Don’t Start A Construction Business Until You Read This

If you’re planning on starting a construction business because you have skills in the sector, then congratulations, it’s a great choice, and we wish you the best of luck. But at the same time, being your own boss and building a legacy is filled with a graveyard of failed start-ups. Before you file for an LLC or spend any money on equipment, you need to understand what it involves and what you need to do.

Your job isn’t to build; it’s to manage risk

The first and most important lesson for anybody considering starting up a construction business is to know the fact that you’re not building extensions or new properties; you’re managing risk. Construction is one of the most dangerous and litigious industries in the world that requires you to be constantly focusing on compliance and construction safety training. 

In fact, this should form the main pillar of what you do. If you need to hire people to do labour, then consider this in a separate bucket. Don’t try to take on the role of being the worker and the compliance manager yourself. You’ll burn out, and you won’t have enough hours in the day.

Remember, a single mistake can bankrupt you in the construction sector. Therefore, always get the right type of insurance and work closely with OSHA. Deal with contract disputes respectfully and manage construction defects proactively.

Cash flow is a silent killer

You also need to be aware that when you start a construction business, your cash flow is a silent killer. Even if your profit and loss looks good for the year, you may still go out of business if you don’t have money flowing in. Construction companies need cash on hand right now to pay for supplies and parts. They also need it to pay wages because otherwise work doesn’t get done. If you have negative cash flow in the first three years, which most construction companies do, you’ll need a reserve of money you can tap into when it’s short. Yes, of course you will get large lump sums from time to time, but these can be lumpy, as the name implies, so cash flow can suffer month to month.

Your bookkeeper is your best friend

Related to this last point, your bookkeeper is your best friend. A professional accountant can tell you when you’re likely to run into cash flow issues and enable you to plan around them. They’ll let you know when you need to take out a line of credit or cut back on your spending to ensure that you can continue paying for essential operations. 

If you can find a CPA who specialises in construction accounting, that’s even better. They often know the special rules that apply in this sector, which are different from regular retail accounting, including things like percentage of completion when recognising revenue. As a construction professional yourself, you might not be very good at adjusting the books. Consequently, having an accountant on your team in the background watching everything is not only useful but also saves you a lot of time, energy, and stress.

Hiring is harder than finding clients

If you stay in the construction sector for any length of time, you’ll know that hiring quality people is even more difficult than finding clients. There are plenty of individuals out there with money to spend who would love to work with a construction company to complete their projects, whether it’s a simple home extension or a massive office building. However, it’s much more challenging to find quality people to work in your business. Most workers in the construction sector don’t have the skills or the character traits to work at your firm effectively, and often you’ll find that there’s literally a labour shortage.

When trying to hire people, make sure you highlight the benefits of working with your firm. If you’re looking for a high-quality carpenter, don’t just tell them that you’re a nice guy and that they should work for you. Instead, offer real, tangible perks that are in line with industry standards or preferably even better.

You need a niche

Finally, if you want to be successful in the construction business, then you really need a niche. Look for low-competition, high-opportunity areas to get into and try to go in the direction that the economy is moving. For example, recently there was a boom in warehouse construction, and companies that specialised in this type of building work tended to do much better than those that didn’t.