The construction industry is currently undergoing somewhat of a boom – with nearly one in five of the UK’s 5.5 million small businesses working in the sector. This demonstrates that if you’re in this industry, there’s huge motivation to go out and set up your very own business venture.
There’s additionally no lack of opportunities for hopeful entrepreneurs. Residential renovation, ground-up development, project management, infrastructure projects and more are available to small business owners in this area of work. whatever your forte, micro-businesses (those with 10 employees or less) are able to bring in cash in all edges of the construction sector.
There’s a wide scope of work behind beginning a construction business, however. From HMRC notification through to managing your funds, and outside of the development side of things, laying down the groundwork helps with guaranteeing your business gets off to a smooth beginning. Without further ado, here’s our guide of the most common early stage risks an owner of a construction company should look to avoid.
Mistakes small construction businesses should avoid
As a small construction business, there are a few common mistakes you will want to avoid. First, be sure to create a detailed business plan. This will give you a clear idea of your start-up costs, overhead, and projected profits. Without a solid business plan, it will be difficult to get funding or attract new clients.
Second, be careful not to underbid on projects. It is important to charge enough to cover your costs and make a profit, or you will quickly find yourself out of business. Finally, make sure you invest in quality tools and materials. Cheap equipment will break down quickly and cost you more in the long run. By avoiding these common mistakes, you can set your construction business up for success.
When it comes to small construction businesses, there are a few key mistakes that can be costly. One of the most common mistakes is not having adequate insurance. This can leave the business open to liability in the event of an accident or injury.
Another mistake is not keeping accurate records. This can lead to problems when it comes time to file taxes or access financing. Finally, many small construction businesses fail to develop a niche market.
By specializing in a particular area, businesses can better meet the needs of their customers and stand out from the competition. By avoiding these mistakes, small construction businesses can set themselves up for success.
Not making your service offering clear
All new firms require a business plan, regardless of the industry they operate within. In this plan, the essentials will be set out, such as the services a business intends to offer, and who the target audience (customers) will be.
This is of the utmost importance to start-up construction business owners because:
- Clear boundaries for the work you take on
Your business venture cannot simply become a ‘Jack of all trades’; in the real world there isn’t really any such thing. When you first begin it can be tempting to want to please everyone and anyone to gain as much work as possible. This tactic can bog you down with unprofitable work that ultimately leads your company nowhere. It can also knock you right out of your comfort zone, which isn’t ideal for anyone new to the world of business management.
- Identifying skill gaps
Once you understand what you are capable of doing in-house, it will help you to identify further skills your business will require. For example, if you are a joiner specialising in kitchen refurbishments, who’s going to take care of the tiling? During the early stages, it often comes down to building up a network of tradesmen that can be called upon when needed. You can act with a view to employ individuals further down the line.
Not thinking about your business structure
You should attempt to give this some attention right from the very beginning of your business journey, especially if you wish to draw a line between your personal and business finances. This is particularly apparent if you are heading into business with somebody else.
These are the business structures you should consider:
- Sole trader
This is the simplest form of business type. Here there is no legal distinction between you and your company.
This is where the business venture has multiple owners. Here there will be an agreement for setting out the right and obligations of each partner, which helps to avoid disputes at any stage of the ownership.
- Limited company
This can be a handy alternative to a partnership where multiple people have a stake in the business. This is often seen as giving the business venture a professional feel.
Your current income and tax circumstances can also play a part in finding the best structure for your future business venture. Therefore, you should seek out the advice of an accountant during the early stages.
Not having access to business borrowing
Even if bad weather puts a halt to the work, cherry picker hire charges still need to be covered. Furthermore, there will always be that one dreaded customer who forgets to send their interim payment, despite promising too beforehand.
You will always have to pay the business running costs no matter what. This is often why becoming your own boss for the first time works as a crash course in cash flow management.
There are a number of specialist lenders within the sector, Bibby Construction Finance is one what offers construction finance.
This type of finance works well for businesses that work as a main contractor or sub contractor. The finance provides a bridge between an application for payment and getting paid by your customer.
So, with this in mind, you should open a business bank account at an early stage. Seek out one with an overdraft feature if you are able to, so if you ever find yourself in the red, you’ll know that some funds are still available to you. It is useful to have a cash plug you can access when you most need it.
Overlooking the HMRC essentials
You will need to register for income tax self-assessment as a sole trader, partner or company director.
In the event that your turnover is probably going to be over the VAT threshold, which is as of now £85,000, you will likewise have to register your business for VAT with HMRC. For most work, VAT is charged at the standard pace of 20%, however diminished and zero rates apply for particular sorts of work (for example new builds and work for disabled individuals).
Investigate the HMRC guide for VAT for builders for additional data on this.
Ignoring your reputation
Word of mouth is perhaps going to be the single best method for you to grow your customer list when running a construction firm. This will likely be much better for you than going down the route of building a fancy website and developing expensive advertisements.
From the very beginning, you should focus on the following:
- Get listed on a specialist construction review site
Checkatrade and Ratedpeople are two of the most popular examples. However, it’s always worth researching the most widely used platforms in your local area so you can get the maximum amount of exposure.
- Ask happy customers for a review
This will show others that your construction work is good and that you get the job done efficiently. Seeing the positive thoughts of past customers is the best way to influence other people to choose your services over the offerings of another.
- Make a great impression
The best thing you can do is turn up to your first jobs and do the best work possible for your customers and clients. Always be polite and remember that if you display a positive showing of yourself and your brand, you are likely to gin more work and therefore become more successful
Choosing a client on impulse
When it comes to construction, the client you choose to do work for is as important as your company’s ability to deliver results. As such, it’s imperative never to choose your clients on impulse. Instead, take the time to talk to them first and check with other contractors to see whether they’ve worked with them in the past.
In this way, you’ll avoid doing work for someone who is unable to fulfil their financial obligations to your business or those who keep on making changes to the existing plans, and, as a result, cause costly and expensive delays for the project. If you’re a contractor, you know how vital getting new clients and keeping your existing clients happy. If you don’t, you might slip into the same pitfalls that cause some contractors to fail.
Everyone makes mistakes. However, that doesn’t necessarily mean that there’s no way to keep blunders, faults, slips, and misunderstandings from happening. And by keeping away from the common mistakes in the construction business that are mentioned above, you’ll give your company a much better chance at thriving and growing in the industry.