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Managing a Construction Business

Knowing how to manage a construction business is the key to being a successful contractor.  There are many ways to enter the construction field with extensive opportunities for a rewarding career in the industry.

The US Bureau of Statistics provides an Occupational Outlook Handbook where you can find entrance requirements, salary, job descriptions, job outlook, and more for the construction industry.

A construction company can be just an owner, an owner using subcontractors, or an owner with employees, with more variations depending on the number of people involved.

There’s more information about running your own construction company in the article called The Lifecycle of a Construction Business.

Getting Started

Carpenters can enter the construction business with a desire to learn and the agility to perform physical work. Hands-on learning in the industry is the best way to prepare for owning and managing a construction business. Score, community colleges, and libraries are good places to learn more about managing a construction business.

Preparing to Own a Construction Business

Learning construction may take 2 to 5 years or longer to have enough knowledge to manage a construction business.  Plus, a business or construction certificate or degree will improve your success.

Electricians, plumbers, HVAC, and specialty contractors have additional education and licensing requirements.

Contractor Licensing requirements vary from state to state. Levelset, a cloud-based platform that offers payment facilitation for construction companies, has compiled a Guide for Licensing in each state.

Skills Needed to Manage a Construction Business

As an owner, a large part of the day is talking on the phone and coordinating projects.  Sales, customer service, and planning get juggled throughout the day. The day’s filled with interruptions, so the ability to move from one task to another under pressure is essential.

Necessary skills:

  • Being organized
  • Construction know-how
  • Understanding finances
  • Problem-solving ability
  • Good time-management
  • Great communication skills

Financial Investment

Putting time into learning and understanding how to manage a construction business is a great start. Establishing a construction business also takes a financial investment.

The basic setup for a startup construction business:

  • Vehicle
  • Tools
  • Storage
  • Office space
  • Insurance
  • Licensing

Managing a Construction Business Office

The office is where the behind-the-scenes work happens and where the project begins. It’s where the paperwork for the construction business gets handled.

Basic office setup:

  • Cell phone
  • Desk
  • Filing boxes/cabinet
  • Computer
  • Printer
  • Office supplies
  • Internet
  • Accounting software

Administrative functions

All the activities of the office are called administrative functions. In a construction business, administrative activities facilitate work on the projects, help the company comply with laws, and support the company’s growth.

 Administrative tasks:

  • Handling correspondence
  • Drafting contract paperwork
  • Ordering office supplies, materials
  • Product research
  • Maintaining technology
  • Filing paperwork

Sales Functions

Sales functions keep the company operating. Selling for a construction business involves:

  • Relationship building
  • Understanding the requirements of the project
  • Being able to present and finalize contracts

Sales tasks:

  • Prospecting
  • Meeting with potential customers
  • Calculating and writing up an estimate
  • Presenting the estimate
  • Closing the deal and entering into a contract

Learn more about Establishing Hourly Rates and The Terms Estimate, Quote, Bid, Proposal, Explained.

Accounting Functions

In a construction business, accounting tracks the company’s finances and the profitability of each project.

Accounting tasks:

  • Invoicing
  • Paying bills
  • Paying taxes
  • Paying employees
  • Preparing financial statements

Learn more about What Accountants Do for Construction Companies and how to Audit-Proof Your Business.

Human Resource Functions

The laws around employees are extensive, and the paperwork is immense for a construction business. Look to Score and your state Department of Labor and Industry, state Department of Economic Security, and IRS for guidance.  

Human Resource Tasks:

  • Onboarding
  • Payroll & Benefits

Here’s some helpful information on Hiring Employees for your Construction Business.

Managing a Construction Business In the Field

The contract outlines the work to be performed. The goal is to complete the project on time and within the budget defined by the agreement.

There are job site interactions with clients, material suppliers, subcontractors, and inspectors. Communication between all people involved is a regular part of keeping the project moving forward to completion.

Scheduling

Scheduling is an integral part of managing a construction business. A forecasted schedule is prepared and coordinated with the homeowners and everyone involved with the project. The anticipated schedule can and often does change; however, the contract can involve penalties for not meeting completion dates.

There is scheduling for:

  • Appointments with potential clients
  • Meetings with homeowners, designers, architects
  • Walk-throughs with subcontractors
  • Inspections with city Inspectors
  • Labor work schedules
  • Material deliveries

Project Management

Project management is the oversite of all the project’s details; it’s the budget and the labor and materials from beginning to completion.

The budget for the project was determined during the estimating process with a contract agreeing to provide the labor and materials for a specified cost. Project management keeps the project in line with the project’s budget.

Labor

Managing a construction business means managing people, budgets, and unplanned obstacles. Many factors play into whether the labor hours will stay within the budget; weather, equipment failures, site conditions, code issues, and a host of other situations.

Labor tasks:

  • Showing up on-time
  • Setting up tools and workspace
  • Performing work according to the contract
  • Cleaning up and packing up

Following safety guidelines is priority one on the job site. For guidance, read Job Safety and OSHA.

Materials

  • Purchasing materials
  • Picking up or receiving delivery
  • Making returns

Tools and Equipment

  • Purchasing
  • Maintaining
  • Inventory

Learn about Cargo Trailer Theft and how you can protect your assets.

Finalizing Projects

Following through is vital to the success of the construction business. Before collecting the final payment, there are a few things to wrap up.

  • Final inspections
  • Closing-out permits
  • Paying subcontractors
  • Completing lien waivers
  • Thank everyone!
  • Ask for referrals

Learn more about managing at the Start of the Year and Year-end for your Construction Business.

Because history is fun, enjoy these articles, History of Systems for Measuring Length and

History of the Tape Measure.

