In the construction industry, very few questions are answered without the telling of a story. Recently, I had a client ask me about the best ways to protect his rapidly expanding construction company and I felt compelled to tell him the following story that an associate of mine shared with me.

A good friend of his used to be employed as a union crane mechanic in Chicago, Illinois. He worked for strong family-owned and operated company started in the first half of the 1900's. Sam was the founder of the company. When Sam started out, he had very modest ideas about where his business might go with a few prayers lot of hard work. Initially, Sam was a one-man show with only a dump truck and a backhoe. That was all he really ever wanted.

Fast forward 50 years and Sam's dump truck and backhoe operation had grown into one of the largest crane operations in the Midwest. One afternoon his friend and Sam were talking about business. Sam was recalling the good old days and then he stopped in the middle of his sentence as he surveyed the rows and rows of multi-million dollar cranes and dozens of employees milling around the yard, "all I ever wanted was a dump truck and a backhoe -- look at the mess I got myself into now."

While Sam clearly expressed fondness for the simpler days of his backhoe and dump truck operation, he was very proud of all the success that his business had achieved. Getting to that level of success is something that is rarely done by accident and in today's world, protection and planning are even more necessary than ever before. Sadly, the days of handshake deals and contracts drawn up on truck stop napkins are close to extinct. Preparing for your company's success today will enhance your businesses potential for tomorrow and beyond. To assist you in this preparation, I have compiled a top ten list that should help you see some of the main issues that you need to be aware of just in case you want to get yourself into a "mess" like Sam.

10. Selecting a Proper Business Entity for a Construction Company

If you want to form a company you need to decide which entity is right for your new business. All too often people form businesses incorrectly. A mistake such as this can cost you dearly come tax time. Additionally, you or your business may not be insulated from certain liabilities if you choose the wrong entity to form under. Take charge of this process, save yourself and your business some money, and insulate your business from as much liability as possible.

9. Obtaining the Financing for a Construction Company
Getting funded can be the biggest hurdle when getting off the ground. There are various funding options available both publicly and privately. If you don't have the capital to start a new business you can apply for loan with a bank , including small business loans that are guaranteed by the small business administration at traditionally lower rates than regular bank loans. You could seek to raise funds through a private placement, where money is raised through accredited investors and syndicated bank loans, where a number of banks join in the loan. If you want to take the company public to raise capital, you can offer your shares to the general public through a public offering. This, however, is a very expensive proposition because of the required filing with the SEC and other regulatory bodies.

8. Deferring Business Risks

Insure against risks that could otherwise impair or even bankrupt your company. Contractor General Liability Insurance is coverage that is used for specialty trade contractors and heavy construction contractors. Additionally, Workers Compensation; Management Liability; Environmental Liability; Accidental Death & Dismemberment; and Excess Casualty coverages help protect against catastrophic loss.

7. Total Contracting from Start to Finish

Prior to submitting a bid, make sure that you have considered all angles of the proposal. Many costly mistakes can be avoided with extensive pre-planning. Investing time and money at the planning stage is sure to help you protect your interests during and after the project. In the past year we have seen a large increase in construction litigation cases. Because of that increase we have been assisting many construction companies with strategic legal planning prior to setting foot on any job site. This level of pre-planning has been effective in preventing disputes that could develop into costly litigations. A simple contract review by an attorney often uncovers changes that should be made to documents or procedures.

6. Agency Issues

Having control over your employees is a must. There has been increasing amount of litigation involving decisions or promises being made by employees that were never given such authority by the owner. Always make sure that you give direct authority to those employees that you want making decisions, and establish a procedure and protocol for dealing with authorizations or change orders.

5. Subcontractor Issues

If you need to hire subcontractors for a certain job, make sure that they carry general liability insurance which names your company as an additional insured and includes a defense obligation, as may be required by your insurance. If you are a contractor hiring subcontractors or if you are a subcontractor, be aware that there are issues relating to the nature of the defense and indemnity protection a subcontractor provides to a contractor.

4. Regulatory Compliance

How is a small business to keep track of the ever-changing municipal, city, state and federal regulations? There are many regulations to keep track of such as compensation, benefits, payroll, hiring /firing, ERISA and most of all OSHA. Dedicating a person within your office to keep up with regulatory compliance is a must.

3. Tax Concerns

How do you pay the least amount of taxes allowed under the tax code? That depends on the type of company that you own. How much your company pays in taxes impacts cash flow, and thus debt repayment and capital expansion. Proper tax accounting is important because the financial statements may show losses from depreciating fixed assets such as trucks and equipment, which can be included in the proprietor's tax return. There are also ways to create passive income that is taxed at a lower rate if you own rental properties on the side.

2. Passing the Torch: Business Succession Planning & Estate Planning

After you have dedicated so much of yourself to operating and growing a successful business, you should think about how you want that business to carry on without you. Do you have children that you want to pass it on to? Will you sell your business to a new owner? These are all questions that you should actively be thinking about. We counsel many clients on succession and estate matters and I cannot overstate the importance of taking the time to create a plan that will benefit you, while leaving the company in good standing for many years to come.

1. Litigation Avoidance

Litigation is a costly, time-consuming drain on any business, and litigation that could have been avoided is a complete waste. To the extent that companies recognize and take steps to minimize the potential for litigation, they will improve the bottom line. Litigation avoidance measures include appointing a risk manager who can evaluate claims, make tactical judgments, understand insurance coverage issues, and analyze and make sound judgments with respect to uncovered claims to avoid company sponsored litigation. Where litigation is unavoidable, a risk manager will be in a good position to retain counsel best suited to defend the company.

Shaun Patrick Willis, J.D. is a Partner / Founder of Willis & Willis, PLC, a law firm with offices in Kalamazoo and Paw Paw. Mr. Willis leads the Construction Industry Practice group at Willis & Willis. He focuses his practice on serving contractors and developers with a sub-focus on condominium developments. A licensed commercial pilot who has been a member of the HBAGK for 8 years, Mr. Willis currently serves on the Governmental Affairs Committee and appears at the Kalmazoo Chamber of Commerce on behalf of HBAGK. Mr. Willis's brother and co-founder of Willis & Willis, Michael Willis, J.D., C.P.A. focuses his practice on tax, estate planning, and business succession planning. You can contact Mr. Willis at 269-492-1040 or by e-mail at This email address is being protected from spam bots, you need Javascript enabled to view it . Visit the Willis & Willis website at www.wwplc.com.

This article is not intended to provide legal advice. You should always consult with an attorney regarding any legal issues that you may have.