How to start a construction business in the UK

The UK had an average of over 670,000 self-employed construction workers in 2022, according to ONS, and a forecasted industry revenue of £476.6 billion by 2027, construction businesses are almost guaranteed to remain one of the most lucrative industries worldwide. But with this in mind, why do so many construction businesses fail in their first 5 years?

With the construction industry accounting for 12% of all UK business failures in 2023 (according to Roofing Today), QuickBooks have written this helpful guide to help set your new construction business up for success in the future with helpful tips, industry insights, competitor considerations and more.

Need construction accounting software for your business? Try QuickBooks free for 1 month.

Planning your construction business

Planning your construction business requires a few steps in the pre-planning phase, such as deciding on your area of focus as a business and your own role in the company. Once these have been decided you can begin the planning stage, which should involve the following steps:

Research demand in your area

Market Research is critical for any new business, and construction is no different.

Construction businesses will usually begin by serving their local area, building out their company with smaller projects until they have a tangible portfolio of work to showcase. Due to this, you should first look at the demand for business in your local area to determine which projects would best suit the experience of your employees, and the equipment available to you.

Learning more about market research tactics is important to this process, as it can provide you with insights into what you need to effectively understand the demands of your local market.

Review the need for certain types of construction

There will be different construction needs depending on your area. Urban areas may have higher demands for commercial buildings or renovations, while rural areas might have more opportunities in residential housing or agricultural structures. Consider which types of construction services are in demand in your region and tailor your offerings accordingly.

Consider your competition

Competitor analysis is essential to understand what other construction companies are doing and how you can differentiate yourself, then identify the strengths and weaknesses of your competitors to find your unique selling proposition. Perhaps there is a gap in what your competitors are offering that could provide you with a niche, or it could be simply that local competition is charging too much for their work. Whatever the case, you are likely to find some way of differentiating from the competition in a way that could make you stand out.

By understanding the competitive landscape, you can position your business to offer something unique or improve on existing services.

Consider the funding required

Starting a construction business will usually require a lot of funding, either from your own investment or the help of others. You'll need to consider costs for equipment, permits, insurance, and initial staffing. Explore different funding options, such as small business loans, grants, or investors to secure the necessary capital.

Getting early funding for your new construction business is important, as in many cases you will only receive final payment once a job is completed, meaning in the early days you will be fronting a lot of costs yourself and have them reimbursed later on.

Once your funding is secured, you should consider utilising construction accounting software to automate certain financial tasks, freeing you up to focus on the day-to-day management of your company

Creating your construction business

Now the first few steps are out of the way, it’s time to consider the logistics of your new business. Before worrying about your business name, you need to make sure all logical facets of your company have been planned and researched properly, these include:

Setting up as a sole trader or limited company

Decide whether to set up your business as a sole trader or a limited company, as each has its own legal and financial implications. The differences between these two business types could work in your favour depending on which you choose.

For example, if you personally have a lot of capital behind you, then setting up as a sole trader could be beneficial as you have ‘unlimited liability’, meaning your own personal assets could be used to settle business debts if required. Whereas in a limited company, personal assets are protected and only the company's assets can be used to cover business debts.

This is just one example of the differences at play, with others including how you can name your business, compliance obligations and more.

You can find detailed guidance on how to start your own company to make an informed decision from QuickBooks.

Creating a business plan 

A solid business plan outlines your business goals, target market, competitive analysis, and financial projections. This plan will guide your business strategy and is often required when seeking funding, and your business plan should include information such as:

• An executive summary

• Company description

• Market analysis

• Organisation and management

• Services on offer

• Marketing and sales strategy

• Financial plan

• Operational plan

• Risk management

These steps are common practice for businesses of any type, but will require some tailoring towards the specific service you offer. Having a detailed business plan is a great way to secure future investment, whilst also providing yourself a point of reference to look back on in future to make sure your business is on track.

The more detailed and well-researched your business plan, the more likely it is that you will secure funding. You can read QuickBooks’ guide on how to write a business plan for a full explanation of plans for your new construction business..

Acquire the necessary certifications

Depending on your area of construction, you may need specific certifications or licences to operate legally in the UK, ranging from safety certifications to proof of skillset. These may include:

• Construction Skills Certification Scheme (CSCS) Cards

• Construction Plant Competence Scheme (CPCS) Cards

• Health and Safety Certifications

• Gas Safe Registration

• Electrical Certifications

• Construction Industry Scaffolders Record Scheme (CISRS)

• CHAS (Contractors Health and Safety Assessment Scheme)

• ISO Certifications

• First Aid Certification

For most people starting a construction business, many of these will have been obtained through your previous employment, but it is important to check which of these certificates you have to your name, and which may need to be registered to your new business.

Put health & safety at the core of your business ethics

Health and safety are paramount in the construction industry. Implement robust health and safety policies to protect your employees and clients, which will ensure compliance with regulations and build trust with your customers.

