Funding a Construction Company
Inexperienced, uninformed people think that to start a business, that they first must go raise a large amount of money. Their approach to getting their business started is to throw money at different things with the hopes that something sticks. Their intention is to figure it out as they go. I don’t like to view it that way; the proof of concept theory is a much safer approach.
Proof of concept happens when you prove that your business model works and that your industry has a demand for what you are selling. Using this approach, you are better off getting your business started with as little expense as possible. In the construction industry, you must first make sure you have the ability to execute and deliver good quality service and product on time, on budget, and for the right price. It is a good idea to do this before you go spending a bunch of money on hiring, marketing, and branding.
How Do I Get Funding?
There are a variety of ways to get funding. Most people first tap their own savings, a mortgage, or other resources before asking their friends and family for money. If that doesn’t provide the necessary funds, the next option is to get a loan from the bank. You should plan to bring your business plan to the bank with you. Do be advised that this route is difficult when you are just getting started, you haven’t proven your model, or you don’t have a history of a successful business.
The next option is to get money for your company through private funding, or what is often referred to as “hard money.” There are many private investors out there. It is important that you take only what you need and that you get the lowest rate possible, without giving up equity in your company. Constructions companies usually start out small, but you will need money to be able to get your projects underway. You will need funds for marketing, to build a website for inventory and many other things. An investor is going to charge anywhere from 10 to 30 percent interest depending on the agreement you make. The interest rate will be determined based on things such as: how soon you’re paying it back, how much risk they’re taking, and how much money they are investing.
When you take money to fund your company, you need to recognize that you are going to have to make sacrifices. You are going to have to do whatever it takes to make your business happen. This is not a situation where you can just set up a GoFundMe page to start a roofing, painting, or general contracting business. People do not want to invest in these sorts of businesses because they have such a high failure rate. The moral of the story is if you plan to start a business, begin with a good analysis to determine exactly what it’s going to take to get your company started and keep it going. You want to have at least three to six months of funding in place to be able to procure materials, get the marketing in place, and get the things you need done in order to get your business off the ground. Many times, you’ll have to reinvest your earnings back into your company in order to grow.