How to Start an Excavating Business

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Quick Reference

Do you work in construction but are tired of working for other people?  Perhaps you’ve considered various construction businesses that you could start so that you can work for yourself.  An excavating business could be a profitable opportunity for you to consider.

Business Overview

An excavating company usually works with residential or commercial customers for site preparation to prepare land for building and for building foundations.   They may also demolish existing structures, dig trenches to improve drainage, or prepare land for roads.  They utilize heavy equipment to remove debris, clear the land, and dig holes for spaces like basements or sewers.

Industry Summary

According to IBIS World, the revenue of the excavating contractor industry is $80.2 billion as of 2021 and has grown annually by 4.4% for the last five years. The strong housing market and the number of new builds have driven this growth.  It is, however, expected to decline .1% in 2021, in part due to the end of government stimulus.

Related Industries

Contractor

Industry Trends

The construction industry is expected to increase 8% in 2022, which should lead to continued growth in the excavating market.  The industry is very sensitive to market fluctuations because, during economic downturns, both residential and commercial new builds decrease.

Target Market

Your target market will generally be construction companies, both commercial and residential, but you may also have residential homeowner customers for projects such as driveways.

Skills, Experience, and Education Useful in Running an Excavating Business

There are several specific skills that you will need to open an excavating business.

  • Experience.  Experience in excavating is critical, and if you have any management experience in the industry, it’s a plus.
  • License. You need to be licensed to run heavy equipment.
  • Business knowledge and experience.  You will need to have at least some basic knowledge of marketing, finance/accounting, and human resources.
  • People skills. You’ll need to be able to build rapport with your customers so that you retain them as customers and keep them coming back.

Costs to Start an Excavating Business

Here are the typical costs you will face when you open an excavating business.

  • Equipment such as mini excavators, bulldozers, backhoes, cranes, dump trucks, trailers, etc., and tools $10,000 – $100,000 +
  • Space rental large enough to store equipment $2000 – $5000 per month
  • Licenses and permits $1000 +
  • Insurance $500 – $2000
  • Initial marketing such as Facebook ads or search engine optimization for your website $500 -$1000

 

Steps to Starting an Excavating Business

Step 1: Write your Business Plan

After coming up with the idea, the next step in starting your excavating business should be to write a business plan.  The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to do some research to calculate exactly what your startup expenses will be and what your ongoing expenses will be.

Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you to think through all the aspects of the business and then serves as a guide as you begin.

Related:
How to write a business plan
Free sample business plans

Step 2: Name the Business

Finding the perfect excavating business name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name.  Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.

Step 3: Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include a sole proprietorship, partnership, corporation, and Limited Liability Company (LLC).  Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

RelatedComparison of Business Entities

Step 4: Select your Location

The ideal location would be close to construction companies so that you can network with them.   Otherwise, your location just needs adequate space for your equipment.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

Excavating work may require a contractor’s license.  This may be at the state level or each city or town that you are working in.  You and your employees may also need to be licensed to run certain pieces of equipment as well. Depending on the size of equipment, a CDL may also be required to get it to the job site.

In addition, your business may also need some general local, state, and federal licenses as well such as a sales tax permit and an Employer Identification Number.  

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start an excavating business is another.  In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.

To help reduce startup costs and make sure you are purchasing the right pieces of equipment, consider initially renting equipment and attachments instead of purchasing. Bids can be based on the rental rate of equipment and then simply return it when done. This way, you aren’t left paying on equipment that may not be needed. Once there are enough customers that would keep the equipment moving, the decision of what equipment to purchase is much easier.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the income and expenses of the business.

Step 8: Get your Marketing Plan in Place

An excavating business will need to set aside a budget to cover marketing costs on a continuous basis. Common marketing techniques for an excavating business include social media marketing and online advertising.  Developing a website can be a significant expense, but it will give you the necessary online visibility.

Your main source of customers, however, will likely be referrals from general contractors and landscapers. Since this may take some time to build, you may need to take a lot of small jobs to build name recognition and trust.

Related: Low-cost ideas to market a new business

Step 9: Get Insurance

An excavating business needs several types of insurance for full coverage:

General liability insurance can help protect you from third-party claims of bodily injury and property damage.

Professional liability insurance protects you from claims of professional errors or negligence that result in a financial loss.

Surety bonds (sometimes referred to as a performance bond) may be required, depending on the job. Commercial and state jobs will often require one and is a form of insurance that if the bond’s requirements are not met, such as not performing contracted work or failing to pay suppliers or vendors, a claim may be filed against the bond.

Property insurance is used to protect equipment against theft, accidents, and vandalism.

Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.

For an excavating business, your coverage will be more expensive and needs to be very specific for your business.

Insurance policies will vary. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.

Related: Common types of insurance a business may need

Step 10: Hiring Employees

You will need employees to help you run your excavating business.  Make sure that you select people with appropriate experience and licenses.

In addition to payroll costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system for your excavating business is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up accounting for your business

How Much Can You Potentially Make Owning an Excavating Business?

It’s difficult to predict the revenue of an excavating company.   Large companies make millions of dollars in revenue per year.  If you are a smaller company and average $10,000 per job (which can vary greatly) and you did 1 job per week, you would make $520,000 in revenue per year before expenses.

Things to Consider Before Starting an Excavating Business

Running an excavating business or any business will have its challenges.  You need to be prepared and make sure that you know what you’re getting into.

Marketing and acquiring customers will be your biggest challenge and an ongoing expense.  You will face a lot of competition, so your marketing will need to make you stand out, and your prices will need to be competitive.  You will need the ability to make sales calls and network with contractors.

Your business will be seasonal, depending on your location.  You will need to plan for downtimes.

You will be risking a significant amount of money opening an excavating business. It will take time and hard work to see a profit.

Talk to other business owners for tips on starting a business and do your homework to determine costs.  Research other excavating businesses to see what they offer and what prices they charge.

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