Starting your own construction company is challenging, there are many factors which must be considered before beginning this type of venture. Having a business plan and good understanding of the particular type of construction your company will specialize in are both essential to your company’s success. Another important aspect to consider is tools, what type of tools will your company need to perform contracted tasks? Most importantly, are you hiring employees or independent contractors? All of these things must be considered before starting a construction company, as daunting as the task seems, listed are the five most fundamental things you’ll need to consider.
Determine the Type of Business You Will File Under
When starting this exciting and potentially lucrative journey, one of the first questions you should ask yourself is “What type of business will I file as?” There are no right answers to this question as the answers depend on the hiring status of your labor and asset protection. The benefits of incorporating are extremely tempting for those looking at a good long-term business venture as it provides a number of benefits simply not available to DBA’s. The main benefits of S-corps are their ability to enlist as a publicly traded company after a certain financial threshold has been reached. LLC’s on the other hand, cannot be publicly traded but reduce certain risks and liabilities associated with S-corps. Another benefit of both LLC’s and S-corps is asset protection. Personal assets and corporate assets are considered separately as a corporation is its own entity. As long as you keep these incomes separate through creating both a personal and corporate checking account, under law, they will be treated separately by courts if your company is ever sued. There are numerous tax benefits when operating as an LLC including management provisions and bull sell provisions which reduce tax liability on real estate and property owned by the corporation. This option is not available to DBA’s.
What Type of Laborers
Determining whether or not to take advantage of the tax benefits associated with hiring 1099 general contractors or employees is another important decision when starting a construction company. Many smaller construction companies hire independent contractors instead of employees due to the decreased tax liability associated with hiring independent contractors. Businesses don’t pay taxes on independent contractors; the contractor is responsible for their own taxes.
Proper Tools
Proper tools are a necessity, having things like a PRS level and certain power tools will help your company perform the tasks outlined in its contract. A PRS level gives you accurate measurements using a non-contact sensor which ascertains the surface of a measured substance. Power tools like circular saws and drills are also essential, especially if your hired labor doesn’t have any tools themselves.
Business Plan
Drawing up a proper business plan is wise; if you are planning on applying for funding then this is a must. When outlining your plan be sure to include the seven essential components: executive summary, business description, market analysis, organization management, sales strategies, funding requirements, and financial projections.
Apply for Funding
The last step in starting your construction company is applying for funding. The Small Business Association is an excellent place to start. Some of the funding requirements may be a little stringent but remember the interest on loans from the SBA is much lower than private banks. If you decide to go this route, be sure to have your business plan ready coupled with any financial statements for your business, including your articles of incorporation if you started a corporation instead of DBA.
Although it may seem overwhelming, if you break the process down into these five simple steps you’ll have no trouble in your endeavors. One thing is for sure, operating a construction company is challenging but the benefits can be extremely rewarding.