According to results shared in the NFIB Research Foundation’s latest Small Business Optimism Index report, now is primetime for small businesses in America. The organization has tracked entrepreneurial trends since the Nixon administration, and all aspects of the current data rank in the top 10% for the survey’s 46-year history.
“2020 is off to an explosive start for the small business economy, with owners expecting increased sales, earnings, and higher wages for employees,” explains NFIB Chief Economist William Dunkelberg in the report. “Small businesses continue to build on the solid foundation of supportive federal tax policies and a deregulatory environment that allows owners to put an increased focus on operating and growing their businesses.”
This is great news for anyone thinking about starting a business, as the strong sales and earnings reflect a healthy business climate with plenty of forward momentum. If you’re starting a general contractor business, however, you’ll need more than just good timing. The complexity of the industry requires you to also have robust experience in the field, which is 1 of the key differentiators that emerges between successful businesses and those that aren’t able to make it to the year mark.
“Starting your own business is no small feat, and becoming a general contractor requires a special set of skills and knowledge,” says an entrepreneurial analysis from Home Business. “If you’re looking to become a general contractor, chances are you have some experience in the construction industry. But there’s a big difference between being an expert laborer or even a supervisor and being the head honcho of a construction project.”
Assuming you have the necessary background, you should be able to capitalize on the strong economy as you endeavor to start your general contractor business. This guide will highlight some of the crucial steps in that process.
Develop Your Business Plan
Just like any worthy endeavor, your general contractor business needs a plan. In its simplest form, this document will outline what your business is going to do and how you’re going to do it.
According to research from the Harvard Business Review, there’s value in formally writing your plan instead of just keeping it as a loose collection of ideas. Small business owners who take the time to write out their plans are 16% more likely to succeed. You can increase your odds even more by developing your plan 6–12 months after you decide to start a general contractor business.
“Entrepreneurs often have to pivot their business once it becomes clear that their original customer is not the right customer, or when it turns out that their product or service fits better in an alternate market,” explain researchers Christian Hopp and Francis J. Greene. “Because of these realities, business plans written at the start end up nothing more than a fable.”
Once you begin working on your business plan, it’s recommended that you set a goal to finish it in no more than 3 months. Small business owners who let the business plan process drag out longer than a few months can see their odds of success drop by 12%.
So what goes in your plan? The best way to think of it is a collection of answers. In the process of answering important questions about your future business, you’ll develop the framework that will guide your business into the future.
Possible questions to prime the pump include:
- What will your main objectives be?
- What are your key strategies?
- What will your mission statement be?
- How will you market your business?
- How will you stand out from the competition?
- What do you project for your business?
To thoroughly answer these questions, you’ll need to conduct an industry analysis and additional research. These actions are time-intensive but will provide essential data and spur ideas.
“Research and analyze your product, your market, and your objective expertise,” says business management executive William Pirraglia. “Consider spending twice as much time researching, evaluating, and thinking as you spend actually writing the business plan. To write the perfect plan, you must know your company, your product, your competition, and the market intimately.”
Figure Out Your Finances
One of the most important elements of your business plan is deciding how much money you will need and when you’ll need to acquire it. There are diverse expenses related to getting a construction business up and running, including materials, equipment, vehicles, trailers, tools, insurance, licenses, office furniture, computers, and software.
You’ll also need to consider less obvious expenses, such as advertising, maintenance, payroll, and professional fees. Many entrepreneurs struggle with their budgeting because they don’t account for all these ancillary aspects.
“The bottom line on why to draft a budget for your business is that it will help you figure out how much money you have, how much you need to spend, and how much you need to bring in to meet business goals,” says a financial guide from Inc. “But there are other reasons, too. Bankers and other financiers may want to see a budget when you ask for a loan […] Budgets can also help you minimize risk to your business. A budget should be created before you sign a new lease or invest in new machinery or equipment. It’s better to find out that you can’t afford new office space before you commit to spending a certain amount of money every month.”
When you know exactly how much money you need, you’ll be in a prime position to seek any necessary financing. Here are 5 of the best financing products for general contractors:
- Term loan: The costs of running a construction business are varied, so it makes sense to seek versatile funding. Term loans check this box, as they can provide as much as $200,000,000 for all manner of expenses. Perhaps best of all, the interest rates start in the generous range of 6%.
- Short term loan: These loans should only be considered when time is of the essence. They can provide money to your account in just 24 hours, but the tradeoff for that expediency is that the maximum amounts are lower, the repayment terms are shorter, and the interest rates are higher.
- Equipment financing: These loans are among a select handful that offer high enough dollar amounts to purchase heavy machinery. In some cases, the amounts can reach as much as $5,000,000. The equipment you’ll be purchasing serves as collateral on these loans, making them easier to qualify for and eliminating the risk of your personal assets.
- Business credit card: Most entrepreneurs get business credit cards so they can begin separating their business purchases from the personal. They function just like any other credit card and are easy to get. Plan on most credit limits topping out around $500,000.
- Line of credit: This financing product is similar to a credit card because it gives you ongoing access to a set amount of money. The benefit here is that you can spend cash only when you need it and keep it as a safety net when you don’t, rather than always needing to pay interest on a lump sum.
Regardless of which route you take for your financing needs, it’s advisable that you get an accountant to help manage your money from here on out. Not only will an accountant keep your finances accurate and secure, but they can also help you spot potential problems and find remedies before it’s too late.
