How to Start a Construction Company?
by Devendra Kumar on January 18, 2022
Construction Company in India
Be it technology or urbanization, we are living in an age of personal and public advancement, striving each day to make the world a better place. Here in India too, the gradual growth towards an urban and more objective-based workspace domain is quite clearly visible. This necessary growth has Construction Industry at its core quarters, driving urbanization and infrastructural development. This is why the construction industry is and will continue to thrive and grow in the near future.
The opportunity to cash in and contribute to the construction industry will not be missed by business owners and entrepreneurs who want to shift their business to or explore the construction industry.
How to Start a Construction Company?
Starting a construction company can be exciting but at the same time, overpowering too since it has one of the highest rates of failure where 63.6% of construction companies shut down within the first five years either due to lack of business knowledge and experience or lack of finances and lack of planning. With so much effort that needs to be put into areas such as research, analysis, reporting, tons of paperwork in the beginning phase, it is but normal to feel dejected, get lost in managing details and lose the unerring passion that had once prompted you to start your own construction company.
Before stepping into the construction industry to take on active and favoured competitors already in the business, the prospective construction business owners should be well prepared and equipped with the knowledge and expertise to take on every challenge and tackle all obstacles that may deter their resolve in the initial or future stages of their business tenure. But thank the gods, as luck would have it, starting a construction company is not at all complicated or formidable, as long you know where to start.
To ensure that you have a strong foundation to grow your construction company on you may need to research the specific market area, draft a concrete plan to run the company and get any help possible. You need to have the patience to grant yourself time to plan and build your construction company so that when you start your company, you have the far-sightedness to set yourself up for success at a later stage. Starting your new construction company may not be sophisticated but it is also not a cakewalk, there will always be things you need to consider which may or may not be at the forefront of your mind, even if you already have the experience of being a business owner.
Steps to Start a Construction Company
01 - Research and Gather Data in the Local Market
Before starting your construction company, perform thorough research in the area in which you want to start the company and see if the company can thrive and grow to build the initial business. Because, if there is no demand for the services which you are going to provide or there are already more than enough providers of the same service as your propositioned service, it can be more than difficult to get a company position in the construction industry, even less make your company successful.
Therefore, it is the best option to start with local market research which can help you get information and knowledge about the local construction companies operating in the area, their specialization, their tariffs or service rates and most important of all, their reputation in the market. Apart from that, you need to research the potential consumer base in basic factors such as population, age brackets, living status, interests, etc.
Performing these research processes thoroughly and efficiently will give you an edge over your competitors when it comes to your construction services.
Sometimes the database required for research may be already available in the form of some kinds of reports, surveys, studies, etc from government or private bodies and institutions. These sources typically are free on almost all government bodies and some private owners for use and are readily available for new startups to catch up on past projects and operations in different fields.
In India, this type of market data is available on government websites such as InvestIndia, Indian Brand Equity Foundation(IBEF), MakeInIndia and Construction Industry Development Council(CIDC). They have free market research data and other helpful resources on their websites that can help you study and analyze customer trends and business markets.
The resources available on these websites can be very useful but, are mostly general in nature and it may be necessary for you to gather some explicit information as well to start your construction company. These definite resources can be acquired from sources such as local publications, area-specific websites, Google and many more.
You can simply search for trends and news related to the company services on Google, specific to the local area and its surrounding. On finding useful information, you can either refer to these if they are available free or pay subscriptions to use them.
There is one more standard and common way for research that can prove to be quite useful for your construction company in order to evaluate or assess your potential consumer base- speaking with your prospective consumers. This can be done through various interactive processes such as surveys or questionnaires, potential groups, individual interviews, all of which can generate direct customer feedback but can also be quite costly and time-consuming, based on your approach.
Whatever your approach shall be, either through paid marketing or reaching your consumers, you should be well prepared beforehand with the specific and direct questions that you want to put up. Based on the set of questions you can have a clear insight as to how you should prepare your business strategies.
02 - Drafting Your Business Plan
After researching adequately about all related aspects of your construction company you will have a thorough understanding of the local trends and business patterns regarding your construction company, based upon which you can start formulating the blueprint for your business plan which is one of the most important documents you will create initially.
This blueprint of your business plan can help you in keeping your business on top, increase your chances of success and attract lenders or investors for source funding. Therefore, it is crucial to utilize all your market research while preparing your business plan and keep its content as exhaustive as possible.
The blueprint of the construction business plan usually consists of an administrative summary, the overall picture of the company, market assessment, business plan, services, sales and marketing, financial schemes and projections and a much needed appendix.
