Construction Business Plan
The following construction business plan template gives you the key elements to include in an effective business plan. It can be used to create a commercial construction business plan, a general contractor business plan or business plans for residential construction, building construction or industrial construction.
Sample Business Plan For a Residential Construction Company
I. Executive Summary
Business Overview
[Company Name], located at [insert location here] is a new residential construction and general contracting firm. The company will operate out of an office in the commercial district of [town]. [Company Name] is headed by [Founder’s Name], an engineering graduate from XYZ University with 20 years of experience working in the construction industry.
Services
[Company Name] will focus on superior service for its clients. Each home construction project will be managed from start to finish, with some services provided by employees of [Company Name] and some by subcontracted specialists.
The founder, [Founder’s Name], will be the lead project manager and focus on answering his clientele’s needs. In addition to currently running projects, [Founder’s Name] will hold webinars on home construction concerns and best practices for potential clients and the community.
[Company’s Name] services include new home construction, home additions and home renovations.
Customer Focus
[Company Name] will primarily serve architects, homeowners, and real estate development companies, constructing properties within a 20-mile radius of our location. The demographics of residents in this area are as follows:
- 27,827 residents
- Average income of $74,700
- 58.9% married
- 49.6% in Management/Professional occupations
- Median age: 38 years
There is a high rate of homeownership in this area with 80% of residents being homeowners. Furthermore, [Company Name] will seek ongoing relationships with real estate development companies for multiple-home contracts.
Management Team
[Company Name]’s most valuable asset is the expertise and experience of its founder, [Founder’s Name]. [First name] has been a project manager for a home construction company for the past 10 years and an assistant project manager for 10 years prior. He has spent much of his career working for First Wave Construction Company. There he specialized in new home projects, managing or assistant managing the completion of 75 homes. He consistently was named a top project manager for First Wave Construction Company.
[Company Name] will also employ an experienced assistant project manager to co-manage projects when multiple projects are running concurrently. [Assistant’s name] has construction and project management experience and has spent significant time as a contractor.
Success Factors
[Company Name] is uniquely qualified to succeed due to the following reasons:
- [Company Name] will fill a specific market niche in the growing community we are entering. In addition, we have surveyed local residents and real estate development companies and received extremely positive feedback saying that they would consider making use of our services when launched.
- Our location is in an economically vibrant area where new home sales are on the rise and turnover in homes often occurs due to the upward mobility of residents.
- The management team has a track record of success in the construction business.
- The local area is currently under served and has few local home construction companies offering high customer service to home building clients.
Financial Highlights
[Company Name] is seeking a total funding of $195,000 of debt capital to open its office. The capital will be used for funding capital expenditures and location build-out, hiring initial employees, marketing expenses and working capital.
Specifically, these funds will be used as follows:
- Office design/build and equipment: $130,000
- Working capital: $45,000 to pay for marketing, salaries, and lease costs until [Company Name] reaches break-even
Topline projections over the next five years are as follows:
| FY 1 | FY 2 | FY 3 | FY 4 | FY 5 | |
|---|---|---|---|---|---|
| Revenue | $1,853,460 | $3,535,552 | $5,010,918 | $6,790,374 | $8,414,849 |
| Total Expenses | $1,866,345 | $3,417,414 | $4,801,845 | $6,531,105 | $7,949,711 |
| EBITDA | ($12,885) | $118,138 | $209,073 | $259,268 | $465,139 |
| Depreciation | $19,560 | $19,560 | $19,560 | $19,560 | $19,560 |
| EBIT | ($32,445) | $98,578 | $189,513 | $239,708 | $445,579 |
| Interest | $11,395 | $9,970 | $8,546 | $7,122 | $5,697 |
| Pre Tax Income | ($43,840) | $88,608 | $180,967 | $232,587 | $439,882 |
| Income Tax Expense | $0 | $15,669 | $63,339 | $81,405 | $153,959 |
| Net Income | ($43,840) | $72,939 | $117,629 | $151,181 | $285,923 |
| Homes Completed | 5 | 12 | 16 | 20 | 23 |
| Full Time Staff End of the year | 11.5 | 18.0 | 22.0 | 27.0 | 30.0 |
II. Company Overview
Who is [Company Name]?
