In business, as in life, everyone starts somewhere. So let’s assume that you are 1) a home improvement salesperson with a high closing rate or, 2) an ace installer who can meet production deadlines and regularly surpass them. You’re now thinking about starting your own business, and it seems like there’s just one big hurdle you need to clear. If you’re that salesperson, you figure that all you need to do is line up installers. Or, if you’re that installer who aspires to sell directly to homeowners, you assume you have to get some leads and block out time to meet with homeowners—or, hire someone who knows how to do that.
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Right Place, Right Time
If you’re thinking along these lines, your timing is good. Even a few years ago, colleagues may have questioned your sanity. Fallout from the housing crash, followed by the recession, was intense. “Between just 2007 and 2009, 31.9 percent of the nation’s 1,424,124 contractors went under, according to BizMiner,” notes CPA firm Padgett Strattman & Co. “There were fewer failures in 2010 and 2011, but a lot of companies still failed.”
Today, on the other hand, the home renovation industry has stabilized. It’s far from the roaring hot market it was pre-2007, since it remains tied to existing home sales, which, according to the National Home Builders Association, result in an average of $1,800 per house transaction. But those home sales wax and wane. For instance, a 2015 report from the Joint Center for Housing Studies (JCHS) of Harvard University notes that the “fledgling U.S. housing recovery lost momentum last year as homeownership rates continued to fall, single-family construction remained near historic lows, and existing home sales cooled.” The picture painted by the JCHS long-term, though, is more optimistic, projecting a market that will “grow at a 3.5% average annual rate.”
The U.S. Small Business Administration, on the other hand, is less cautious, saying that now is a great time to start a small construction or general contractor business citing industry growth, housing demand, lending activity, and real estate values.
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All in the Preparation
The work is there, for those with the stamina. The Houston Chronicle, citing Lacounts' Construction Compendium says that "starting a construction business takes someone who is willing to spend 12 to 15 hours a day to get the business off the ground." The new business owner has to sell, manage production, and run the company. Add marketing to that, if you’re doing short-cycle jobs without a big referral base. Unless that new owner is incredibly adept at multitasking, or well capitalized and can afford to hire staff, all this can be overwhelming. It’s why, as Wel-Vant Construction & Remodeling, in Virginia, has noted 40% of contractors don’t make it through their first year, 70% have failed by the fifth year “and only 6% survive to their 10th anniversary,” [leaving] “their customers with worthless warranties.”
Success is in the planning. WikiHow outlines the nine major steps needed to get a construction business up and running. These include a business plan, a location, meeting legal requirements, developing supplier relations, insurance, financing, and, last but by no means not least, hiring someone.
Experts usually list the business plan as the first item on the agenda. If you’re thinking about writing your own, it may seem like a tall order. But with a number of online service providers such as Bplans.com, which bills itself as the “world’s leading business plan software,” it’s a matter of following steps. The site even provides a detailed model for a business plan written for a fictitious entity called “Anywhere Remodeling.”
The SBA site is also extremely helpful. “Starting a business is an exciting proposition, but it’s also an incredibly challenging undertaking,” the SBA notes, urging prospective new business owners to start with a business plan and offering a list of detailed articles about how to work up virtually every key part of that plan.
Knowing what you need to do, when you need to do it, and planning for it eliminates many of the unpleasant surprises associated with being a new business owner in an industry as volatile as construction.