Owning a construction company in South Africa can be highly profitable, especially if you succeed in winning large tenders and contracts. The profitability of your construction company will depend on the jobs you win, as well as how efficiently your company is able to manage projects. With poor management, it can have thin profit margins and tough competition.
Like any other business, you will need a solid business plan, the right team, and sufficient funding to start a construction company. You will also require a list of permits, licenses, and unique requirements. These requirements will make your construction company eligible for public tenders and contracts.
The first step of starting a construction company in South Africa is establishing a need for your services in an area, finding a gap in the market, and bridging that gap. The construction business is a highly competitive venture. It is vital to specialize in an area where there is sufficient demand for your services.
While a lot goes into starting a construction business, the process may be broken down into five main steps:
Perform Market Research
Performing thorough market research is the first step to starting a construction company. Evaluate and understand the local construction industry, collect information about your local competitors, and then establish a unique market strategy for your construction business.
Create a Business Plan
Every profitable business has a solid business plan. Write a detailed business plan covering how your company will operate, your startup costs and expenses, your financial projections, who will run your company, how you intend to market your business, and so on. A business plan serves as a roadmap for how you will establish and manage your construction company.
Register your Construction Company
Registering and setting up the correct business structure for your construction company is vital.
Get all the Right License
Starting a local construction company requires the right insurance, permits, and license. It is critical that you get your business covered so that you can operate safely and legally.
Fund your Business
Starting a construction company in South Africa requires funding for staff, equipment, marketing, getting your company off the ground, etc. You may need to use your business plan to attract and acquire funding to kick-start your business journey.
How Much Does It Cost to Start a Construction Company in South Africa?
The cost of starting a construction company depends on the size of your business and what you will be specializing in or investing in. It could cost millions if you intend to invest in vehicles, heavy machinery, a large team, and office space.
It is possible to start your construction business with small or minimal capital of a few thousand Rands. Provided you have the right documents, knowledge, and team, you may begin by taking on small projects and hiring or renting the equipment you need.
Some essential certificates, licenses, and legal steps for South African construction companies include:
- COID registration
- MBSA membership
- VAT registration
- NHBRC registration
- CIDB, Construction Industry Development Board, registration
- B-BBEE Affidavit or BEE certificate
- Letter of Good Standing
- Tax clearance
Here are the formalities you need to follow to ensure that you are tax compliant, protecting your employees, and operating legally:
CIPC Company Registration
First and foremost, when starting a construction company, you need to make your company official by having it registered at the CIPC in order to obtain a registration number and documents for your company. These documents will be used to complete the rest of your compliance registration.
Tax Clearance Certificate
After registering your construction company at the CIPC, be sure to finalize your registration with SARS, in order to get your income tax number activated and obtain your tax clearance certificate.
Set up the B-BBEE documentation for your construction company. Suppose your company generates below R10 million annually. In that case, it is regarded as an EME company and would therefore only require a B-BBEE affidavit, which serves exactly the same purpose as a B-BBEE certificate.
Registering your construction company with CIDB, Construction Industry Development Board is mandatory if you are planning on applying for tenders or working in the public sector. When registering your construction company at the CIDB, you have to indicate what construction type your company specializes in. Upon registration, you will be notified of any construction tenders up for application in your area via the CIDB.
Letter of Good Standing
A letter of good standing acts as proof that your construction company is registered with the Workman’s Compensation Fund (WCF) and that all payments are up to date. Before getting a letter of good standing you will need to register your construction company with South Africa’s Department of Labor for COIDA, Compensation for the Occupational Injuries and Diseases Act.
When you register with COIDA, you will receive a letter of good standing free of charge, however, it needs to be renewed every year between the 28th of February and the 30th of April.
You will also need to pay for NOA, Notice of Assessment, to the Department of Labor directly when you register with COIDA. This payment is based on the total salaries the company pays, and the risks your employees might face when carrying out their duties.
Registration with the NHBRC, National Home Builders Registration Council, has to complete in order to indicate that your construction company adheres to all of the required guidelines and rules to safely conduct maintenance to structures or construct new ones. While registration can take about 5 office days, the process involves other steps, including a test. Meaning it could take weeks, perhaps even months to get an NHBRC certificate.
Register with the CSD
When your construction company is officially registered, you may also register with the CSD, Central Supplier Database. CSD is the official database of all institutions, organizations, and individuals who would like to provide goods and services to the government of South Africa. Once you are registered with CSD, you will be notified of any tenders available.
If you have completed all these steps, congratulations! You are a new owner of a fully compliant construction company in South Africa.