[Company Name], located at [insert location here] is a new residential construction and general contracting firm. The company will operate out of an office in the commercial district of [town]. [Company Name] is headed by [Founder’s Name], an engineering graduate from XYZ University with 20 years of experience working in the construction industry.
While [Founder’s Name] has been in the home construction business for some time, it was in [month, year] that he decided to launch [Company Name]. Specifically, during this time, [Founder] met with a former friend and fellow independent construction company owner in Fort Lauderdale, FL who has had tremendous success. After discussing the business at length, [Founder’s Name] clearly understood that a similar business would enjoy significant success in his hometown.
Specifically, the customer demographics and competitive situations in the Fort Lauderdale location and in his hometown were so similar that he knew the business would work. After surveying the local population, [Founder’s name] went ahead and founded [Company Name].
[Company Name]’s History
Upon returning from Fort Lauderdale, surveying the local customer base, and finding a potential office, [Founder’s Name] incorporated [Company Name] as an S-Corporation on [date of incorporation].
The business is currently being run out of [Founder’s Name] home office, but once the lease on [Company Name]’s office location is finalized, all operations will be run from there.
Since incorporation, the Company has achieved the following milestones:
- Found office/storage space and signed Letter of Intent to lease it
- Developed the company’s name, logo and website located at [website]
- Planned the suite of services to be offered
- Determined equipment and facility requirements
- Begun recruiting key employees
[Company Name]’s Products & Services
[Founder’s Name] will be able to provide clients with the following services:
- New Home Construction: New home projects will be entirely managed, including setting a schedule, budget, and requirements with the client and architect, supplying material, labor, and equipment, hiring subcontractors as necessary, assuring quality of all work, and expediting the process of licenses and permits. Sometimes pre-design services will be offered to give advice during the design phase of the home.
- Home Additions: Smaller projects to add additional floors, rooms, patios, porches, etc to existing homes will be offered. The process will be similar to that of new homes, although the time involved, budgets, and scope will be smaller.
- Home Renovations: Interior and exterior improvements to existing homes, such as remodeling, adding new fixtures or decorative elements, and changing room layout will be offered.
- Homeowner Information Sessions: Webinars be offered to present topics such as how to prepare before seeking a contractor, new and standard home construction practices, renovation projects, and planning additions to your home.
III. Industry Analysis
Last year, according to IBISworld.com, U.S.single family home building generate revenues of $210 billion and employed 600,000 people. There were 166,000 businesses in this market, for an average of $1.2 million per business. The average wage of a worker in this industry was approximately $50,000, which includes everyone from management to specialized contractors, to general crew. The National Association of House Builders reports 906,000 housing starts last year, which included 622,000 one-unit housing starts.
As the American housing/real estate industry and its health is considered a driver for the American economy as a whole, key statistics such as new home sales, homes on the market, and average home prices are tracked constantly by news and reporting agencies.
Major revenue streams of the industry include: Single-family house construction on one’s own land for resale, single-family house construction for others (contracting and design), remodeling (including alterations and additions), non-housing construction, and multifamily housing construction.
Home construction is a relatively standardized practice. Firms providing this service are judged based on the quality of their process and their ability to work to a schedule.
Many of the steps of construction, such as framing, roofing, plumbing, electrical, etc. are generally undertaken by subcontractors specializing in those areas.
The five largest companies in the American residential home construction industry include D.R.Horton, Inc, Pulte Homes, Inc., Lennar Corporation, Centex Corporation, and KB Home. The largest players attempt to compete nationally, but most other players compete only regionally or locally
IV. Customer Analysis
Demographic Profile of Target Market
[Company Name] will serve individuals building their own homes, architects, and real estate development companies in [company location] and the immediately surrounding area within a 20-mile radius.
The area we serve is suburban, with 80% of residents being homeowners and 20% being renters.
