According to ProEast, a construction business in the USA, on average gives an annual return profit of about 6%. On the other hand, FMCG, pharmaceuticals, apparels automotive industry only gives the return profit of about 3% – 4%.
The above figures make construction one of the the best business opportunities if you want to earn a high profit margin from an SME category business. However, with high profits, there’s one flaw, failure. About 63% of construction businesses fail or go bankrupt within the first 5 years of launch.
The major reasons for their failures are:
- Poor financial management
- Inaccurate estimating and bidding
- Lack of strategic planning
- Ineffective project management
- Inadequate risk management
- Insufficient marketing and customer relationship management
- Poor workforce management
If you want to start a successful construction business that doesn’t include any kind of drawbacks or loops, this guide is for you on how to start a construction company in the USA as a beginner’s guide.
Research the Local Area
Any business without research is always going to be a flop business. Market research is highly essential for the startup of any business, and so for the construction business. You must take a look at your surrounding competitors, e.g, what other construction companies in USA are offering, their services and type of the work they perform.
Majority of the owners and contractors already have returning construction companies and people are happy with it. Therefore, you might want to research and create a corresponding strategy accordingly.
Moreover, you should also perform a survey of the number of construction companies operational in your area. It’s always a good idea to start a company in an area where there are not many companies.
Build A Business Plan
The business plan is what tells you the chapters of your construction company business. It includes your business model, marketing model, customer base, pricing model, profit percentage and overall process of how you’re going to start your business.
In easy language, the business plan streamlines how you’re going to do your business and your overall workflow of the business. Here’s what included in the business plan:
- Description of the Business in Construction Industry
- Market Research and Analysis
- Organisational Structure and Management
- Products or Services Offered
- Marketing and Sales Strategies
- Financial Forecasts
Pricing and DIscounts
If you offer the same pricing as your competitors, who’s going to use your construction service then? When there’s already a well-established construction company which has a reputable image and offers up to the mark service for the same pricing as your newly launched company.
In that case, why would someone choose your service over the other?
The only option to choose a newly launched construction company over the other and take a risk is the pricing. You can offer discounts in the form of limited time offer, exclusive launch offer or in any kind of form you want.
Just make sure to offer lower pricing than others in your competitor. So that, people can have a reason to take a risk and choose your services.
Offering lower pricing doesn’t mean to offer dirt cheap pricing. Too much low pricing will trigger a cheap quality service instinct in your client’s mind. The best figure is to offer 20 – 30% cheaper than in your competition.
You can offer lower pricing in the form of these discounts:
|Form of Discount||Description|
|Percentage discount||A percentage is deducted from the price of the product or service.|
|Flat discount||A fixed amount is deducted from the price of the product or service. For example, a $5 discount would mean that the customer pays $5 less than the original price.|
|Free QA||The customer does not have to pay for QA. This is often offered as a way to encourage customers to buy more services.|
|Bundle discount||A discount is offered when multiple products or services are purchased together.|
|Quantity discount||A discount is offered when a certain quantity of a product or service is purchased.|
Register Your Business
Registering your business is compulsory in the USA. WIthout registering the business and going operational is an illegal thing to do and it’s a strict crime in most of the states. That’s why after creating the business, registering the business is the essential thing to perform. To register the business, the process differs from state to state. However, on average, you will need the documents of your company including insurance company, ISO standards, ID’s and other legal documents that proves that your company is 100% legal and you’re not doing anything illegal. Depending on your state, the registration process can take between a week to a month. Moreover, note that you’ll also need to pay taxes and other government charges accordingly.
|Corporate Income Tax||A tax on the profits earned by the company.|
|Value Added Tax (VAT)||A consumption tax applied to the sale of goods and services.|
|Payroll Taxes||Taxes withheld from employees’ wages for social security and Medicare.|
|Employer Taxes||Taxes paid by employers for social security and Medicare.|
|Property Tax||A tax on the value of property owned or leased by the company.|
|Excise Tax||A tax on specific goods, such as alcohol, tobacco, or fuel.|
|Customs Duties||Taxes levied on imported or exported goods.|
|Sales Tax||A tax on the sale of certain goods or services.|
|Capital Gains Tax||A tax on the profits from the sale of assets or investments.|
|Dividend Tax||A tax on the dividends distributed to shareholders.|
|License and Permit Fees||Fees paid for obtaining business licences and permits.|
These are all the taxes that you might have to pay. However, depending on your state, you might not have to pay all these taxes. For your ease, we’ve explained all the taxes in case if the you require to pay them. So you’ll know what kind of tax you’re paying.
