by Brian McKay
When you decide to start your own business, you have a lot of factors that you need to consider. Firstly, you need to think about the type of business you are beginning, both in industry and structure, and then you need to move onto your business plan and how you hope to fund your business. A very common business idea at the moment is beginning in the construction industry. It doesn’t matter whether you are interested in building homes and constructing towering offices, or you want your business to hire contractors out to other services, you need to think about your finances and how you plan it all out. Many new businesses on the block fail due to their finances more than any other reason, and this is especially true for companies that engage in contracting. It’s literally a case that most smaller businesses do not adequately prepare their finances, by not looking at the true costs of their business expenses and failing to price their own services. This then leads to making a loss instead of a profit.
There are often huge differences between costs from contractor to contractor. Some underpay themselves, but this doesn’t necessarily mean that there are some contractors in the industry that deliberately overcharge for bids; there are genuine reasons that bids can vary. There are contractors out there that are more established, professional and with more experience, so their charges would be higher than say, a contractor who is new to the market and hasn’t quite worked out what they should be charging yet. The contractors with an established reputation for finishing projects on time while meeting the budget set and a stable business model are those that can afford to charge more because they know that they are worth it – as do those who hire them. In your construction business, this is exactly what you are aiming to achieve. You want to be the business that sees the value in buying equipment on auction, hires the right people to ensure that the job is always completed on time and you want to be the company with the best reputation. You do not want to be the business that fails at this by using inept equipment, adds unnecessary charges and has a bad reputation in the industry.
The most key thing that you can do for your business is to establish a budget that you can work with. It’s an essential ingredient to your business success. As with any company, you can have the most established business technology, the best talent in your sales team and the most up to date business blog, but that doesn’t mean that you will be a success. All of that is just padding for your company, because without a financial plan that is comprehensive and makes sense, you are not going to be successful. Here are the many ways your construction business budget is going to help your overall financial goals:
Future planning your business is easier when you know what your limit is for your budget.
Your money is managed far better because you have a clearly defined limit to spend.
Problems are spotted before they occur.
Your objectives for your company are within better reach, because you have budgeted for them.
Your employees are far better motivated because you have budgets for rewards and perks.
General financial costs can be kept under control.
The construction business as a whole can boast that they are responsible for global structural development, and you can have a piece of that industry pie simply by ensuring that you financially set yourself up long before you open your doors to clients. It makes sense, then, that a construction business is very focused on money. The equipment needed for the business, the manpower and the supplies needed all require a heavy put down on cash at the start of the business, but the industry is still one that is highly profitable. Part of planning your finances for your company is going to rely on the succinct and straightforward business plan that you have to write before you get going. Your plan is going to help banks and other lenders to decide if your business has the potential that you believe it does and finance you accordingly. It’s not really a business that you can bootstrap, due to the level of equipment, insurance and staff that you need to succeed. Your business plan is going to be the blueprint for your company to follow. Just like the houses you intend to build, you need to have something to show the world what you are building – your company. The plan that you write can help you to manage your business effectively enough that you won’t need to rely on trial and error to succeed. After all, you have a plan to get you from new business to established company with excellent reputation – there is no need for trial and error here.
If you choose to start small, your business may not need millions to get up and running. However, if you want to go big with your business, you need to think about the high costs of money that it takes to get going, usually in the region of $10million and above. You need to think about office space, furniture and equipment, cash for salaries for staff, the utilities, the standard construction equipment and machinery – it all adds up and you need to be up to speed on how much this can all cost. You should be the one generating your start-up capital, because you are the business leader and it’s what is expected of you. Your business plan should detail how you plan to finance your business, but don’t forget that your plan is going to be your biggest tool for gaining capital without needing to convince lenders or the bank. The good news is that there are options out there for start-up construction businesses looking to source finance to get them going, and here are a few of those options:
Personal savings, stocks, bonds and the sale of personal property (also known as bootstrapping).
Applying for a business loan with your bank directly.
Proposing your business to investors and getting partners for your business.
Business grants and funding applications sent to angel investors and donor organisations.
Investment from families and friends to help get your business off the ground.
Once you’ve been granted the finance that your business needs and you have put together your budget, you need to consider where you want to have your business. Location does matter when it comes to your construction business, as you potentially need to think about warehousing if you are doing any manufacturing or storing large equipment and vehicles. Choosing the wrong location for your business can have a hugely detrimental effect on your popularity, and you can fail based on your location. If you are able to build a successful brand that garners good recognition and a good reputation to start with, you will be able to pitch your business anywhere on the planet. You need to look at where construction businesses thrive and choose your location based on that. You should also be accessible for clients, staff and anyone coming in to speak to you. It may be good for your space to be in an industrial estate off the motorway, but you may not be accessible enough for clients, so think carefully about that.
Location can take some time to choose if you haven’t yet done all your research, but the next thing to consider is your staffing in the office. You will have contractors working on various sites and raising structures, but you’ll need back office staff to support those contractors as well as pay the clients. Your manpower should be strong and cover your admin, finance, project manager, business development team, surveyors (both land and quantity), sales teams, human resources and finance. These are the bare minimum that you need, and you should also consider the marketing team that you will need. Contract labourers are usual for your contractors rather than a permanent workforce, so consider the costs of these versus a permanent staff force. You don’t have to retail products in your business, which means your marketing strategy would be different to most companies. You’re not selling anything in bulk except for yourself, so the most important thing that you need to market is you. You can do this online, in newspapers, magazines, local radio and exhibitions. Advertising your business can also come from word of mouth, an exceptionally powerful tool in the construction industry, as everyone wants to know the best of the best.
All in all, starting your own construction company is going to be a huge job, but with the right guidance, finance and people on board, you can make your company a complete success on the right budget. This can lead to the global domination in the business that you’ve always dreamed about.