The precise demographics of the town in which our location resides is as follows:
| Subject | Washington-Arlington-Alexandria, DC-VA-MD-WV Metro Area | |
|---|---|---|
| Estimate | Percent | |
| Total housing units | 2,266,555 | 2,266,555 |
| Occupied housing units | 2,112,551 | 93.20% |
| Vacant housing units | 154,004 | 6.80% |
| Homeowner vacancy rate | 1.3 | (X) |
| Rental vacancy rate | 5 | (X) |
| Total housing units | 2,266,555 | 2,266,555 |
| 1-unit, detached | 1,059,437 | 46.70% |
| 1-unit, attached | 445,061 | 19.60% |
| 2 units | 21,231 | 0.90% |
| 3 or 4 units | 51,915 | 2.30% |
| 5 to 9 units | 109,615 | 4.80% |
| 10 to 19 units | 218,602 | 9.60% |
| 20 or more units | 344,992 | 15.20% |
| Mobile home | 15,101 | 0.70% |
| Boat, RV, van, etc. | 601 | 0.00% |
| Total housing units | 2,266,555 | 2,266,555 |
| Occupied housing units | 2,112,551 | 2,112,551 |
| Owner-occupied | 1,345,078 | 63.70% |
| Renter-occupied | 767,473 | 36.30% |
| Owner-occupied units | 1,345,078 | 1,345,078 |
| Less than $50,000 | 29,358 | 2.20% |
| $50,000 to $99,999 | 20,932 | 1.60% |
| $100,000 to $149,999 | 49,846 | 3.70% |
| $150,000 to $199,999 | 100,706 | 7.50% |
| $200,000 to $299,999 | 276,279 | 20.50% |
| $300,000 to $499,999 | 454,185 | 33.80% |
| $500,000 to $999,999 | 347,888 | 25.90% |
| $1,000,000 or more | 65,884 | 4.90% |
| Median (dollars) | 373,300 | (X) |
Customer Segmentation
The Company will primarily target the following three customer segments:
- Individuals Building Their Own Homes: These individuals tend to be wealthier than the average resident, very particular about the home they want to live in, and interested in high quality at the best possible price.
- Architects: Architects may use our services beginning in the design phase, when we can offer real world feedback on the costs of their designs and offer suggestions. Architects who are managing construction projects for their clients may hire our firm to subcontract the entire project to or a portion of the project.
- Real Estate Developers: Real estate development firms, whether hired by individual clients or working on a group of properties on spec, are looking to maintain long-term relationships with quality contractors who can work to a budget and schedule. They seek to create mutually beneficial relationships for both partners.
V. Competitive Analysis
Direct & Indirect Competitors
The following residential construction companies do projects within a 20-mile radius of [Company Name], thus providing either direct or indirect competition for customers:
Wellbilt Home Improvements Co.
Wellbilt focuses on remodeling with general contracting of new homes as a secondary focus. The company has relationships with many architects and a good reputation among homeowners in the area.
Wellbilt’s remodeling projects are generally with customers at the upper-end of the market, who choose to improve their current home either for sale or for their own purposes. Wellbilt is weaker in the new home construction area, in part because of the company name focus on improvements and because of the experience it has accrued.
John Doe Construction
John Doe Construction is an independently-owned and operated firm which was founded by John Doe ten years ago. John Doe Construction employs three full-time project managers and maintains multiple building projects at a given time.
John Doe Construction has a reputation for missing schedules, and those who have used their services recommend that new clients add 50% to schedules the company makes. They also prefer to work on a cost plus basis by adding a profit margin on top of the labor, materials, and equipment cost for each job, making it difficult for clients to estimate the total cost of the project.
American Home Construction Co.
American Home Construction Co. is a national company which works through a network of regional and local subcontractors. They start over 500 homes per year and often build homes in the [location] area. They focus on efficiency, attempting to complete each home project in less time than quoted by any other company.
The focus on efficiency appeals to some real estate developers who are interested in putting properties to market as fast as possibly, but does not attract individuals focused on quality above speed as much. Furthermore, sometimes the far reach of the subcontractor network of American has them work with firms with subpar quality.
