Whether you’re looking to raise funding from private investors or to get a loan from a bank (like a SBA loan) for your construction contractor company, you will need to prepare a solid business plan.
In this article we go through, step-by-step, all the different sections you need in the business plan of your construction contractor business. Use this template to create a complete, clear and solid business plan that get you funded.
For more information on construction contractors, make sure to read our guide below: How to Start a Construction Business in 9 Steps
1. Construction Business Executive Summary
The executive summary of a business plan gives a sneak peek of the information about your business plan to lenders and/or investors.
If the information you provide here is not concise, informative, and scannable, potential lenders and investors will lose interest.
Though the executive summary is the first and the most important section, it should normally be the last section you write because it will have the summary of different sections included in the entire plan.
Why do you need a business plan for a construction business?
The purpose of a business plan is to secure funding through one of the following channels:
- Obtain bank financing or secure a loan from other lenders (such as a SBA loan)
- Obtain private investments from investment funds, angel investors, etc.
- Obtain a public or a private grant
How to write an executive summary for a construction business?
Provide a precise and high-level summary of every section that you have included in the business plan of your construction business. The information and the data you include in this segment should grab the attention of potential investors and lenders immediately.
Also make sure that the executive summary doesn’t exceed 2 pages in total: it’s supposed to be a summary for investors and lenders who don’t have time to scroll through 40-50 pages, so keep it short and brief.
The executive summary usually consists of 5 major sub-sections:
- Business overview: start by introducing your proposed construction firm, where it will be located, the types of construction services you will offer, and the pricing strategy you want to implement. Also mention what sets you apart from other construction contractors in the area
- Market analysis: summarise the market where you will operate and provide a brief about your target market, target audience, spending capability, etc. Also give certain data points about the construction industry in the area where you want to operate (size and growth), as well as an overview of the main competitors, etc
- People: introduce your construction business’ management and employee structure. Provide a brief (no more than a couple of sentences each) of the knowledge and experience of the team. Also, mention how the company will be structured (management roles and reporting lines)
- Financial plan: how much profit and revenue do you expect in the next 5 years? When will you reach the break-even point and start making profits? You can include here a chart with your key financials (revenue, gross profit, net profit)
- Funding ask: what loan/investment/grant are you seeking? How much do you need? How long will this last?
2. Construction Contractor Business Overview
In this segment of the business plan, you will provide details about your proposed construction firm.
You must answer here some important questions that potential investors and lenders often ask about your business and operations. Here are some examples of questions you must answer:
- What is the rationale behind your opening a construction business today?
- In which location will you operate and why?
- What type of services will you offer?
- Are there specific types of services that you specialize in?
- What will be your pricing strategy and why?
- What will be the legal structure of your company?
a) History of the Project
Any business overview must start with explaining the history of the project. There are 2 components here:
- Passion & experience of the business owner
- Rationale behind starting a construction business today
Passion & experience
Displaying your passion is a must, but in the construction business, you must have ample experience, too. You must reveal your experience. For instance, you may have worked as a subcontractor responsible for designing beautiful buildings for large construction companies. At the same time, you were also responsible for overlooking and managing the design execution.
Is there a certain problem (or perhaps, a set of problems) that your construction firm will try to solve when it comes into existence? For example, there may be a steady rise in demand for state-of-the-art and elegant commercial buildings because of an increasing influx of international companies.
Unfortunately, there may be only a few construction companies capable of executing such projects with precision, and you want to fill in the gap.
b) Business Model
This section of the Business Overview should explain the model you want to adopt for your construction business. For example:
- Who will be your target audience (homeowners, commercial entities, government, etc.)?
- How big is the market and is there enough demand for your services?
- What type of services are you going to offer?
What are the different construction contractor companies?
You may choose one of the following:
- Commercial construction
- Residential construction
- Institutional construction
- Infrastructure construction
- Industrial construction
- Energy & utilities construction
Typically, construction businesses do not operate in multiple niches at once, and even if they do, they are usually large corporations. Thus, make sure to select your niche properly after evaluating your expertise and experience.
No matter what you select, you must ensure that there is enough demand for the type of construction firm you want to open and the range of services you will offer.
c) Construction Services
This is the segment where you will outline the type of construction services you will offer. Make sure that you are precise and list the most important services that you want to offer to potential clients.
Some services that you may offer include:
- Residential home building
- Repairs and renovations
- Commercial building
- Deck building, etc.
If you want to start as a subcontractor, you may offer your services in areas like:
- Exterior painting
- Tile work, etc.
d) Pricing Strategy
This is where you will provide an overview of your pricing strategy. For instance, you may charge higher than your competitors because exceptional craftsmanship, high-quality materials, etc.
Similarly, you may decide to charge lower than your competitors because you have years of relationship with suppliers who will supply raw materials at say, a 15% discount over the prevailing market rates.
