Being a successful general contractor requires a robust skill set. Obviously, you need construction expertise. You also need strong organizational and management skills.
Plus, a lot of business owners handle their own marketing. There’s a whole other area of knowledge.
But there’s one critical thing two-thirds of business leaders don’t have—a business plan. That’s like going on an unfamiliar road trip without a map or GPS app.
In this article, we break down the basics a general contractor should know about creating a business plan. We’ll explain what a business plan is, as well as the advantages of having one.
Whether your business is brand new or well-established, a solid business plan will help you but as much as 16% more successful.
What Is a Business Plan?
We’ll start with the official definition.
A business plan outlines the goals and objectives of a business. It should also include details about how those goals will be achieved. It’s an important part of your overall plan for success.
Granted, that sounds impressive. But what does it mean?
Our favorite metaphor for a business plan is one we’ve already mentioned in this article. Your business plan is a GPS system for your business.
If it’s well written, your business plan will clearly indicate where your business is, where it’s going, and how you plan to get there. The strategies in your business plan are like turn-by-turn directions.
Why You Should Have a General Contractor Business Plan
While it’s possible to run a successful small business without a business plan, it’s far easier when you know where you’re going.
That alone is enough reason to write a business plan. You and your staff can refer back to it often to ensure you’re on track and focused. But there are more advantages.
Here are three more reasons to develop a business plan.
1. Create a Competitive Advantage
When the economy is booming, general contractors are often overloaded. It’s possible to have a backlog of projects. For many, that happened in 2021 and 2022.
But what about when there’s a slowdown? How will your business stand out when demand dips?
In 2023, the markets for both residential construction and commercial construction are expected to taper off. Experts predict the economy will rebound toward the end of 2023 and early in 2024. In the meantime, your construction business will need clear, unique selling points to help it stand out.
That’s where a business plan comes into play.
You need a market analysis detailing your competitors, their unique value, and your target audience. With that, you can define your business’s unique value proposition.
A unique value proposition highlights the one-of-a-kind benefit of doing business with you. It’s what makes you special. Sure, there may be dozens of other contractors in your area, but there are things that make you different from the rest.
Identify your unique value proposition and include it in your business plan. That gives you a serious competitive advantage. You’ll know what you can do that no one else can do in quite the same way.
2. Keep Your Business on Track
Your business plan should also showcase the vision you have for your construction company.
Let’s say, for example, you’ve worked as a contractor for the past five years. In that time, you’ve seen a demand for high-end renovations. You’ve even done a fair number of them. You’ve even fixed the poor-quality work of other contractors who didn’t have your expertise.
As a result, you aim to put together a team of employees and subcontractors who specialize in catering to high-end clients. That’s your vision for your general contracting company. You want to be the go-to resource for top-tier remodeling work.
A condensed version of your company story lives in your business plan, serving as a reminder of your vision. This provides focus for your team. It will help them know which jobs to bid on, for example. Or which subcontractors to work with. Or how to select materials.
Said another way, your vision defines your business. It helps you avoid taking on a construction project that’s not a good fit. It serves as a way to navigate, providing guidelines for the choices you make day in, day out.
It also shows lenders, investors, and other stakeholders why your construction business might be a good investment for them. (What a convenient lead in to the next section.)
3. Attract Business Funding
In addition to your company vision, your business plan should outline your expected financial future.
That includes key pieces of information like:
- Projected operational costs for your construction business
- Forecasted timeline to profitability
- Current capital and funding
- Growth projections
For example, you might need $30,000 in startup funds. That will cover initial supplies, your business insurance policy, and a small marketing budget. Furthermore, operational costs might be $10,000 each month. And you might project that you can start seeing a profit margin in 18-24 months.
You should detail all of these costs and financial projections in your construction business plan.
These numbers show lenders, angel investors, and other funding sources how much you need and why. They also demonstrate that you expect to be profitable after a specific time period. That’s presumably when you’ll be able to repay your loans and when investors can expect a return on their investment.
Few investors will want to back a construction company without a plan. Including all of this in your business plan shows them you have a solid strategy for creating a successful business.
What a Business Plan Should Include
All the information in your business plan will fall into one of two categories:
- The Foundation – The core parts of your business plan, including things like market research, organizational management, and services offered. Think of this as an overview of your business.
- The Future – The plans you’re laying out for taking your business from where it is present-day to where it could be. These include your marketing plan, financial outlook, and long-term growth plan.
