Expert: Roger Zona - 12/1/2007

Question
hello,

please i need your advice on issues surrounding setting up a construction company. my uncle who is an experienced civil engineer is thinking of setting up a construction company together with a couple of his friends. he wants me to prepare a feasibility study report to that effect. what are the specific issues i need to look at? what tips do you have for the new company to create an edge for itself in the construction market place?

please be as explanatory as possible.

Tobenna

Answer
Dear Tobenna,
BIG question - and it needs a big answer!
There are so many things to think about when setting up a new company.  First - prepare a business plan. Put in writing what you want to accomplish and how you intend meeting your goals.  Also include a corporate mission statement - what are the company aims - affordable housing, luxury homes, apartments or condominiums, etc.
Next is a demographics study which you can do or hire to have done.  What are current prices of building lots, what amenities do the other developer/builders offer (golf course, tennis, swimming pool, club house, etc.), what is your competition, who is your competition, is there a niche that could be filled, - just think of all the possibilities, write them down and analyze each one!  Will you develop your own subdivisions or be an "odd lot" builder. (My experience - I make more money (percentage wise) selling land than I do selling a house.  Usually, builders are always looking for lots for future construction.
Next how will you finance the company.  Can you get a line of credit, will a local bank provide construction loans.  A new company should have at least enough capital to survive the first six months.
Next you need to determine who will your experts and consultants be - an Architect, a Surveyor, a lawyer, an accountant, a bonding agent, insurance agent.  Arrange for your credit accounts - lumber, concrete, steel, roofing, drywall, cabinets, etc.  
Don't forget your corporate registration, Federal I.D. number, city and county occupational licenses and competency licenses.
The "edge" you must start with is better prices, quality materials, good workmanship and service after the sale.  When you become established and have a backlog of customers, you can start raising prices to increase the profit margin.  

Well, that's brief but I've given you a lot to think about and do.

Roger