Register for an EIN and Create a Bank Account
You could have the best business plan in America, but you still probably wouldn’t be able to do business without an Employee Identification Number (EIN). Go to the application page on IRS.gov and you’ll be pleasantly surprised by how easy it is to register your business.
Next, you’ll need to take care of a bank account. The most convenient route is to open a business account at the bank where you already handle your personal finances. Because the bank has your personal data and has established a track record with you, the application process will be much faster.
Seek Out a Trusted Mentor
Every entrepreneur can benefit from the guidance of a mentor, but it’s especially helpful for those in the construction industry. Whether this guru is actively working or has retired, it’ll be essential to draw from the experiences and problem-solving abilities of someone who has already built a business from the ground up.
If you have a difficult time finding a potential mentor, don’t be afraid to venture outside of your immediate sphere of contacts. Start by checking out the free resources available from your local SCORE chapter or SBA Small Business Development Center.
It won’t matter if your mentor is a close friend or a stranger. The important thing is that you’ll have a support system and sounding board in place. The construction industry can be a rocky road, so stay close to those who know how to navigate it best.
You can also make powerful relationships by joining an industry association. Two great choices are Associated General Contractors and Associated Builders and Contractors. Use these networking opportunities to get answers to your questions big and small.
Decide on the Structure of Your Business
When you’re ready for your business to really take shape, it’s time to figure out the name and structure. First, research potential names that would resonate with customers and help you stand out from the competition. Then peruse construction industry directories to make sure the name isn’t already in use. You’ll also want to make sure the domain name is available. Finally, go to the US Patent and Trademark Office’s website to make sure your preferred name is yours for the taking.
At this point, you need to choose a legal structure for your business. There’s no silver bullet here, as each structure has pros and cons. Due to the importance of this element of your business setup, this is an excellent topic to discuss with your mentor.
“Of all the decisions you make when starting a business, probably the most important one relating to taxes is the type of legal structure you select for your company,” explains a small business report from Entrepreneur. “Not only will this decision have an impact on how much you pay in taxes, but it will affect the amount of paperwork your business is required to do, the personal liability you face, and your ability to raise money.”
So what are your options when it comes to business structures? Here’s a breakdown of the 5 most popular:
- Sole proprietorships: This route is the easiest. A sole proprietorship is designed for just 1 owner, meaning every aspect is streamlined. As the single owner, you assume complete responsibility for the business. The profits flow straight to you, but so will any losses. Sole proprietorships do not provide liability protection, meaning your personal assets could be at risk.
- Corporations: If there will be multiple owners of your business and liability protection is a priority, you should consider a corporation. With this structure, your business is considered its own legal entity. In the unfortunate case of severe debts and losses, your assets would be shielded. Just know that it’s a fairly complex process to set up corporations, and the costs are higher than with a sole proprietorship.
- General partnerships: This structure is ideal if there will be more than 1 owner and everyone wants an equal stake in the company. Each partner will have a voice when it comes to decisions in a general partnership, but the downside is they all share liability for the finances as well.
- Limited partnerships: If there is a hierarchy among your potential partners, you should consider a limited partnership. The unique structure allows some individuals to be dubbed full partners, while others can assume more of an investor relationship with the business. Full partners will shoulder the liability, while the secondary partners are protected.
- S corporations: This hybrid structure combines the liability protection of corporations with some of the financial convenience of sole proprietorships. But that’s not to say that S corporations are easy to create and run. You’ll have to meet certain requirements, such as conducting meetings for shareholders, recording the minutes, and soliciting shareholder votes on decisions.
- Limited liability companies (LLCs): This common structure is chosen by small business owners due to its user-friendly benefits. For example, an LLC provides liability protection and has lenient tax rules, while also allowing for as many shareholders as you wish.
Lock Down Your Online Identity
With your name and structure decided, it’s time to broadcast your business online. This process requires you to create a website. First, purchase the domain. Then either sign up for auto payments with the registrar or put regular reminders in your calendar. When businesses allow their domains to lapse, they run the risk of a competitor snatching up the domain.
Expand your presence by creating relevant social media accounts. The obvious choices are Facebook, Instagram, Twitter, YouTube, and LinkedIn, but you may also want to look at construction industry websites and forums.
Prepare for Automation
General contractors usually have more responsibilities than they can handle in a given day. For this reason, you’ll want to automate as many recurring tasks as possible.
“There are numerous construction management software systems out there developed to help general contractors take care of all the small details of completing a project and getting the job done right,” explains an entrepreneurial report from Home Business. These software programs can be tailored to fit your general contracting needs and the needs particular to your business size, annual revenue, estimated project lineup, and more. There are even mobile capabilities with some of the software so you can manage your business while you’re on the go, meeting potential new clients, or surveying a project site.”
Each time you hand off a task to technology, you’re freeing up precious moments to focus on more important duties. Additionally, you will improve the accuracy of the work. Because, unlike humans, technological solutions don’t make mistakes even when they’re working long hours in the middle of the night.
Check out these 11 digital tools to see if the might be a good fit for your company:
Stay the Course, But Stay Limber
There’s no doubt that your business plan will be crucial in the coming months and years. But it should remain a working document—never treat it like it’s written in concrete. The future holds many exciting opportunities for your business, as well as unexpected difficulties. Your ability to adapt and refine will be essential to success.
By working hard and leveraging your network, you can help your general contractor business thrive. Entrepreneurship takes courage, so even on the toughest of days, hold your head high. You’re not just building a business. You’re building a legacy.