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How to have a construction company in the US

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The construction sector is one of the most attractive for new companies, but it also has high failure rates. Hence the importance of knowing in depth how to have a construction company in usa to avoid being part of this statistic. On Hispanic Entrepreneurs We tell you where to start.

What does the construction sector cover?

Companies engaged in this market primarily carry out building construction or engineering projects (roads and utility systems). They also prepare the land for new buildings and the subdivision of the land for sale.

May include new jobs, additions, modifications, maintenance and repairs. It is divided into three sub-sectors: Building Construction, Heavy and Civil Engineering Construction, Specialty Trade Contractors. This division was made by the United States Bureau of Labor Statistics.

Construction market situation

Due to lack of knowledge, planning or financing, 63.6% of construction companies close in the first five years. Given these data, do not be discouraged because by following a few steps you will have a solid base to stay in business.

On the other hand, despite the fact that covid-19 has interrupted production in the main cities in 36 states, construction is considered an essential service. Let's not forget that the sector is one of the ones that generates the most income and although it has slowed down, it is not stagnant.

Sustainable growth has been noted in many areas, especially private single-family home developments and home improvements. In the same way in commercial construction due to the growth of metropolitan cities.

New technologies have helped solve old deficiencies which increases safety in the workplace. However, it still faces various challenges such as a shortage of skilled labor. This adds to the uncertainty regarding the commodity trade and its rates.

The hope is focused on the application of innovative technologies and ideas such as prefabricated modular construction. Many of the small companies fast-growing companies are related to this industry. We see how finishing, utility systems (water, sewer, gas, electricity) and structural (concrete, roofing and siding) contractors develop.

The data company Statista determined that construction spending was 1,23 trillion dollars in 2017. The growth is expected to continue, it did so in the midst of the covid-19 crisis, reaching 1,5 trillion in 2021. By 2025 it will be expected to reach 1,8 trillion. This is very good news for those thinking of starting in this business.

Some figures

-In 2021, residential building construction spending accounted for almost half of the industry's total, while non-residential construction accounted for about a third. The report of Statista

-New construction is expected to total US$1.449 billion by 2023. The report of Statista

-30,4% of employees in the US construction industry identify their ethnicity as Hispanic or Latino. The living thing

-90% of US general contractors are concerned about a possible labor shortage. United States Chamber of Construction

-The construction industry represents 4,1% of the total US GDP. The report of Statista

-Washington is the best state for construction jobs. Conexpo-with

-Some 60% of construction executives surveyed forecast an expansion of the industry in 2023. Zippia

How to have a construction company in the US

1-investigate the local market

The first thing you should determine what you have experience in and then if the company is viable in your area, because as we well know, it is oversaturated. If customers are happy with existing ones it can be difficult to make room for another.

Find out how many local businesses of this type there are, what they specialize in, what their reputation is and how much they charge. What's more, counts the number of potential customers, interests, age and average status. All the details you can research will serve to put together your business plan.

Much of this information can be found at US Small Business Administration (SBA). They will guide you with a series of free resources that contain an important database on customers and markets. They also have production and sales statistics.

If you want more specific numbers we suggest you look in local publications. You can do it by doing a Google search by placing the name of the city + “publications of the construction industry”.

But to complement what you have collected, choose to do your own research by speaking directly with customers. One way is to use surveys, questionnaires or interviews based on questions like: how often do you hire? Your biggest problems with contractors? Or how important it is for them to trust a contractor.

2-Business plan

Commercial business plans must have a series of requirements that lead to the realization of the final objective that is the company. It will help get investment funds and loan approval.

It has to cover how the company will be structured and run, what services will it offer, what types of work will it do, what is the target market. As well as the number of employees you will have to start, what type of promotion you will use, estimated cost to start and maintain the company.

In addition to how much you aspire to earn in the first year, what type of billing will be used, if they will give a discount to obtain quick payments, etc.

If writing the plan intimidates you, seek help by hiring an expert to do it. On the other hand, there are programs that offer guidance on the subject such as SCORE of the SBA. Another alternative is the Small Business Development Center (SBDC). In addition there are organizations that help women, minorities and veterans on the way to start their business. The SBA advises including the mission, company biography, funding goals and future plans.

