For people who love working with their hands, starting a contractor business is often a great career option. Typically, this is done after working as a laborer for existing contractors, but not always. Especially with certain trades like plumbing, being a sole proprietor is common. With that in mind, what steps should be taken when starting a new contracting business? These tips will help you build a business that lasts. You might even be able to pass it onto the next generation.
1. Include Best Practices in Your Business Strategy
To ensure long-term viability, you should build best practices into your business plan. For instance, the modern construction business is increasingly focused on technology. Pouring concrete and framing buildings hasn’t changed much in recent decades, but computerization and automation have. Besides technology, commit to using best practices in employment, safety, and compliance.
Using best practices is important for two reasons. First, it keeps you out of trouble with the IRS, labor law, and local authorities. When you have liability insurance, unemployment coverage, and current payroll records, you’re less likely to get fined. Second, it helps facilitate growth. When your business runs efficiently and profitably, there is more money available to expand. Over time, cutting corners often backfires.
2. Self-Audit Regularly
Furthering best practices and a compliance culture takes work. Besides reviewing insurance coverage and tax rates every year, you should make a regular habit of self-audit. Especially in construction, it is easy to run afoul of legal requirements such as the proper classification of workers and current permitting rules.
However, this isn’t the only thing you should audit. Industry-specific best practices change over time. For instance, costing has become easier than ever, thanks to specialized programs. If your business is falling behind in these areas, your profitability and expansion opportunities can shrink.
3. Market Yourself As a Go-to Contractor
Like all businesses, contractors face competition. Even large contractors and experienced firms sometimes must elbow each other for jobs. As a newcomer to the local market, you will have to shout to be heard. This makes meeting competition more challenging.
Fortunately, you can meet this challenge with good marketing. When planning your business, and on an ongoing basis, you should look around to determine what works best. Startups often use online media to spread the word, while more established firms can sometimes afford television.
Besides choosing the right marketing methods, it is important to be unique. Every successful business has a clientele that it works best with. From the beginning, effective branding and outreach will help the right people find you. Otherwise, you risk getting lost in the crowd.
4. Focus on Customer Service
Whether you run a commercial or residential construction business, customer service is important. Few things annoy customers more than calling a contractor again and again without talking to someone. When first starting out, you probably cannot afford a receptionist, but make sure and return phone calls. Encourage people to leave voicemail messages, and don’t hesitate to make them yourself if the customer doesn’t answer the phone. Doing this will ensure that customers see you as an involved business owner. Finally, take customer feedback seriously. If you get a complaint about employees, take responsibility, and make it right. People remember customer service done right.
5. Be Aware of Finances
As much as you enjoy construction itself, you are running a business that needs to make money. For that reason, you should always be intimately aware of company finances. Bookkeeping services are a convenience, but you are the boss and responsible for all kinds of decisions. Therefore, always get regular accounting reports.
Reports should include more than the bank balance. Details such as project-specific costing accounts receivable and payable and tax liabilities help guide decisions. By analyzing business finances, you can find out what areas of your business make money and which ones are unprofitable. Over time, these can help you adjust your strategy for business growth.
6. Ask For Help If You Need It
Even the best businesses don’t grow in a vacuum, so be sure to reach out when you need help. Help can include financial support, expert guidance, or even mentoring. From a financial standpoint, be sure to have a banker and investors that you can count on. Other contractors and the local Chamber of Commerce can help give advice when you need to subcontract for special services.
Finally, consider getting a mentor (or two). Mentors come in many forms, but you should always consider finding one that is familiar with the construction business. One idea is to find a retired contractor who successfully ran his business for many years. While they might not be the best source for current trends, they have a lot to teach about negotiating contracts, dealing with customer complaints, and picking the perfect employee. An active, more experienced fellow contractor can also be a great resource.
7. Interview Potential Employees for Work Readiness and Compatibility
Part of being a contractor is becoming an employer. This means that you will onboard and take responsibility for people who help you build the business. While it is tempting to use a staffing agency, you should think twice about letting them just send over able bodies. Employees might have a history of violence, bad attitudes, or be poor workers. Talking to them personally helps weed out the wrong kind of people.
When interviewing employees, look for someone who shares your values. This means a willingness to work hard, to do everything correctly, and to treat customers well. Nothing is worse than telling an angry customer, “sorry, but I’m not responsible for an agency employee.” Therefore, find employees who are competent, love to learn new things, and repay loyalty with loyalty. Chances are you’ll keep them longer.
