Many people are attracted to the construction business because of big budget projects. It?s not uncommon to hear people who became multi-millionaires or even billionaires in a short period of time by starting off in the construction business.
So, we asked an expert who?s been in the construction industry for over 20 years on his views on the construction business.
How does the construction business work?
There are usually two types of projects ? public projects and private projects.
In the public realm, the construction business works off engineers and related clients, they include municipalities and related entities that put out plans and specifications for bids. Construction companies that can do that type of work will purchase the plans and submit a bid.? It is usually an open bid situation where bids are submitted by a certain time, then they?re opened and the lowest bidder wins.
The other type of work is private work that is usually negotiated, but based on plans and specifications.? Usually 3 to 6 construction companies are asked to give a price.? They are NOT opened publicly.? Developers base their decision on the best product for the best value and the best relationships.
Private projects usually have greater gross margins than public projects.
The average gross margin for private projects is about 20% in the last 3 years (previously more like 30%).
Public projects will always have low margins. Currently, about 5-15%.
Finding Work and Customers in the Construction Business
Some of the ways to find work and customers in the construction business is,
- To develop relationships with engineers, planners and municipalities who will usually give information regarding upcoming projects.
- Membership in the AAGeneral Contractors magazine that publishes a weekly list of jobs coming out for bids.
On the private side, it is all about relationships and reputation.? You will be asked to do value engineering on private work ? revamp the plans in order to give them a better outcome and a better finished product.? Value engineering is a strong competitive edge.
Insurances and permits required by a construction company
This depends on the state and the country you live in. The most common ones are General Liability and Workers Compensation.
Keys to success in the construction business
- Pay close attention to detail. Then, train your superintendents to pay close attention to detail.? Never give a superintendent over 2 jobs to manage.? Superintendents should have good foremen who manage crews.? Each job should have a foreman managing a crew.? Each job should have a dedicated office person to review all the paperwork, billing, correspondence with owners, engineers and clients.
- Have a good lawyer review each contract before you sign it. The lawyer should be someone who is familiar with construction.
- Have a good team. Your team should include a banker, an accountant and a bonding company.? Then, find smart, bright people to run the jobs (superintendents).? You need experienced operators of heavy equipment.
Skills Required to be Successful in the Construction Business
You need to be very astute at understanding contract documents. You need to know your area of expertise, that is, utilities, heavy grading and site development.
Where to learn these skills?
You learn them from hard knocks.? You can?t learn it in school.? Construction management will give you the basics but then you have to go to work in order to really learn it.? Intern with a company ? stay on for 3 ? 5 years before starting your own business.
How many employees do you require when you start a construction company? And, in what job functions?
You need a minimum of 8 people.
They include, 2 Operators, Laborers, People with Drivers License (this is BIG in the construction industry).? Not all are qualified or legal drivers.? Driving is a must for work.
Owner with estimating and bidding skills.? As you grow, you can hire an estimator and a safety director (OSHA standards are huge ? know these inside and out).
Do you need to buy or lease construction equipment? Or, can you outsource/sub-contract your entire project?
When you start, rent the equipment. Avoid a lease locked into a certain period of time.? DO NOT purchase until you know for sure that your business will survive.? With rentals, you can rent as you need it, month by month without the commitment of a lease or purchase that could financially wipe out any positive cash flow once the project is complete.
You can sub-contract the entire project, but most project specifications have a clause that requires the bidder to perform at least 50% of the work.? This is a safety precaution that prevents overly sub-contracted work and ensures fiscal responsibility.
How do you effectively sub-contract your projects? What is the due-diligence required?
- You should insist on sub-contractors to have insurance, workers compensation and their own equipment.
- Check references of previous jobs.
What are the best books or training programs you can recommend for someone who wants to start in the construction business?
Go to work at a construction company.? See if you like it first.? Invest your money wisely.? Research it first by working in it.
About the Author
John H McArthur, III and his wife Patsy McArthur started McArthur Construction Company in 1986 and then incorporated it in 1989.? MCC is a full service utilities and site development construction company licensed in North and South Carolina.? John hasn?t met a piece of equipment he couldn?t operate and makes sure all the people he hires are equally responsible and if not, willing to learn from the ?ditches? up!
Image: Suat Eman / FreeDigitalPhotos.net
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Source: http://www.startupgrowthexpert.com/2011/09/how-to-start-a-construction-business/
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