It’s Risky Business to Start a Contracting Firm

Q: I have been in a construction 20 years I think I could start my own business and have long dreamed about it. I shared this idea with my spouse. She is supportive because I can handle anything on the jobsite. But she doubts I could handle all the business elements of construction. She might be right. What do you recommend I do to investigate the idea?

A: There is certainly a large step to make in moving from working in the construction field as a craftworker to owning your own construction business.

While knowledge of the construction processes is important to running a profitable building business, there are a myriad of business elements to take into consideration before making the leap. There are several places you can go to investigate your idea.

A good place to start is the Small Business Administration. Visiting its Web site at www.sba.gov takes you to a rich resource of planning tools. One section of the website is focused specifically at planning and starting your business. The most critical area of information here is related to the process of writing your business plan.

Elements of a Plan

The key elements of your business plan include a description of your construction business, development of a marketing plan, an objective look at the competition in the construction marketplace for your location, some operating procedures for the various aspects of your business such as estimating, ordering, on-site work, tracking of costs and accounting needs and determination of your personnel needs both for your office and field work.

Additional meetings with an insurance broker and banker are also helpful during development of the plan.

An accurate determination of the types and amounts of the various types of business insurance and bonding you may require can be developed by an insurance expert who specializes in construction risk and surety issues. A bank can assist with necessary information related to loans for start-up capital or lines of credit for ongoing operations, a capital equipment and supply list, and structuring of a balance sheet for your business showing assets and liabilities.

With all this in hand, you should perform an honest, objective analysis of the amount of business you must generate to break even.

Anyone can start a construction business and get work, but it takes a good business plan to make a profit for the work performed to cover both the fixed costs and variable costs. Generate a realistic projection of income and expenses for the first three years. Break this down into a month by month analysis for the first year.

Just developing this business plan will give you time to consider all the aspects of owning and operating a construction business. You will not have spent anything but your time and will have considered many elements that can lead to success or failure.

Through experience, you certainly are aware of the risks involved with material cost variability, labor productivity, weather uncertainty and other issues specific to construction. A good business plan with an objective analysis of your potential for success, blended with your knowledge of construction, will give you and your wife the information you need to determine if you should take the plunge together into the business world or not. Good luck!

Do you have questions on construction human resources or safety?
E-mail them to Leonard Toenjes at ltoenjes@agcstl.org or
craig_barner@mcgraw-hill.com.

(If Len picks your question,
he will answer it in a future issue of Midwest Construction.)