Starting a construction company can be a lucrative venture but starting out can get expensive. The initial costs vary across sub-industries; residential, commercial and industrial construction differ greatly, after all.
Regardless, soft costs are the trickiest part as they amount to anywhere from 25 to 75% of the total project cost, so let's start with them.
Soft Costs
Understansing fot costs is critical from the onset. Soft costs include essential, indirect expenditures necessary for successful project execution.
Notable examples include land permits, survey fees, rental equipment expenses, architectural and engineering, regulatory compliance, financial interests and insurance, project management and consultation, post-construction inspections and testing, legal consultations, and costs of advertising.
Since these can get rather expensive, it is critical to include them in construction projects' budget projections., typically as you advise construction asset management.
Licensing and Permits
Obtaining the necessary licenses and permits is the first step to undertake when commencing a construction project.
Requirements may vary depending on the location and the type of construction. Costs associated with licensing and permits include application fees, exam fees, and ongoing renewal expenses.
It's crucial to research local regulations thoroughly and budget accordingly to avoid delays and penalties.
Insurance
Construction projects carry risks and can hardly be imagined (let alone undertaken) without adequate insurance coverage.
Common types of insurance for construction companies include:
- General liability insurance: Protects against claims of bodily injury or property damage.
- Workers' compensation insurance: Covers medical expenses and lost wages for employees injured on the job.
- Builder's risk insurance: Provides coverage for property damage or loss during construction.
Premiums for insurance policies can vary based on the company size, project scope, and claims history.
Safety and Compliance
Ensuring compliance with health and safety regulations is not only a legal requirement but also a paramount undertaking in terms of employee protection. Minimizing the risk of accidents and injuries on the site is, first and foremost, a moral obligation.
Expenses related to this department include training programs, safety equipment, and implementing safety protocols and procedures.
Optimally, construction businesses should aim to create a culture of safety.
Overhead Expenses
Overhead expenses are another tricky part as they are typically unpredictable. Still, planning and budgeting can decrease the risk to a minimum. Research can do wonders in this regard.
Typical overhead expenses may include office rent, mortgage payments, utility bills, and investments in software and technology.
While overhead expenses are not directly tied to individual projects, they play a crucial role in maintaining the infrastructure and support systems necessary for a construction business to operate smoothly. It's essential to budget carefully and monitor spending closely to identify areas for cost reduction.
Hard Costs
By contrast, hard costs are the tangible expenses of construction and can be calculated from the onset. However, it is necessary to account for changing marketing conditions and price rises.
Workforce
Skilled workforce is the major factor that guarantees project success. For construction businesses, attracting and retaining talented employees is the main objective.
Labor costs transcend wages to include benefits, payroll taxes, and training expenses for both field and administrative staff. Labor costs can fluctuate depending on market conditions and demand for construction workers in your area, so make sure to adjust your budget accordingly.
Be sure that the right tools and software are available for success. Consider looking into internal communication for manufacturing and construction, upskilling strategies, and much more.
Also, it's advised to invest in employee development programs to cultivate talent internally and reduce reliance on external hires. The practice saves money in the long run as it reduces recruitment and training expenses significantly.
It goes without saying that additional perks should be offered. Employee retention is a top priority of any business, so establish a positive work culture to minimize turnover rates.
Materials and Supplies
The cost of materials and supplies can vary depending on the type of construction and project scale. It goes without saying that cutting the budget in this department is not to be considered.
A good way to get better quotes and terms is to establish relationships with reliable suppliers. Bulk purchasing is another option, as volume discounts are common occurrence in the construction business.
Equipment and Tools
Construction projects require an array of equipment and tools. Think in terms of excavators and bulldozers all the way to power drills and hand tools. Some items can be purchased while others can be leased but either way they don't come cheap.
When starting out, compare the offers to determine whether it would be best for your business to buy equipment (new or used) or lease it.
Also, factor in maintenance and repair costs as equipment should remain operational and safe throughout its lifespan. Proper maintenance can prolong the life of the machinery and prevent costly breakdowns.
Site Preparation
Site preparation costs imply activities required to prepare the construction site for building work. Typical elements of the process include clearing and grading land, excavation, demolition of existing structures, and installing temporary utilities.
Site preparation is essential for creating a safe foundation for upcoming construction activities. Safety comes first but costs should be meticulously calculated nevertheless.
Overall, it's difficult to estimate costs for all types of construction businesses as they depend on the project scope, target area, regulations, and local laws. That's why it is critical to account for soft- and overhead expenses and plan accordingly.