Competitive Advantage
[Company Name] enjoys several advantages over its competitors. These advantages include:
- Local Focus: [Company Name]’s location is near the center of town and works with local employees and vendors only.
- Client-oriented service: [Founder’s Name] realizes the importance of accessibility to his clients, and will further keep in touch with his clients and the community through monthly webinars on topics of interest.
- Management: [Founder’s Name] has been extremely successful working in the home construction sector and will be able to use his previous experience to make clients feel comfortable with the home construction process. His unique qualifications will serve customers in much more sophisticated a manner than many of [Company Name’s] competitors.
- Relationships: Having lived in the community for 25 years, [Founder’s Name] knows many of the local leaders, newspapers and other influences.
VI. Marketing Plan
[Company name] will use several strategies to promote its name and develop its brand. By using an integrated marketing strategy, [Company Name] will win both one-time and ongoing clients and develop consistent revenue streams.
The [Company name] Brand
The [Company name] brand will focus on the Company’s unique value proposition:
- Client-focused home construction, renovation, and addition services, where the Company’s interests are aligned with the customer
- Service built on long-term relationships and personal attention
- Big-firm expertise in a small-firm environment
Promotions Strategy
Targeted Cold Calls
[Company name] will initially invest significant time and energy into contacting potential clients via telephone. In order to improve the effectiveness of this phase of the marketing strategy, a highly-focused call list will be used, targeting real estate developers and architects. As this is a very time-consuming process, it will primarily be used during the startup phase to build an initial client base.
Referrals
[Company name] understands that the best promotion comes from satisfied customers. The Company will encourage its clients to refer other businesses by providing economic or financial incentives for every new client produced. This strategy will increase in effectiveness after the business has already been established.
Additionally, [company name] will aggressively network with useful sources such as home goods stores, real estate development companies, homeowners associations and architectural firms. This network will generate qualified referral leads.
Internet
[Company name] will invest resources in two forms of geographically-focused internet promotion—organic search engine optimization and pay-per-click advertising. The Company will develop its website in such a manner as to direct as much traffic from search engines as possible. Additionally, it will use highly-focused, specific keywords to draw traffic to its website, where potential clients will find a content-rich site that presents [Company name] as the trustworthy, well-qualified home construction firm that it is.
Publications
[Company name] will advertise its services in key local publications, including newspapers and area magazines. Additionally, the Company will print brochures and place them in specific locations frequented by target individuals, such as home good stores and real estate offices.
Webinars
By offering webinars on topics of interest in the office or other locations, [Founder’s Name] will encourage residents in the community to become comfortable with the expertise and character of [Company Name]. These webinars will be offered free of charge as general promotion and for direct networking.
Pricing Strategy
[Company Name]’s pricing will be estimated on a project basis drawing on [Founder’s Name]’s deep expertise in home construction. Pricing will be moderate, less expensive than Wellbilt and luxury remodelers, but more expensive than lower-quality, efficiency driven contractors.
VII. Operations
[Company Name] will carry out its day-to-day office operations primarily on an appointment basis. Clients will make appointments to discuss potential and current projects. When necessary, these appointments will be made at the property site. When necessary, discussions can be conducted over the telephone.
[Founder’s Name] will work on an as-needed basis, generally on a Monday to Friday basis. The company will work weekends only when behind schedule.
Project management software will be utilized to control the schedule and costs of each project, and to manage the resources (labor and equipment) applied to the different projects.
Milestones
[Company name]’s long term goal is to become the number-one name in local home construction in terms of quality of both the product and process. We seek to do this by ensuring customer satisfaction and developing a loyaland trusting clientele.