8. Get Involved With Construction Industry Associations
Joining a construction industry association has two disadvantages: it costs money, and you have relatively little control over how those dues are spent. However, for most contractors, it’s worth every penny. Contractors associations provide networking and continuing education. Keeping up with industry trends is much easier, and you have an organization to call when you need information about the latest building codes. Finally, like all trade associations, they participate in government lobbying. With all the government scrutiny focused on the construction industry, this is a good thing.
9. Be Willing to Meet Changing Demands
One way to see your business growth flatline is inflexibility. Maybe you want to only build houses and add onto them, but there may not always be enough business. Therefore, you need to know what your business can accomplish and pursue a variety of projects within that expertise.
Likewise, you need to know how to solve problems. Let’s say that your area gets hit by two or three hurricanes within a month or experiences a line of tornadoes. These natural disasters create tremendous demand for building repair. Buildings that are beyond repair might need demolition and replacement. By offering your contracting services to these customers, you can be there when the need is greatest. Not only will you make money, but you’ll create goodwill through flexibility.
10. Be Realistic About Company Capabilities
Although a specific kind of contract is highly profitable, it might not be practical for your business. Some projects will require skills that your company doesn’t have and which it wouldn’t be cost-effective to onboard. Examples can vary depending on your specific niche, but these projects are best left to other companies. On a related note, be careful about adding services just to get certain contracts. Planned expansion through upskilling is important, but you must know how much it will cost. Never promise more than you can reasonably deliver and still do it well.
11. Need Something Specific? Go Ahead and Outsource
On a related note, there are situations where hiring outside help makes sense. A big example of this is in residential construction. Especially when starting out, you may not have a plumber or electrician on your permanent staff. Plumbing and electrical are specialized skills that are needed on most new projects, but there is a shortage of these trades in many areas. You can’t finish a complete building without them, so hire help. Compare notes with other contractors on who they use. Some tradesmen have better reputations than others and may have different skillsets. Your competitors can tell you who is reliable and competent.
12. Be an Available, Hands-On Boss
If there’s one thing that construction workers hate, it’s business owners who stay in the office all day. Owners like this quickly become out of touch, both with the employees and the business. To avoid falling into this trap, be an integral part of the business. While some office work is necessary, you should always go to job sites and check up on work progress. Swing a hammer with the employees as much as possible and keep track of current techniques. Ideally, you should know what you are talking about, even if you aren’t a specialist. By taking time to demonstrate techniques and train staff, you build relationships that last.
13. Support Other Small Business
All small businesses have one thing in common: they have to compete with the big guys. Small businesses in the construction space can’t provide every model of cabinet or light fixture, but they often can supply a little more than the basics. Alternatively, they might be able to order something from their suppliers. When you can, it’s always important to buy local. Doing this not only supports other small businesses, but it creates relationships. You never know when the owner of the local window distributor can help you find a replacement for the installer who just quit. Plus, they are more likely to call you when their home or premises needs work.
14. Don’t Over Promise and Under Deliver
One of the biggest temptations for businesses is taking on huge jobs too quickly. For instance, when you first start out doing commercial construction, you will probably take on something like remodeling an existing structure. At this stage, you likely only have a handful of employees and limited equipment, so you can’t put up an entire building from scratch. Remodeling might not be as lucrative as construction from scratch, but there is a reason for this. Starting from the ground up requires much more overhead.
If you take on a job that is too big, then you can end up spending too much money on the project. Buying or leasing new equipment and bringing on new employees is expensive, and these expenses can continue long after the job is done. Before taking on a project, see if it makes business sense in the long term. Adding overhead requires the ability to use it for future jobs, or you can lose money. Keep your business size reasonable, and this is less likely to be an issue.
15. Create Good Will With Your Community
Finally, keep in mind that your business is part of the local community. Members of the community are the ones who will typically hire your company, so there is nothing more valuable than goodwill. For that reason, consider contributing to worthy causes. That can include giving away extra materials, which was done with N-95 masks during the recent health crisis. Or, consider helping to sponsor a youth sports team, community event, or charitable organization. Not only is this relatively cheap advertising, but the goodwill can last for a long time.
Conclusion
Construction is a very rewarding career, but building a business requires a lot of planning. Both before and after launch, being an excellent business person and competent contractor will help your business thrive. By following these suggestions, you can help ensure long-term success.