3-Register the business

Once the business plan has been prepared, it is registered so that it is legal. This will give you personal liability protection, legal and tax benefits. Defines the name and type of business entity: LLC or a corporation, for example. The LLC It offers some advantages such as facilities to pay business taxes and cover personal assets in case of legal problems.

Parallel to the registration of the name in the state and local governments, it must be done at the federal level. This is required in order to obtain a Federal Tax Identification Number or Employer Identification Number. With this you can pay taxes, hire employees, open a bank account, comply with licenses and permits. Request it on the IRS website.  

Additionally, you can register the name and logo in the United States Patent and Trademark Office. Take into account that if you operate in several states, you must register in each one.

4-Licenses and permits

It is very important to process the correct ones so as not to have problems in the future such as closures and fiscal sanctions. Once the business is registered, the first step is to put the licenses and permits. The type is determined by whether the activity is regulated by a federal agency. The requirements vary according to the state, the location, the size of the company and even the type of construction to be built.

If the company is going to transport materials, prefabricated walls and equipment, it must have the permit for overweight vehicles. It must be requested at United States Department of Transportation for example.

As for state permits and licenses, these will also depend on the activity and location of the business. Among the activities most regulated by the states is construction.

The cost of the business license also varies, which is why you should check the regulations of the state, city and county where you will install the company. You can also look for information from your state Board of Contractors and your local Department of Labor.

The first thing that has to be resolved is the issue of location approval, then we proceed to verify what permits and licenses are needed. The requirements are on the state or county website.

The licenses that are generally required are those of a general contractor and that of a specialized contractor.. The latter is requested if they carry out carpentry, roofing, electricity, painting, etc. While, if the objective is to obtain government contracts, it is mandatory to register as a federal contractor. They can be primaries to participate in the bids or subcontractors who work with the primaries.

For example, in Tennessee, general contractors must have a contractor's license before bidding and negotiating prices for any project. Specifically in works with a value of 25 thousand dollars or more.

You are required to demonstrate your experience, proof of insurance and financial status, as well as pass a business and law exam. Contractors are licensed by the  State Department of Licensing and Insurance.

While, in California it is necessary to manage up to 43 different licenses according to the structure and area of ​​specialization. They do a background check at the FBI and ask you to post $15 bail. Some licenses require a deposit of 12.500.

5-Insurance and responsibilities

To complete the procedures for Having a construction company in the US requires insurance for you and your employees. It is essential to have coverage due to the dangerous nature of the work that is susceptible to accidents..

Valid workers' compensation insurance is required at a minimum by most states and construction contracts. But you may need general liability, professional liability, automobile and builder's risk insurance, unemployment insurance, among others.  

It is best to plan these details well because the cost can be very high if handled improperly. Combine coverage under one policy, instead of having several open. Review the policies annually to detect changes that lead to saving money, do not let it expire.

Try to train all employees on safety protocol to minimize or prevent injuriesand unforeseen expenses. Hire only those who are willing to train.

6-Get financing

As they do not have their own resources, the solution is to obtain funds from bank lenders, government, credit union, or state grants. Beyond the basic financing you have to take into account that of the projects. Surely you will require money to rent or buy equipment and supplies.

Another factor to consider is the irregularity of the billing cycles of this market, making cash flows essential.

Many times the payment is delayed or the client refuses to pay. In this case the solution is to ask for money in advance, invoice as the work progresses. Or in every case have an emergency cash fund.

7-Make the business grow

What will make a construction company stand the test of time will be customer loyalty and reputation. So the goal should always be to leave each project on good terms.

Be honest with clients from the beginning of the contract and keep them updated. In this way they will handle the information in the best way if problems appear. In addition, it is key to establish a schedule including a time for contingencies, payment terms and claim clauses. Everything that is agreed must be written, it is a way to protect the company and the contractor.

Your responsibility will get you hired again and recommended to others. It is recommended that to achieve success in this area you do not have to venture alone. It's best to join people who provide resources and support, as well as industry associations for contacts and relationships.

Entering the world of construction is not easy, but with the right guidance and support you can build a successful business. The important thing is that you research industry requirements and standards, keep expectations realistic, and stay current on technologies and statistics. And of course ask for help when needed.

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