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What is Your Time Worth?

Contractor showing his worth

With every estimate, there is a debate and a decision to be made about where the numbers need to land. It’s a juggling act. “If I charge too much for the time, I might not get the job. If I don’t charge for enough, I won’t make a profit.”

When clients ask about pricing, you need to justify the amount confidently. Confidence comes with experience. There isn’t a contractor that hasn’t learned the painful lesson of underestimating the cost of a job. It’s a difficult position to be in.

You wear many hats. Estimating and selling is a part of the project as much as building the project. Calculating an estimate is based on knowledge but often includes unknowns and is not an exact science. Sometimes you are right on the money; other times, you count your losses and move on.

Worth Taking the Job?

When a new contractor starts, they can easily find themselves struggling with the value of their time. It can be difficult to establish consistent work in the first few years. It takes patience and time to build a client base.

Although there is value to accepting anything you can get your hands on, it is not sustainable if you lose money on every job.  Sometimes you have a gut feeling about taking a project. Trust your gut. If you have reservations, stop and reconsider taking the job. When things feel off, it most likely was not a good fit. The job with the picky homeowner may result in a nightmare. Focus on getting better jobs.

Sometimes there is a good reason for taking a job and not making a profit. An example would be a small repair job that takes under an hour and involves 2 or 3 trips to a hardware store. It’s not the type of job you would typically take. You would charge a minimum trip charge, but you’ve been asked to help someone out and decide to waive the trip charge. In this situation, it’s about goodwill, which can go a long way. It may not be a profitable job, but it may pay off down the line with referrals that lead to better jobs.

Another example is when an unprofitable job may lead to a more profitable, more significant job. This may be a step towards becoming a homeowner’s go-to person or a result of submitting a lowball bid to get more work from a large contractor. While profits need to sustain your company, you also ride a fine line to establish future jobs.

Communicate what you are Worth

Clients only see the time physically spent on a project. You may need to educate clients on what goes into a project for the client to understand what your time is worth and the costs involved.  Very few clients have an open checkbook, and most are looking for “the best price.”  One skill needed is the ability to communicate the cost and the reason the client should choose you for the job.

Being the lowest bidder doesn’t guarantee getting the job. Be upfront; let the potential client know that you may not be the cheapest. Follow that up with the reasons that you aren’t the most inexpensive. Present yourself as knowledgeable and trustworthy. Building trust makes money less of a determining factor for clients deciding who to hire.

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Integrity is Everything

Can you identify the problem? That big hole shouldn’t be there. It’s the story we’ve all heard. The contractor took the money and didn’t finish the job. This contractor didn’t even come close to doing the job right for this bathtub removal.

A contractor took advantage of a homeowner, which you do not want your company to be known for. The homeowner’s first mistake was to hire an unlicensed and uninsured contractor to renovate the deteriorating bathroom. The second mistake was not getting anything in writing. This contractor left the bathroom at the end of the day with a large hole in an exterior wall and a large hole in the client’s pocket.

Unfortunately, too many contractors have earned a reputation for not being trustworthy. Your integrity is everything. Honesty and fairness is always the best policy. The rewards will come back with happy clients and referrals.

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5 Best Contractor Do’s and Don’ts

The Five Best Contractor Do’s and Don’ts for Running a Successful Construction Company.

#1 Do honest work and don’t hide problems.

It’s easiest if everything is done right the first time; however, even when you think you’ve done things right, things can go wrong. When this happens, the best option is to be upfront, discuss the problem and come up with a satisfactory solution.

#2 Do listen to an accountant and tax preparer for advice, and don’t ask an accountant or tax preparer to act “unethical.” 

Treat all business partners with respect and learn from them. You are hiring professionals to help guide you and make sound business decisions. This partnership should aim to meet the goals of complying with all applicable laws.

#3 Do pay your subcontractors promptly and don’t make your subcontractors have to ask for payment.

A well-written contract will help maintain a cash flow to pay subcontractors within a reasonable time frame. If work is satisfactory, pay promptly, or that relationship will be lost.

#4 Do keep business transactions separate from personal financial dealings, don’t pierce the corporate veil.

Moving money from one bank account to another may seem pretty benign; however, this may create a liability to the company. Always have checks written to your business and deposit the funds into a business account. Pay only business expenses from the business account, not personal expenses.

#5 Do comply with all regulations and don’t conduct business without being properly licensed and insured.

The construction industry is regulated at the federal, state, and local levels. Noncompliance can cause fines or, worse yet, shut down your business. The best practice is to follow applicable laws.

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Become a Successful Contractor

The path to becoming a successful contractor is having a passion for working with your hands in all conditions and learning the trade.

Some will learn skills from a family member, while others will know the trade through on-the-job training or a high school, technical school, or college program.

The construction industry is an outstanding career. According to the U.S. Bureau of Labor Statistics, the median pay for 2020 was $49,520.

The construction industry offers opportunities to work independently or with teams.

Construction companies may offer a range of services or specialize in a particular type of project.

On top of learning the craft, an understanding of the business is needed to operate a construction company. Search for a mentor. That person can be another contractor, a trade association, or someone from Score.

The amount of knowledge needed to run a business can be overwhelming, let alone a construction company. Build a team that includes people filling in where your weaknesses are. Accurate recordkeeping is a necessary part of business, so find a competent person to handle your financial information. Look for advice and form relationships with an accountant, tax preparer, and banker.

Each state has its own set of rules for licensing requirements. Some states only require a fee, while others require education and testing. Your state department of licensing determines what will be required. After you have your name, registered your business with your Secretary of State, and obtained any required licenses, the hard work of being a business owner begins.

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