Insurance and BIMA
Insurance is not a necessary thing to do, but it’s always a good and safe idea to get insurance from your construction company. There are different kinds of insurance you can opt for your construction company.
For your easy understanding, these are the insurances applicable in a construction company:
- General liability insurance
- Workers’ compensation insurance
- Commercial auto insurance
- Builder’s risk insurance
- Professional liability insurance
- Surety bonds
It’s not necessary to opt for all the above mentioned insurances. You can choose only those insurances that may get you good coverage e.g, general liability insurance and commercial auto insurance. These two are good to go options for a startup.
However, if you have good funding from 3rd parties, you can go with other insurance policies for better safety.
Market Your Newly Launched Company
Unfortunately, you can’t just send a message of your new company to your customer’s mind through telepathy. Therefore, you need a medium and a strategy to gain their attention. This is what we call marketing. Marketing refers to the strategies and actions to grab people’s attention so they know that you exist. It involves various strategies and activities aimed at attracting people’s attention, generating interest, and convincing them to book a service.
Marketing also requires a significant budget for effective results. Low-budget marketing often doesn’t provide good results. The more budget you spend, the more good and effective results you’ll get.
|Type of Marketing||Description||Examples|
|Product marketing||This involves developing and positioning products that meet the needs of target customers.||Creating product features that address customer pain points, developing product messaging that resonates with target customers.|
|Brand marketing||Creating and managing a brand that is meaningful to target customers.||Developing a brand identity that is consistent across all touchpoints.|
|Sales marketing||Generating leads and closing sales.||Creating lead generation campaigns, qualifying leads, and closing sales.|
|Digital marketing||Using digital channels to reach and engage target customers.||Creating website content, running social media campaigns, and using email marketing.|
|Traditional marketing||This involves using traditional channels to reach and engage target customers.||Running print ads, placing TV commercials, and using direct mail.|
|Inbound marketing||This involves attracting and engaging customers with valuable content.||Creating blog posts, publishing white papers, and hosting webinars.|
|Outbound marketing||Reaching out to customers with promotional messages.||Sending direct mail, making cold calls, and running display ads.|
|Content marketing||This involves creating and sharing valuable content to attract and engage target customers.||Writing blog posts, creating infographics, and producing videos.|
|Social media marketing||Using social media platforms to connect with and engage target customers.||Posting on social media, running social media ads, and using social media influencers.|
|Email marketing||Sending email messages to target customers to promote products or services.||Creating email newsletters, sending promotional emails, and running email drip campaigns.|
|Affiliate marketing||Partnering with other businesses to promote products or services in exchange for a commission.||Creating affiliate marketing programs, tracking affiliate sales, and paying affiliates commissions.|
|Guerrilla marketing||Using unconventional and creative marketing tactics to get attention.||Creating street art, staging flash mobs, and running viral marketing campaigns.|
On how much scale do you want to marketing? Well, that depends on your budget. The more you spend on the marketing, the more good and better results you will get. We can’t tell you a precise figure for the marketing. Instead, you can contact the marketing agent or agency to get up to date pricing on the marketing on a specific platform.
Financial Planning and Projection
You should create your plan on how you’re going to manage the cash flow of your business. The financial planning system tells how you’re going to manage your expenses, loans and the overall cash flow of your business. It includes budgeting and planning of your projections.
For your ease, below we’ve added an example cash flow projection
Here’s a step by step table on how you can create a cash flow projection:
|1. Gather historical financial data. This will help you to understand your business’s current cash flow patterns. You can get this data from your accounting records.|
|2. Make assumptions about future economic conditions and market forces. These assumptions will affect your projections. For example, if you expect the revenue to grow, you may project higher sales and revenue.|
|3. Identify the different types of cash flows. There are three main types of cash flows: operating cash flow, investing cash flow, and financing cash flow.
|4. Estimate the amount of each type of cash flow. You can do this by looking at your historical financial data and making assumptions about future economic conditions.|
|5. Calculate the net cash flow. The net cash flow is the total cash flow generated by the business over the period.
This is the amount of cash that is available to the business to use for its operations, investments, and financing activities.
|6. Update your projections regularly. This will help you to track your progress and make adjustments as needed.|