In construction a good foundation is critical for success, and this is just as important in the formation of a company as it is bringing a building out of the ground. Most companies start with a combination of opportunity, hard work and a little luck. But those ingredients can evaporate quickly if the company is not started on solid footing.

1. Licensing

The new company must have the right licensing to perform the work it intends to. While this seems like a no-brainer, contractor regulation is always expanding. While there may have been a time when the only work requiring a license was structural, electrical, HVAC or plumbing, many states are expanding their licensing requirements to include specialty contractors like landscaping or solar. Further, in addition to state licenses, many cities and countes have their own local licensing requirements, meaning every trade from paint to stucco to hardscape installation must be licensed. Finally, make sure that the license-holder is properly connected to the company. In some states it is enough that the license-holder be an owner or employee of the company, but in others, there is a specific registration process that must be completed in order for the company to be licensed. Failing to follow these rules can result in significant fines and other penalties.

2. Corporate Form

In many instances, using a corporate form is more important than which type of form is used. Limited liability companies and corporations both provide a layer of protection that limits or eliminates individual liability. There are tax benefits to both, which should be discussed with a CPA. From a legal perspective, an LLC is generally more attractive to use because it provides greater flexibility in operating, profit-sharing and ownership. But, having a corporate form—as opposed to operating in the owner’s name as an individual—is the most important piece of this. Liability for acts taken in the name of the company will generally stay with the company and not be able to reach the owner’s personal assets. So if a contract is breached, lien issues come up, or work is declared defective, the company will bear the brunt of the liability, rather than an individual.

3. Contracts

While there was a time when most of construction was done on a handshake, those days have long since passed and now even the smallest projects require a contract. For commercial projects, many owners and architects use the AIA form or ConsensusDocs form. While these are standard forms, they can be modified and negotiated as needed. They can also be customized for a company’s specific needs. Critically, do not make the mistake of signing a contract, putting it away in a drawer, and thinking it will never be referenced again. Most contracts now provide explicit details that must be followed to start work, obtain payment and complete work. It is not only important that a company follow these requirements, but also that they are incorporated into contracts to use to protect the company and to ensure that subcontractors are held to the same standards as the company.

4. Insurance

The general theme of most of these “must haves” is early protection of the company so that it can survive the inevitable bumps and hiccups that come with any startup. Having the proper insurance is one of the most critical pieces in that protection. Choose a CGL policy carefully. Many policies contain “your work” exclusions that will cover the cost of damages that result from alleged negligence, but will not cover the replacement cost of the work. In the case of a plumbing leak that floods a jobsite, this may be fine, because the cost of the new pipe or fitting may be minimal when compared to the resulting damages. But for other types of water intrusion, the cost of replacing a roof or reapplying stucco to an entire building could easily outweigh the cost of the damages. Similarly, carefully evaluate other exclusions from the policy to ensure that the company is actually covered for the issues it will most likely encounter.

5. Compliance

It is not enough to ensure that a company is started correctly, it must also continue to stay in compliance with laws and regulations in order to continue to operate effectively and safely. Licensing laws evolve, so it is important to check annually to ensure that not only is the license up to date, but also that there are not any new licensing requirements. This should include making sure that the applicable license holders complete any annual continuing education requirements. Building codes and best practices also change regularly and updating practices to comply with those should also be a regular part of the company’s operations.

6. Marketing

Bringing in business is a critical part of starting and keeping a company. Traditional outside sales and trade marketing still have an important place in developing business, but that must also be supplemented with appropriate online and social media marketing so that prospective customers can find the company or learn more about it in a way they feel most comfortable. While for companies of a certain age, the idea of gaining customers online or through online channels may seem foreign, many decision-makers and newer companies think nothing of taking a company’s online presence into account when reviewing their work or determining if they would be a good contractor.