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You probably have many questions if you’re considering starting a construction company. How much does it cost to start a construction company?
What initial expenses do I need to cover? How quickly can my company become profitable?
Here are all the costs you need to cover when starting your construction business in a post-COVID world:
Average Cost to Start a Construction Company
You should set aside $40,000 to start a construction company. As of 2022, the average cost is about $37,390 to create and finalize your business.
The United States construction industry is valued at $1.8 trillion since its last update in 2022. However, we can see that the industry is growing despite a less-than-ideal economy. So take heart: your private business has great profit potential!
There are five primary costs to start a construction company that you should evaluate first:
The first step of any business venture is registering your company’s name, employee ID number, structure and other details. The registration process differs by state, so make sure you read up on your state’s registration requirements.
You should choose your business structure based on the best tax breaks and liability protection. A sole proprietorship or limited liability corporation (LLC) is usually – but not always – the best option for construction start-ups. Once you have your name, structure and ID number, you can acquire the necessary licenses.
Construction companies need many licenses to stage projects at specific locations, use certain equipment and build specific structures. Again, these licenses will vary by state. There are two main licenses that every construction company needs:
- Contractor’s License: This license’s requirements depend on the types of structures you build and their dollar value. You’ll need an expensive contractor’s license to do expensive projects.
- Business License: Your local municipality determines the cost and scope of your business license. It can cost a few hundred dollars in the most competitive areas. You have to renew this license every year to remain a valid business.
Many new business owners get held up during the licensing process because they do not know all of the requirements. Take your time while researching your state and local licensing rules.
Construction is a dangerous business accounting for about 47.4% of all worker fatalities in private industries in the United States. Every company needs a comprehensive insurance plan to protect its livelihood and employees. These are the types of insurance you’ll need:
- General Liability
- Builder’s Risk
- Worker’s Compensation
Your state might also require you to get disability and unemployment insurance. You’ve probably noticed by now that location plays a huge role in the value and structure of a construction company. Such precautions are necessary when engaging in a high-risk business.
Your selection of tools and vehicles can make or break your company’s success early on. It will be your most expensive initial investment by far.
You may have to purchase used equipment to minimize costs, but that’s okay. Buying used equipment also puts you ahead of the depreciation curve because the first owner paid the initial costs.
Hiring and paying employees is the most straightforward initial expense on paper, but it’s also the most unpredictable. You must hire full-time staff or hire independent contractors for specific projects.
Full-time staff will make the job sites more efficient and perhaps more fun, but contractors are generally cheaper to hire and have flexible hours. You will at least need a handful of full-time employees to help with paperwork, finding projects, ordering materials and other management tasks.
Additional Financial Considerations
In addition to the essential startup costs, there are other vital financial aspects to consider when launching a construction company:
Marketing and Advertising Costs
When launching a construction company, allocating resources for marketing and advertising is essential. Businesses typically allocate approximately 7-10% of their total revenue to their marketing efforts.
This serves as a general guideline or rule of thumb in the industry. These costs encompass various elements, including:
- Website development: Building a professional website is crucial for showcasing your services and projects. Cost may involve registration, hosting, web design and ongoing maintenance.
- Online advertising: Consider expenses related to advertising campaigns, such as pay-per-click (PPC) advertising, search engine optimization (SEO) and social media advertising to reach a broader audience.
- Print materials: This includes designing and printing business cards, brochures, flyers and other promotional materials for networking and in-person marketing.
- Branding: Developing a strong brand identity, including logo design and company colors is an investment in long-term recognition and trust within the industry.
- Marketing strategies: Budget for making strategies that align with your target audience. These strategies may involve content marketing, email marketing and event participation.
- Advertising platforms: Costs for listing your services on construction-related websites, directories and publications to increase visibility.
By budgeting for marketing and advertising costs, your construction company can effectively promote its services and attract clients, which is crucial for growth and success in the industry.
Emergency Funds and Contingencies
Construction is unpredictable. Having money set aside for delays, unexpected expenses, equipment breakdowns, legal issues and slow economic times helps keep the business stable during tough moments.
Technology and Software
Using modern tools like project management software, accounting systems, good communication tech, 3D planning software, drones for surveys and safety tech can make work smoother and safer. They improve how projects are managed, financed and ensure better safety for everyone involved.
Funding Your Company
If you don’t have at least $40,000 saved up, it’s in your best interest to acquire a Small Business Administration (SBA) loan. SBAs are more challenging to get than other loans, but the results are worth it.
They have low-interest rates, flexible terms and generous loan amounts. Here are a few common SBA structures:
- SBA 7(a): Offers up to $5 million in loans to cover existing debts, build more working capital or upgrade the project management system.
- SBA Microloan: Provides loans of $50,000 or less to help start-ups make periodic expansions to their business.
- SBA CDC/504: Loans up to $5.5 million to help businesses buy significant assets, such as new equipment or more real estate.
Consider getting a business line of credit. It won’t provide the exact loan amounts as an SBA, but it offers more flexibility. Every start-up needs a flexible loan program.
Start Your Construction Company With Confidence
So, how much does it cost to start a construction company? The average cost might give you a good benchmark, but you can’t get fixated on that number. Every start-up has a unique situation with a wide range of variables.
You should start your construction company with confidence. The economy might not be looking up, but the construction industry has remained resilient and continues to grow.
Original Publish Date 11/09/2022 — Updated 11/13/2023