An administrative or executive summary acts as a brief, extensive and indispensable preface for your business plan. It is more of an introduction that should include your company’s mission, general biographical information of your company, services offered by your company, financial achievements and funding history, past accomplishments and lastly future plans for the company. The entire business plan is an augmented version of the brief details of the company mentioned in the executive summary.
The overview of your construction company should include a brief introduction about the founders, when the company was established and what is the purpose of the company in the construction industry. You can also mention and explain the unique selling point(USP) of the services or products offered by your company in the specialized area. In the overview section, you must also mention whether your company is an S corporation, C corporation or a Limited Liability Partnership(LLP, also known as a private limited company) and the ownership structure if there is more than one founder.
Market Assessment details are based upon the research conducted which establishes the existence of a certain demand in your prospective market, and how and why your company is best suited to satisfy that demand. The market assessment details must include the potential of the target market that is healthy and capable enough to influence your business. The market assessment should be majorly based on the specific consumer market information such as customer demographics and local data, that your services are going to cater to.
This section can also include your company’s potential to not only thrive on the target market but also grow pertaining to the existing massive demand. Based on a rough estimate of the consumer density which your company’s services will attract in comparison to your competitors, devise pricing strategies that can be both competitive and profitable. Knowing and understanding your competitors’ strengths and weaknesses at all times can also help you shape your business strategy.
The business plan or framework includes a detailed description of your company’s ownership structure, share(if there are any) distribution among investors, legal structure, departmental structure, present employee count and hiring prospects in the future. The purpose of all the details mentioned in the business framework is to explain how each and every element in the framework can contribute to the company’s future success.
The services offered by your construction company must also be included in the business plan in a separate section wherein details about the services offered along with your existing partnerships must be explained in detail. You can give examples of your past projects to explain your services more clearly and you can also specify the type of contracts you prefer to use with prospective clients.
The sales and marketing section illustrates your company’s plans and strategies to reach out to potential customers and turn them into clients. This section can include the value proposition of your company, the strategies to find and reach your target customers, marketing and advertisement schemes that need to be adopted, and sales strategy to turn prospects into trustworthy customers.
The business plan must also include a section that describes the company’s current financial status and future financial prospects to achieve certain objectives or goals for your construction business. In the absence of a financial database, you can incorporate projected estimates based on the available information from the market research and analysis. This section can include basic documents such as income statements or projected income, cash flow statements and predictions, balance sheets or projected balance sheets.
Any debt transactions related to the company must be documented too. And ultimately you should include the required funding you need or hope to raise in near future any amount for specific purposes like equipment purchases and property leasing.
An appendix must be included in a business plan as any information relevant to your construction business that is too long to be included in the primary document itself can be added to the appendix at the end of the document. The information documents that can be included under the appendix are tabular data, market analysis reports, past project statistics and details, copies of permits or licenses, insurance proofs, founder details, organization structural chart and news coverage.
03 - Registering Your Business
Registering your construction company is an important process that can be done in a few simple steps :
a - Get a Digital Signature Certificate(DSC) and Director’s Pin(DPIN) issued by the Ministry of Corporate Affairs(MCA) by submitting a DSN application.
b - Obtain a Director Identification Number(DIN) from the official website of MCA.
c - To finalize a name for your construction company, check for name availability from the three name options you get.
d - Download and submit Simplified Proforma for Incorporating a Company(SPICe) INC 32 form at the MCA’s official website for incorporation of your company.
e - In the next step, a Memorandum of Association(MOA) and Articles of Associate(AOA) need to be drafted
f - Obtain a Corporate Identity Number(CIN) number for the incorporation certificate.
g - After you receive the incorporation certificate, apply for PAN, TAN and bank account to get it in a week’s time.
04 - Find the Appropriate Licenses, Certifications, Permits and Insurance
You need to acquire specific licenses and permits required and issued by a state or the central body and in some cases, even by a municipality. To know about the appropriate licenses for your construction company, you need to consult the Contractor’s Board or Department of Labor.
Getting your business insured is crucial before starting your company to cover your company in case of an accident or an emergency. Different aspects of your company such as property and employees need to be insured under various specific policies. These insurances can be General Liability Insurance, Property Insurance, vehicle Insurance, Employee Insurance, etc.
05 - Sourcing Funds and Loans for your Construction Company
Owning and running a construction business is not possible without a large-scale initial investment and enough capital to sustain your company for a minimum of five years. At any point of time during a business tenure, there can be a demand for instant cash to meet the working capital requirement or to manage a continuous cash flow.
To avoid getting yourselves and your company in a fix, you need to opt for various types of business loans such as term loans and working capital available for your company, offered by private or governmental financial institutions. Some of the common ways of sourcing funds for your construction company can be term loans, working capital loans, purchase order financing, vendor financing, etc.
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