How to start up a construction based business

Construction manager holding building plans with four different tradesmen behind him

Construction firms provide their services to domestic and commercial clients as well as to organisations like local authorities. Our guide gives you all the essentials for starting up and running your own construction business.

Research your target market

When you plan your construction business it's important to think carefully about who your potential customers will be and to make an assessment of the level of existing competition. Doing some market research will help you with this.

Customers

Think about how many people and organisations are likely to use your services.

Domestic work

Pay attention to the type of housing in your area, looking out for properties that would benefit from your services. Are houses large and expensive or small and low cost? Are they old or new? Do they appear well kept or run down? Is accommodation mainly owner-occupied or mainly rented? Is some owned by the local authority or by a housing association? Are there many buildings with special requirements, for example listed buildings and those sited within a Conservation Area? If so, find out details about local planning requirements.

Try to match the range of products and services that you offer to the needs and wants of local customers. Think about whether or not you are prepared to travel to other areas to do work.

Work for other businesses and organisations

Think about other types of property in the area where your services might be required. Pubs, schools, churches, shops, offices and so on will all require various different construction services at some point and are all potential customers.

Once you have identified who your potential customers are, you can direct your advertising efforts at them.

Contract and sub-contract work

Try approaching other businesses that may need your services regularly. You could, for example, leave your details with general building contractors, property developers, architects and perhaps businesses like landscape designers and shopfitters. Consider approaching your local authority - these are normally major users of construction services and may be prepared to include your business on a list of 'approved contractors'. Housing associations may also be potential clients.

Large organisations who invite firms to tender for contract work may be reluctant to use a newly established business. Also, a young business may have difficulty in funding a large contract, as many things may have to be paid for well before any payment is received. But it may be worth finding out who is responsible for putting work out to tender in large organisations such as housing associations, local authorities and big construction firms. Try to find out how the tender process works and what you would have to do if you wanted to tender for a contract.

Establishing the level of competition

Once you have decided who your customers might be, you need to find out how well they are already served.

How many other businesses in the area offer the same services that you intend to? A browse on Yell.com and other similar online directories will help to establish this. You could also look at local print directories. Look out for branches of large, well known, regional companies. Bear in mind that several types of business may offer a particular service - for example many general builders will also carry out specialist jobs like wall-tie replacement.

Look at some of your competitors' advertisements and websites:

  • what products and services do they offer
  • do they use any well-known products or systems
  • do they advertise any special features, for example 'no pushy sales-people', an insurance-backed guarantee, a freephone telephone number, '25 years experience' and so on
  • do they belong to any trade associations, for example the Guild of Master Craftsmen or the Federation of Master Builders
  • what sort of impression does their advertisement give you (for example, does the firm come across as small and friendly, large and efficient, good value, traditional, upmarket)

Remember that, unfortunately, you may also face competition from 'cowboys' and 'moonlighters' who work for cash but don't advertise anywhere. These often quote very low prices but fail to match the quality of professional firms. Many have no insurance and some are blatantly dishonest.

Research current trends, plus legal and tax issues

Price your services

How will you decide on your prices?

First decide how you will charge for the work you do. There are a number of different ways of charging, often depending on the type of work done. Here are some examples:

  • charging for your services (and those of any employees) on an hourly or daily basis, adding to this the cost of any goods and materials you supply - perhaps with a mark-up percentage added
  • charging for some jobs at a standard rate that you have worked out. For example, you might charge a standard price per square metre for some types of work, such as roof covering and specialist coatings
  • charging for certain jobs on a fixed rate basis for the whole job. Perhaps you will offer special package prices

You may decide to use different methods of costing for different jobs, depending on who the customer is and what type of work you will be doing.

It is very important that you set your charges carefully. You must make sure when deciding on what to charge that, assuming you get enough work, you will earn enough to cover all of your operating costs including your own drawings.

Also consider the following points when setting your charges:

  • what do your competitors charge for similar products and services? Do they calculate their prices in the same way as you
  • do you aim to win business away from your competitors with attractive pricing
  • will you vary your rate depending on the type and complexity of the work involved
  • will you make a profit on goods and materials that you supply or purchase on behalf of customers, or will you pass these on at cost? The same goes for any sub-contractors' services you need to buy in. If you decide to add a mark-up, decide how much this will be
  • what will you include in your prices, and what will you charge for as an extra? For example, will your quotations include the cost of skip hire where needed? Make it clear to the customer what your prices do and do not include

Quote or estimate

If you give a quote for a job, that is a fixed price. Once it has been accepted by a customer the price can't be changed, even if there is a lot more work to do than you realised when you prepared the quote. So it's very important that your quotes give precise details of what is covered and make it quite clear that any variations or extras not covered by the quote will be charged for as extras.