The following are a series of steps that will lead to this long-term success. [Company Name] expects to achieve the following milestones in the following [xyz] months:
| Date | Milestone |
|---|---|
| [Date 1] | Finalize lease agreement |
| [Date 2] | Design and build out [Company Name] office |
| [Date 3] | Hire and train initial staff |
| [Date 4] | Kickoff of promotional campaign |
| [Date 5] | Reach break-even |
| [Date 6] | Reach XXX houses started |
VIII. Management Team
[Company Name]’s most valuable asset is the expertise and experience of its founder, [Founder’s Name]. [First name] has been a project manager for a home construction company for the past 10 years and an assistant project manager for 10 years prior. He has spent much of his career working for First Wave Construction Company. There he specialized in new home projects, managing or assistant managing the completion of 75 homes. He consistently was named a top project manager for First Wave Construction Company.
[Founder’s Name] maintains his project management certification (PMP) license. He is a member of the National Association of Home Builders. [First name] has spoken at regional conferences and taken part in panel discussions at the homeowners associations, local schools and universities on best practices.
[Company Name] will also employ an experienced assistant project manager to co-manage projects when multiple projects are running concurrently. [Assistant’s name] has construction and project management experience and has spent significant time as a contractor.
Hiring Plan
[Founder’s Name] will serve as the company’s lead project manager and president. In order to launch the business we will hire the following:
- Administrator: To manage procurement, human resources, and marketing efforts.
- Bookkeeper: To manage accounts payable, accounts receivable and payroll, as well as to assure collection of subcontractor insurance certificates.
- Construction Crew: Three to start – experienced construction employees with wide experience in home building.
Over time, additional project managers, assistant project managers, and construction crew will be hired to increase the company’s capacity to take on projects.
IX. Financial Plan
Revenue & Cost Drivers
[Company Name]’s revenues will come primarily from new homes. 15% of revenue will come from renovation and additions. For each new home project, half of the fee is expected at signing and half on completion of the work.
As with most services, labor expenses will be key cost drivers – including both salaried employees and hired subcontractor labor. Cost of sales, which will include subcontractors, materials, and direct labor for projects, is equal to roughly 75% of revenue for projects. This percentage is expected to drop with experience over the first five years of operation. Marketing and lease for the company’s office and storage space will be secondary costs.
Capital Requirements and Use of Funds
[Company Name] is seeking a total funding of $195,000 of debt capital to open its office. The capital will be used for funding capital expenditures and location build-out, hiring initial employees, marketing expenses and working capital.
Specifically, these funds will be used as follows:
- Office design/build and equipment: $130,000
- Working capital: $45,000 to pay for marketing, salaries, and lease costs until [Company Name] reaches break-even
Key Assumptions & Forecasts
The following table reflects the key revenue and cost assumptions made in the financial model.
| New Homes Started | |
|---|---|
| Year 1 | 9 |
| Year 2 | 14 |
| Year 3 | 18 |
| Year 4 | 22 |
| Year 5 | 23 |
| New Homes Completed | |
| Year 1 | 5 |
| Year 2 | 12 |
| Year 3 | 16 |
| Year 4 | 20 |
| Year 5 | 23 |
| Average price of home | $225,000 |