While it may not be possible to provide a proper pricing table for all services that you will offer, it is still a great idea to provide a table that gives an overview of your pricing structure.
Consider providing a pricing range for your services. For example:
- Flooring: $15 to $45 per square foot depending on the material used
- Drywall Installation: $1.50 to $3.50 per square foot, etc.
However, don’t go into extreme details because potential investors are not interested in the nitty-gritty of your pricing. They just need the big picture to assess the profitability, because they will tie your pricing strategy with your financial projections later on.
e) Company Legal Structure
Finally, your business overview section should specify what type of business structure you want. Is this a corporation or a partnership (LLC)? Who are the investors? How much equity percentage do they own? Is there a Board of Directors? If so, whom? Do they have experience in the industry?
3. Construction Industry Market Overview
A complete understanding of the market where you want to operate is important for the success of your business. That’s also something you must showcase in your business plan.
For example, if there is a high demand for residential and commercial construction companies but you want to focus on industrial construction despite a very small market size, it may not be a great business decision.
Therefore, you must cover here 3 important areas:
- Industry size & growth: how big is the construction business industry in your area? What is its growth rate (or decline rate) and what are the factors contributing to its growth or decline?
- Competition overview: how many competitors are there? What type of customers do they serve? What type of projects do they specialize in? How do they compare vs. your business? How can you differentiate yourself from them?
- Customer analysis: who is your target audience? What type of construction services do they need?
a) Construction Industry Size & Growth
How big is the construction contractor industry in the US?
The construction industry is one of the largest sectors in the US: there were over 733,000 construction contracting firms in 2022 employing about 7.5 million workers!
The same year, the industry was worth about $1.9 trillion: that’s an average annual turnover of $2,600,000 per company!
In terms of new residential constructions, there were 991,000 and 390,000 building permits granted in 2020 alone for single and multi-family buildings respectively.
How big is the construction contractor industry in your area?
After getting a clear picture of the construction business industry in the US as a whole, narrow down to your location.
It’s likely that you won’t find the number anywhere (at least not for free). In that case, you can use our guide to estimate the TAM, SAM, and SOM for your business. Here is an example of how to do it:
We already know that the average annual turnover of a construction firm in the USA in 2022 was $2,600,000. Therefore, if the location where you will operate has a total of 20 construction companies, the construction business industry in the area is approximately $52 million.
How fast is the construction business industry growing in your area?
Next on our list is market growth: is the industry growing or declining in your area?
US market growth can be a great addition to your business plan, yet it doesn’t necessarily help to assess the industry in your area of service. For example, the industry might be growing in the US, but declining in your region for a number of reasons.
As you likely won’t find this information online, you can instead rely on the number of construction contractor companies in the area.
For example, if the region had only 18 construction businesses in 2018 and 20 in 2022, you can assume that the average growth rate of the construction contractor industry in your area is about 5% per year.
b) Construction Contractor Competition Overview
Studying your competitors’ business models is vital. As such, we strongly recommend you do some research and create a comparative table summarizing their businesses, the type of construction services they offer, etc.
Here is a sample table that you can use:
|Residential and commercial construction
|Kitchen and bathroom remodeling
|Residential home building design and construction
|Residential building construction, remodeling, roofing, deck building, commercial building construction
Construction Business SWOT Analysis
SWOT stands for Strength, Weakness, Opportunities, and Threats. This analysis will help lenders and investors better understand how you compare vs. competitors as well as the overall risk and reward profile of your business.
Here is a sample that you can use as a reference:
- Strengths: 10 years of experience as a subcontractor under a nationally reputed construction company; multiple successful construction designs under the belt with the most prominent ones being the commercial green building with 40% glass work for deep sunlight penetration and solar energy utilization; ability to acquire discounted construction material; etc.
- Weaknesses: no direct clients, no initial brand reputation
- Increased demand for residential buildings because of the increasing population in the area
- Increased demand for commercial construction because of increased business opportunities
- Harsh weather conditions force homeowners to repair their homes
- Existing players expanding their services
- Strong seasonality – contracts and products drop significantly during the winter months which can lead to cash flow shortfall in the short-term
c) Customer Analysis
This is the sub-section where you will provide a detailed analysis of your target audience. For instance, you may want to start with residential construction, but soon want to expand your operations into commercial construction.
Some important points that you must include in your customer analysis include:
- Who are your customers: individuals or businesses?
- What type of construction services do they need (new vs. remodeling)?
- What type of construction companies do they prefer (expensive, low-cost, established, new players, etc.)?
4. Sales & Marketing Strategy
This is the segment where you outline your customer acquisition strategy. Try to answer the following questions:
- What is your Unique Selling Proposition (USP)?
- What are the different marketing strategies you will use?
- How do you intend to track the success of your marketing strategy?
- What is your CAC or customer acquisition cost?
- What is your marketing budget?
- What introductory promos and offers do you intend to provide for attracting new customers?
What marketing channels do construction businesses use?