An estimate is not a fixed price, it's just your best guess of what the job is likely to cost. You are not bound by it. It is perfectly acceptable to provide several estimates, each taking into account different circumstances from best to worst case scenario.

If necessary explain to customers what could lead to the price for a job having to change - for example unforeseen problems that need to be rectified, or extra features added to the specification. And if the customer asks for extra work to be done during the course of a job, be clear about how this will affect the overall cost.

It's usual to provide estimates and quotes free of charge on a no-obligation basis. You might, though, decide to make a charge for more complex and time consuming consultancy work - perhaps you will refund this charge if it leads on to a substantial contract.

Trade rates

Clients that are other businesses might expect you to offer them a special 'trade rate'. Large organisations that invite firms like yours to tender for contract work will also expect your rates to be very competitive, as will insurance companies.

Think carefully about whether or not scaffolding will be needed on a job, and be clear about whether your quote includes this cost. Health and safety legislation means that there are strict limits on the types of work at height that can be done off a ladder.

Be aware that many of your clients will get quotes from several firms, so you need to be able to quote accurately and competitively. However, don't cut your own throat. Many clients value good quality craftsmanship and efficient service and are prepared to pay a realistic price for it. Above all, make sure that you don't end up working at a loss because your quote was too low!

Special guides and software are available to help you when pricing all aspects of construction work. They give up to date advice on what rates to charge for particular types of jobs. Some materials suppliers may also help you to work out what quantities you will need for a particular job, and the cost.

Certification

Many would-be customers will want to satisfy themselves that your business is bona fide and does good quality work. One good way of demonstrating your commitment to quality is to gain certification for your workmanship and any products that you supply. This can also help your business to stand out among its competitors.

There are various ways that you can demonstrate your commitment to quality - some widely recognised certification schemes for the construction industry are listed below. Try to find out about any schemes and British Standards that apply specifically to your own areas of work.

CSCS

The Construction Skills Certification Scheme (CSCS) is administered by the industry training board CITB. Construction industry workers who join the Scheme are issued with an identity card which reflects their position, their experience and their level of training. Although it is not compulsory, more and more building contractors specify that people working on their sites must hold a valid CSCS card. For more information, visit the CSCS website. CITB ConstructionSkills Northern Ireland is part of the UK-wide CITB partnership.

BSI

The British Standards Institution (BSI) administers 'Kitemark' licences relating to a very wide range of goods, materials and systems used in all areas of the construction industry. When you purchase supplies, look out for the 'Kitemark' symbol.

The BSI also administers the ISO 9000 series of quality management standards. For more information visit the BSI website.

TrustMark

TrustMark is a government-sponsored quality certification scheme for the whole of the construction industry. It covers many different areas of the construction industry and aims to help consumers find trustworthy and reliable tradespeople. To become part of the scheme, you and your business need to meet certain required standards and stick to a code of practice drawn up by an approved scheme operator like a trade association.

Buy with Confidence - Trading Standards Approved

A growing number of local authorities participate in the Buy with Confidence - Trading Standards Approved scheme. This allows businesses in many different industries, including construction, to demonstrate their commitment to operating in a legal, fair and honest way. Businesses are vetted before they are approved to join the scheme. There is more information available, including details of participating local authorities and a 'find a business' search tool, on the Buy with Confidence website.

Trade Association membership

Many trade associations have a code of conduct and minimum standards for their members. Some exist specifically to certify the quality of their members. Displaying the logo of a reputable trade association is a good way of demonstrating your commitment to quality. Examples of some reputable trade associations that you might consider joining are given below:

  • The Guild of Master Craftsmen (GMC)
  • The Federation of Master Builders (FMB)
  • The Chartered Institute of Building (CIOB)

Find out about any associations which represent your particular area of the construction industry.

Other certification schemes

Details of some other relevant quality certification schemes are listed below:

  • the British Board of Agrement (BBA) certifies the quality of building materials
  • some manufacturers operate their own certification schemes to demonstrate that approved installers work to certain agreed standards

There are many other organisations that certify their members' competence, quality and honesty in various sectors of the construction industry. Before spending any money on joining an organisation or scheme, however, it's worth taking the time to find out how well known and respected it is.

