recordables and accidents.

Step 15. Where to Get Some Help

Your local SCORE chapter can provide free counseling and business-related courses for a nominal fee. SCORE has 400 chapters in the US and over 13,000 volunteers with experience in corporate or small business ownership. Find a SCORE chapter at www.score.org.