What Are the Costs of Opening a Construction Business? | Fora Financial
What Are the Expenses of Starting a New Construction Business?
April 16, 2019

What Are the Expenses of Starting a New Construction Business?

Building a construction business is both challenging and expensive when you first start it. However, with preparation and strong management practices, you’ll weather the pressures of competition and economic uncertainty. In fact, all signs point to this being a great time to get your new construction business off the ground.

Data suggests that construction is only set to grow in the foreseeable future. Between 2016 and 2026, industry occupations are expected to grow 11 percent. Furthermore, six of the 10 fastest-growing industries among small businesses are related to construction — a statistic that places the potential of the industry in perspective.

Clearly, the costs associated with starting your own construction business are well worth the investment. Although you’ll have to cover several different areas like your license, registration, and equipment, you’ll find that affording these expenses is doable. With the current trajectory of the industry and a thoughtful business model, you can make the most of this incredible opportunity.

So, where should you start? We’ll explain everything you need to know, detailing the different expenses you should expect as a new construction business owner.

5 Expenses You Should Expect When Starting a Construction Company

1. Registration

Before you start your first project, you must register your business. Registration differs from state to state, and although states often follow the same rules and regulations, you should make sure you understand your area’s requirements. You should also complete the following tasks:

  • Name your business
  • Pay the appropriate fees
  • Choose your business structure

In terms of choosing your business entity type, you should decide on the best structure for tax breaks and liability protection. Beyond these points, you need to register with the IRS, provide an employee identification number, and answer a few more questions. After that, you’ll move on to licensing.

2. Licenses

You’ll protect yourself, your clients, and your overall business with the correct licenses and permits. In addition to your general business license, you’ll likely need other specific licenses to operate, such as the tradesman license for plumbing, electrical, gas fitting, HVAC and other construction trades.

If you’re unsure which licenses you’ll need for your business, you can check with the state business license office for more information. Once you’ve acquired the necessary licenses and permits, you’re free to continue the development of your construction business. It’s a small but essential consideration.

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3. Insurance

After you’ve addressed the preliminary paperwork, you should review the types of business insurance you need. Whether you should purchase general liability, property, and vehicle insurance depends on different factors, such as the employment status of your workers and the nature of the work itself.

Keep in mind that individual states might require businesses to carry specific insurance as well, including state disability, unemployment, and workers’ compensation insurance, which are all critical considerations as you start your construction business. Make sure not to overlook these essential details.

4. Equipment

Your investment in construction equipment is a significant startup cost, far more substantial than many of the other expenses on this list. Of course, you have options regardless of your financial situation, and you don’t have to purchase new equipment if it places too much of a strain on your budget.

Small business owners in your position will often purchase used equipment. Doing so enables them to manage their expenses, of course, but it has other benefits as well. When you buy used equipment, you’re on the cost-effective side of the depreciation curve, as the first owner paid the 40 percent depreciation cost on the vehicle.

5. Employment

In terms of employment, you can either hire contractors or a full-time staff. With contractors, you’ll enjoy greater flexibility and lower costs, as you won’t have to provide a salary or benefits in most cases. That said, a full-time assistant can handle some of the minutiae of your construction startup.

Ultimately, whether you should choose contractors or a full-time staff depends on your set of circumstances. Set aside time to consider your needs to dentine which option will work best with your current plans. Remember, you can always expand your team as you grow your construction business.

Starting a Construction Business Can Be Expensive, But There Are Options

The expenses involved in starting your own construction business might feel like a heavy weight holding you back. Just remember, financing is often helpful if you’re looking to get off the ground running. Whether you finance equipment or pursue a construction business loan, talking with professionals can help.

Did you take the plunge and start your own construction business? Tell us about your experience in the comment section below!

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Holly Welles is a freelance writer with experience covering industry trends in construction and real estate. You can find her work published on sites like NCCER, Constructible, and on her personal blog, The Estate Update.