In the UK, construction businesses must comply with various health and safety regulations including the Health and Safety at Work Act 1974, and the Construction (Design and Management) Regulations 2015 (CDM). Non-compliance can lead to legal action, fines, and even imprisonment.

These requirements don’t just help your business from a safety and legal standpoint, but they can also help the reputation of your business. A construction business that sees regular lapses in health and safety or on-site accidents may struggle to find work.

Sign up for the Construction Industry Scheme (CIS)

The Construction Industry Scheme (CIS) is a tax scheme designed by HM Revenue and Customs (HMRC) for the construction industry, and requires contractors to deduct money from subcontractors’ payments and pass this money to HMRC as a prepayment towards the subcontractors' tax and National Insurance contributions (NICs).

Registering for CIS is essential to operate legally as a contractor and manage your tax obligations, and any new subcontractors to your business will likely ask if you are CIS registered before they accept a job with you. Registering for CIS as a subcontractor is also beneficial as it may entitle you to a reduced rate of deductions from your payments as a subcontractor. 

Save time managing your CIS deductions with QuickBooks.

Get the right insurance package

Construction businesses face various risks, from property damage to employee injuries, so ensuring you have comprehensive insurance coverage to protect your business from potential liabilities is a necessary step to secure the future of your business. This is particularly important for companies in the construction industry, as your workers are at a higher risk of injury than most others.

Organising your business finances

Understand your cash flow

Effective cash flow management is crucial for the sustainability of your construction business. Track your income and expenses closely to maintain a healthy cash flow.

QuickBooks have created this handy four step guide on cash flow to help businesses better understand how to manage their incoming and outgoing cash.

Nail down your accounting 

Accurate accounting is vital in the construction industry due to the complexity of project costs and revenue. Consider using construction accounting software to streamline your financial management. You can also find an accountant who specialises in construction to help with complex financial matters.

Construction industry accountants aren’t just there to file taxes or handle payments, they are a valuable asset that can help grow your business through smart accounting methods that are tailored to your business. This may include revenue recognition, costing allocation, WIP (Work in Progress) accounting, retention payments, and more.

Due to the nature of how construction businesses get paid for their work, it is important to have a proactive accountant that will make sure your business finances are handled properly between payment periods.

Find out more about QuickBooks’ construction industry accounting software, or find an accountant through QuickBooks.

Consider your pricing strategy 

Develop a competitive yet profitable pricing strategy, and consider factors like material costs, labour, overheads, and market rates to set your prices effectively. Your pricing structure can be a valuable way to gain contracts over your competition, but be aware that undercutting your competition may not always be the most financially viable way to gain work. 

Understand your taxes

Understanding your tax obligations is crucial for compliance and financial planning, particularly as the construction industry is subject to some unique tax laws in the UK that are not required of all business types, which can include corporation tax, CIS (Construction Industry Scheme) tax, and specific business rates.

You should also remember health and safety compliance, while this is not a type of tax, failure to comply can result in fines and additional costs.

Learn about personal taxes, business taxes, and VAT basics to manage your taxes efficiently.

Growing your construction business

Now the planning stage of your construction business is complete, you can move onto branding your company, budgeting, and financial forecasting - all of which will help your business grow over time.

Create a brand

Building a strong brand helps distinguish your business in a competitive market. Consider factors like your company name, logo, and overall brand identity. Your company name may be influenced by your status as a company, such as a sole trader business or a limited company.

For instance, sole traders may decide to use their own name as the company name, which can often help with trust and familiarity, particularly in the local market. At the same time, limited companies may decide to go with a simple company name with the words ‘limited’ or ‘ltd’ at the end to demonstrate their status as a limited company.

Discover tips on choosing a brand name to get started.

Stay on top of budgeting

Effective budgeting ensures that your business stays financially healthy. Learn how to create a small business budget to keep your expenses in check and allocate resources efficiently.

Conduct regular financial forecasting

Regular financial forecasting helps predict future revenues and expenses, allowing you to make informed business decisions and plan for growth.

Grow your business with QB

QuickBooks offers tailored solutions for the construction industry, from managing your accounts and cash flow to ensuring you meet all regulatory requirements. Whether you’re just starting or looking to expand, QuickBooks can provide the tools you need to manage your business finances effectively.

Ready to take your construction business to the next level? Try QuickBooks free for 1 month and see how it can help streamline your financial management and set your business up for success.

The information on this website is provided free of charge and is intended to be helpful to a wide range of businesses. Because of its general nature the information cannot be taken as comprehensive and they do not constitute and should never be used as a substitute for legal, accounting, tax or professional advice. We cannot guarantee that the information applies to the individual circumstances of your business. Despite our best efforts it is possible that some information may be out of date. Any reliance you place on information found on this site or linked to on other websites will be at your own risk.