| Average price of additions | $10,000 |
| Average price of renovations | $5,000 |
5 Year Annual Income Statement
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||
|---|---|---|---|---|---|---|
| Revenues | ||||||
| Product/Service A | $151,200 | $333,396 | $367,569 | $405,245 | $446,783 | |
| Product/Service B | $100,800 | $222,264 | $245,046 | $270,163 | $297,855 | |
| Total Revenues | $252,000 | $555,660 | $612,615 | $675,408 | $744,638 | |
| Expenses & Costs | ||||||
| Cost of goods sold | $57,960 | $122,245 | $122,523 | $128,328 | $134,035 | |
| Lease | $60,000 | $61,500 | $63,038 | $64,613 | $66,229 | |
| Marketing | $20,000 | $25,000 | $25,000 | $25,000 | $25,000 | |
| Salaries | $133,890 | $204,030 | $224,943 | $236,190 | $248,000 | |
| Other Expenses | $3,500 | $4,000 | $4,500 | $5,000 | $5,500 | |
| Total Expenses & Costs | $271,850 | $412,775 | $435,504 | $454,131 | $473,263 | |
| EBITDA | ($19,850) | $142,885 | $177,112 | $221,277 | $271,374 | |
| Depreciation | $36,960 | $36,960 | $36,960 | $36,960 | $36,960 | |
| EBIT | ($56,810) | $105,925 | $140,152 | $184,317 | $234,414 | |
| Interest | $23,621 | $20,668 | $17,716 | $14,763 | $11,810 | |
| PRE-TAX INCOME | ($80,431) | $85,257 | $122,436 | $169,554 | $222,604 | |
| Net Operating Loss | ($80,431) | ($80,431) | $0 | $0 | $0 | |
| Income Tax Expense | $0 | $1,689 | $42,853 | $59,344 | $77,911 | |
| NET INCOME | ($80,431) | $83,568 | $79,583 | $110,210 | $144,693 | |
| Net Profit Margin (%) | - | 15.00% | 13.00% | 16.30% | 19.40% |
5 Year Annual Balance Sheet
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||
|---|---|---|---|---|---|---|
| ASSETS | ||||||
| Cash | $16,710 | $90,188 | $158,957 | $258,570 | $392,389 | |
| Accounts receivable | $0 | $0 | $0 | $0 | $0 | |
| Inventory | $21,000 | $23,153 | $25,526 | $28,142 | $31,027 | |
| Total Current Assets | $37,710 | $113,340 | $184,482 | $286,712 | $423,416 | |
| Fixed assets | $246,450 | $246,450 | $246,450 | $246,450 | $246,450 | |
| Depreciation | $36,960 | $73,920 | $110,880 | $147,840 | $184,800 | |
| Net fixed assets | $209,490 | $172,530 | $135,570 | $98,610 | $61,650 | |
| TOTAL ASSETS | $247,200 | $285,870 | $320,052 | $385,322 | $485,066 | |
| LIABILITIES & EQUITY | ||||||
| Debt | $317,971 | $272,546 | $227,122 | $181,698 | $136,273 | |
| Accounts payable | $9,660 | $10,187 | $10,210 | $10,694 | $11,170 | |
| Total Liabilities | $327,631 | $282,733 | $237,332 | $192,391 | $147,443 | |
| Share Capital | $0 | $0 | $0 | $0 | $0 | |
| Retained earnings | ($80,431) | $3,137 | $82,720 | $192,930 | $337,623 | |
| Total Equity | ($80,431) | $3,137 | $82,720 | $192,930 | $337,623 | |
| TOTAL LIABILITIES & EQUITY | $247,200 | $285,870 | $320,052 | $385,322 | $485,066 |
5 Year Annual Cash Flow Statement
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| CASH FLOW FROM OPERATIONS | |||||
| Net Income (Loss) | ($80,431) | $83,568 | $79,583 | $110,210 | $144,693 |
| Change in working capital | ($11,340) | ($1,625) | ($2,350) | ($2,133) | ($2,409) |
| Depreciation | $36,960 | $36,960 | $36,960 | $36,960 | $36,960 |
| Net Cash Flow from Operations | ($54,811) | $118,902 | $114,193 | $145,037 | $179,244 |
| CASH FLOW FROM INVESTMENTS | |||||
| Investment | ($246,450) | $0 | $0 | $0 | $0 |
| Net Cash Flow from Investments | ($246,450) | $0 | $0 | $0 | $0 |
| CASH FLOW FROM FINANCING | |||||
| Cash from equity | $0 | $0 | $0 | $0 | $0 |
| Cash from debt | $317,971 | ($45,424) | ($45,424) | ($45,424) | ($45,424) |
| Net Cash Flow from Financing | $317,971 | ($45,424) | ($45,424) | ($45,424) | ($45,424) |
| SUMMARY | |||||
| Net Cash Flow | $16,710 | $73,478 | $68,769 | $99,613 | $133,819 |
| Cash at Beginning of Period | $0 | $16,710 | $90,188 | $158,957 | $258,570 |
| Cash at End of Period | $16,710 | $90,188 | $158,957 | $258,570 | $392,389 |