Advertising and marketing

It is important to advertise your business effectively, to let your potential customers know who you are, where you are and what you can do for them.

Advertising and marketing

Now that so many people search for construction businesses online, a good website can be a very good way of advertising your business and reaching a wider range of customers. Think about getting listed in online directories - perhaps 'contact an expert' directories run by some trade associations.

Social media can also be an effective way of marketing your business, staying in touch with previous customers and making contact with potential new ones. Think too about using relevant forums and perhaps a blog (although be aware that some forum websites ban blatant advertising in forum posts). You could sign up to a review website for trades-people such as Checkatrade. You could also consider trying to obtain work through job-referral websites like Mybuilder.com and Rated People too.

An entry in a local print directory can be an effective way of advertising your business. However, many of your competitors will have done the same so try to make your business stand out.

Some firms spend a lot of money on large, eye-catching display advertisements. You will have to decide whether to compete head on with these firms, or look for a different way of attracting customers. You could, for example:

  • focus on your own unique selling point (USP) in your advertising material. This might be, for example, "25 years experience", "Family run firm" or even simply "Friendly, honest service"
  • advertise in other ways. For example, you could distribute a paper flyer, plastic card or sticker with your business name and telephone number on it as part of a mail-shot that you do, perhaps in the early spring
  • look into becoming listed by an insurer, specialist helpline or directory as an 'approved tradesman' (most of these organisations operate a quality screening process and some will only list firms that have been trading for at least two years)
  • contact local residential landlords associations to enquire about being included in their suppliers guide

The important thing is to tell people as many of the good things about your business as possible in your advertisements, particularly things that distinguish your business from your competitors.

Direct selling

Some businesses use telesales and 'cold-calling' to sell their services. Although these sales techniques can be effective, there are drawbacks. Employing sales staff or paying for the services of a direct marketing agency is expensive, while some customers are just put off by direct selling. In fact, some businesses actually make a point of advertising the fact that they don't employ any 'pushy sales-people'. Special laws exist to protect customers from doorstep sales people who overstep the mark.

Other ways of advertising

Think about other ways of promoting your business. You could, for example, sponsor a local sports club or event. Your local paper may run a regular 'contact the experts' advertising feature. Remember that your vehicle can be a very effective means of advertising if you have it sign-written and keep it clean and presentable. You might consider having a large sign made that you can display outside places where you are working - but make sure that your customer has no objections before putting it up. Some construction businesses keep an eye on local planning applications and send a flyer to applicants in case any who are project managing the work themselves might want to engage them.

Word of mouth

Word of mouth recommendations are very valuable to your business. Everyone has heard horror stories about 'cowboy' tradesmen who bodge jobs and swindle their customers - and they want to be sure that you're not going to do the same to them. You will have to earn your reputation through good, reliable workmanship - but even small things like politeness and considerateness can pay big dividends. Make sure that any staff, including sales staff, you employ are good ambassadors for your business too.

You may be able to persuade a satisfied customer to give you a reference or testimonial that you can use in your advertising literature.

Your work rate

Assuming that you get a fairly steady stream of work, the amount you can earn depends partly on the number of days you work and the length of your working day.

You may decide to stick to normal business hours, for example 8.30 am until 5.30 pm Monday to Friday and perhaps Saturdays too. Or you may decide to work longer hours - perhaps an earlier start. Remember that bad weather can disrupt your work schedules. Ideally you'll be able to organise things so that you're working inside when the weather's poor, and getting on with outdoor work when it's dry - but unfortunately things don't always work out like this. Perhaps you are prepared to work very long hours when the weather is fair and your services are in demand, taking some time off during quieter periods. Bear in mind though that you risk causing a disturbance if you start using power tools very early in the morning or carry on late into the evening.

You should have a good idea of how long certain types of jobs will take you. It is very important when quoting for a job that you can make an accurate estimate of how long it will take. It's no good basing your quote on two days work if it ends up taking you four!

The speed at which you work depends on your own skills and experience and on the type and standard of the work that you do. Your charges should reflect all of these things. Bear in mind that you may well be motivated to work hard and put in long days, but your employees and sub-contractors may not be prepared to match your work rate. You'll aim always to get the best out of them, but be realistic in your expectations.