A few marketing channels that construction businesses typically use are:
- Signages, vehicle branding
- PPC ads
- TV and radio ads
- Print ads (newspapers, specialized magazines, flyers, etc.)
- Email marketing
- Word of mouth, recommendations
It is not necessary to use all channels. Instead, you can start by focusing on a few of them, and include other marketing strategies later.
What is your Unique Selling Proposition (USP)?
In other words, how do you differentiate yourself vs. competitors? This is very important as you might need to win customers from competitors.
A few examples of USPs are:
- Low-cost leader: you may have a special partnership with a large construction material supplier that can allow you to underbid your competitors, thereby allowing you to offer low-cost construction services
- Time commitment: you may have excellent project management skill that allows you to complete constructions projects within the estimated time, and hence, prevent unwanted delays and frustrations that eventually lead to increased construction cost
- Quality guarantee: you may offer a quality guarantee for a long duration that none of your competitors provide
5. Management & People
You must address two things here:
- The management team and their experience / track record
- The organizational structure: different team members and who reports to whom?
Small businesses often fail because of managerial weaknesses. Thus, having a strong management team is vital. Highlight the experience and education of senior managers that you intend to hire to oversee your construction business.
Describe their duties, responsibilities, and roles. Also, highlight their previous experience and explain how they succeeded in their previous roles.
It is also important that you explain how their experiences and qualifications help you in implementing the construction business you are proposing. If they have certain experiences that will play a key role in the success of your construction business, mention that.
For example, your General Project Manager may have years of experience in labor relations, cost control, and project supervision in a leading construction company.
Even if you haven’t already hired a general project manager, office manager, administrative assistant, quality control officer, architect, and other relevant staff members, you must provide a chart of the organizational structure defining hierarchy and reporting lines.
6. Financial Plan
The financial plan is perhaps, with the executive summary, the most important section of any business plan for a construction contractor company.
Indeed, a solid financial plan tells lenders that your business is viable and can repay the loan you need from them. If you’re looking to raise equity from private investors, a solid financial plan will prove them your construction contractor company is an attractive investment.
There should be 2 sections to your financial plan section:
- The startup costs of your company
- The 5-year financial projections
a) Startup Costs
Before we expand on 5-year financial projections in the following section, it’s always best practice to start with listing the startup costs of your project.
For an construction contractor company, startup costs are all the expenses you incur before you start making sales. These expenses typically are limited especially for small businesses and include:
- The lease deposit (if you rent an office and/or warehouse for your equipment)
- Machines, vehicles
- Construction equipment, tools, etc.
- License & permits, business insurance, etc.
Of course, the startup costs depend on a number of factors, like the size of your business (employees), the services you plan to offer (which will dictate what equipment you may need), etc.
b) Financial Projections
In addition to startup costs, you will also need to build a solid 5-year financial model in the business plan of your construction company.
Note that your financial projections should be built using a spreadsheet (e.g. Excel or Google Sheets) and presented in the form of tables and charts in your business plan.
As usual, keep it concise here and save details (for example detailed financial statements, financial metrics, key assumptions used for the projections) for the appendix instead.
Your financial projections should answer at least the following questions:
- How much revenue do you expect to generate over the next 5 years?
- When do you expect to break even?
- How much cash will you burn until you get there?
- What’s the impact of a change in pricing (say 10%) on your margins?
- What is your average customer acquisition cost?
You should include here your 3 financial statements (income statement, balance sheet and cash flow statement). This means you must forecast:
- The number of contracts (customers) over time ;
- Your expected revenue ;
- Operating costs to run the business ;
- Capex (cost to buy the equipment and vehicles, etc.)
When projecting your financials, make sure to sensitize sales volume (customers), pricing as well as the expenses (inventory, salaries, etc.). Indeed, a small change in these assumptions may have a significant impact on your revenues, and most importantly, your profits.
7. Use of Funds
This is the last section of the business plan of your construction contractor company. Now that we have explained what your business model is, what type of services you offer, how you get customers, etc., this section must now answer the following questions:
- How much funding do you need?
- What financial instrument(s) do you need: is this equity or debt, or even a free-money public grant?
- How long will this funding last?
- Where else does the money come from? If you apply for a SBA loan for example, where does the other part of the investment come from (your own capital, private investors?)
If you raise debt:
- What percentage of the total funding the loan represents?
- What is the corresponding Debt Service Coverage Ratio?
If you raise equity
- What percentage ownership are you selling as part of this funding round?
- What is the corresponding valuation of your business?
Use of Funds
Any business plan for a construction contractor company should include a clear use of funds section. This is where you explain how the money will be spent.
Will you spend most of the loan / investment in paying your employees’ salaries and the COGS (inventory)? Or will it cover mostly the cost for acquiring the equipment and machines?
For the use of funds, we also recommend using a pie chart like the one we have in our financial model template where we outline the main expenses categories as shown below.