Ready to get started? Let’s dive into the details.
An executive summary is like a detailed outline of the rest of the business plan. It sums up all the other sections, providing a brief preview of what’s in each section.
This section should be short.
As this section includes key data from the rest of your business plan, you may want to write it last.
A company overview is an introduction to your business. Think elevator pitch. It states what your business is all about. It should cover:
- Who you serve
- The services you offer
- Information about the management team
Like the executive summary, it should be concise. You don’t need to tell your complete company story here. Instead, just cover the basic bases.
The service offering section is an opportunity to outline the specific kinds of work you specialize in. After all, “contracting” is a broad category. There are dozens of potential areas of specialization.
Use this section to detail the scope of your services.
Remember, too, that you can add to or subtract from this section when you revise your business plan in the future. It’s okay if the plan changes.
The market analysis (or market research) section is where you lay out the current state of the construction industry in your area.
- Your target audience
- Your main competitors
- Any other relevant factors, like gaps in the market
Market analysis is critical for your marketing plan (covered below). It provides important information for homing in on effective marketing strategies.
Organization & Management
The organization & management section is where you share your construction company’s leadership structure.
Include things like:
- Your company org chart and business structure
- The roles and responsibilities of key staff
- Reporting lines and management relationships
- Who’s accountable for making decisions
This is the place to document how you’ll function day-to-day. Without a clearly documented organization & management section, it will be hard to lead employees or work with partners.
Marketing & Sales
The marketing & sales section should give potential investors an idea of how the business will turn a profit. The section has two components. Each of these should be focused on how you’ll generate leads, close business, and create ROI.
Unique Value Proposition
This is your chance to differentiate your small business from the competition.
Provide detailed info about who your target clients are and how your services will stand out within the market.
How will you determine pricing for your services?
Outline your pricing strategy, including how you’ll ensure costs are covered while still turning a profit. The goal here is balance. You want to make money without overcharging your customers.
Avoid the temptation to price your services either too high or too low.
This is where you outline your small business’s growth strategy.
For a local construction business, this section might include things like local advertising, community involvement, and local partnerships.
You’ll also need a digital marketing strategy, which could include a professional website, a presence on social media, and digital advertising.
You’ll also need to include how much you’re budgeting for marketing costs.
While there are free DIY marketing options out there, they often fall short. It’s best to have at least a modest marketing budget right from the start.
The financial projections section provides a peek into potential future revenue and expenses. Consider creating projections for the next three to five years.
This will help potential investors understand where you are and where you’re headed. They’ll definitely want an idea of potential profitability.
Here are some key projections you might include in your business plan.
Based on your marketing plan, how much do you plan to sell each month? What’s the estimated profitability per sale?
Break this information down into weeks, months, quarters, and years. And be sure to take seasonality into account. Some contractors see steady business all year round, but most see dips during specific seasons.
Detail your expected costs each month, including fixed costs like payroll and rent, if applicable.
You can also include a specific number to account for unexpected business expenses. This can be really handy if you’re just starting out. That way, something like a vehicle repair doesn’t derail your whole projection of expenses.
Balance Sheet Projections
A balance sheet lists your construction company’s assets and liabilities. You’ll want to show your current assets and liabilities as well as what you expect in the future—say three to five years from now.
Cash Flow Projections
Cash flow refers to how much money is coming into and out of your company over time. This could be a large number.
Cash flow includes expenses, like the cost of supplies. It also includes gross revenue. You’ll want to take some time to really think through your cash flow rather than making a quick guess at the number.
Laying the Foundation for Your Business Plan Now
Creating a business plan is no small thing. It can take some time to pull together all the necessary information. Plus, you’ll likely want to give yourself plenty of time to think through your strategic approach to things like marketing and financial projections.
But there are things you can do to jump-start the process. If you’re ready to get going right away, here are some things you could do right now to begin.
- Write out your vision for your company. There’s a good chance you already know what you’d like your construction company to be known for. Write a short paragraph detailing what you have in mind.
- Look at 5 competitors’ websites. See if you can tell what their unique value proposition is from their homepage—if they have one. Also, pay attention to how they present themselves.
- Take stock of your current assets and liabilities. What do you have in your business account right now? What equipment do you already own? How much debt is your construction company carrying today?
- Assess your current marketing efforts. Do you have a marketing budget right now? If so, how are you spending it? If not, how are you getting new customers? Is there a specific kind of marketing that brings in most of your customers?