Non-productive time

Unfortunately, not all of every working day will be spent earning money. Here are a few examples of reasons why you may sometimes find yourself working hard but earning nothing:

  • visiting sites to do surveys, cost new work and give quotes (if you make no charge for these services)
  • doing your own direct selling
  • finishing off jobs that take you longer than you had thought (possibly due to unforeseen problems)
  • re-doing faulty work
  • travelling to and from jobs, or to get tools or materials from a supplier
  • repairing tools or vehicles

Sometimes you may find that you are unable to work at all, because:

  • the weather is too bad to work outside
  • you are waiting for items to be delivered
  • a vital tool or piece of equipment is broken
  • another contractor has fallen behind with his or her part of a project
  • you are ill

Take all of these factors into account when you are estimating the maximum number of productive hours that you can work each month. Be realistic! Remember that they can apply to your employees as well as to you. When you plan your working schedules, try to minimise the amount of time that will be wasted. For example, you may be able to build a contingency into your work schedule so that you can move straight on to another job if for any reason you are unable to work at the original one.

Offering finance

Some of your customers may be unwilling or unable to pay for expensive projects all in one go, and would prefer to pay a deposit and spread the balancing payment over several months or years. Credit finance is quite commonly offered to customers in certain areas of the construction industry - for example replacement windows and conservatories.

You may want to offer credit to these customers through a specialist finance company. Several such companies exist and, between them, they offer a range of different finance packages. Some of the finance packages available which you might use to attract customers include:

  • standard interest bearing credit
  • subsidised interest rate credit (a very low interest rate)
  • interest free credit (0% interest)
  • deferred payment (buy now pay later) credit
  • high risk credit (for customers who might normally be turned down by a finance company)

When you make sales on finance you will have to fill in a credit application with the customer. Your finance company will then give a decision on whether to accept the application. All being well, the transaction will be completed quite quickly and you will receive payment from the finance company within a few days. Usually, the customer will pay a certain amount as a deposit. You will usually also be paid commission by the finance company. This is normally based on a percentage of the value of the sale and paid to you separately at the end of the month.

Most finance companies will expect you to meet certain requirements and standards before agreeing to do business with you. Some will only deal with businesses that have been trading for a certain minimum length of time, often two years.

Shop around when it comes to choosing which finance company you will deal with. Their terms and working practices vary. When choosing which one is best suited to your business, bear in mind the following:

  • what type of finance packages are most likely to appeal to your customers
  • how promptly will you receive payment from the finance company
  • how much commission are you offered
  • how quickly will your customers' credit applications be turned around
  • what level of back-up and support is available to you

You will need consumer credit authorisation if you want to offer finance to your customers. This is obtained from the Financial Conduct Authority (FCA). For more details visit the consumer credit section of the FCA website.

An alternative way of enabling your customers to pay on credit would be to accept credit card payments.

Decide which services to offer

You should by now have given some thought to the types of service that your business will offer. There are many specialist areas of the construction industry that you could decide to work in, for example:

  • excavation and groundworks
  • demolition
  • concreting services
  • cavity wall tie replacement
  • damp proofing
  • timber treatment
  • insulation services, including cavity wall insulation
  • heating and ventilation services
  • tiling
  • underpinning and remedial engineering work
  • flood and/or fire damage remediation
  • chimney services
  • fencing
  • drainage

You might decide to use your skills to offer a specific service, such as loft conversions, wetrooms, whole-building 'facelifts', suspended floors and ceilings or swimming pool installation.

Some of the work that you do may be for new-build projects such as new housing or commercial premises. Other work may be general repairs, maintenance, improvement and alteration of existing buildings. You might also decide to sell some goods and materials on a supply-only basis to DIYers from time to time.

Added value services

Most areas of the construction industry are very competitive and you may decide to offer your customers a range of attractive 'added value' services. These might include, for example:

  • free surveys, estimates and quotations
  • insurance-backed guarantees on all new work
  • membership of recognised trade associations
  • a freephone telephone line
  • a 'no job too small' or 'distance no object' promise
  • guaranteed quick turnaround

A complete package

Many of your customers may be householders who will want you to provide a complete package of services from start to finish. This might include giving advice on cost, design and technical matters. Give some thought to the types of service that your customers will want you to include - for example many will expect proper site clearance and disposal of any waste.

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