Starting your own contractor business is both exciting and challenging. It takes guts to strike out on your own, but with the right tools and support, anyone can build a successful business in the construction industry. That’s where this guide comes in – we’ll walk you through all the steps you need to take to launch your own contractor business, from getting the necessary permits and licenses to finding reliable employees.
Why Start a Contractor Business
Starting a contractor business can be a great way to become your own boss and gain financial independence. As a contractor, you’ll have the freedom to choose which projects you take on and how much of your time to dedicate to each one. You also have the freedom to set your rates and determine what type of services or products you offer. Being able to work from home or various other locations gives contractors more flexibility in managing their time and personal lives.
Contractors often benefit from tax advantages such as being able to write off certain expenses related to their business.
You’ll have the opportunity to specialize in certain areas or services that they are particularly knowledgeable about or interested in. This can lead to higher-paying contracts for those with specialized skills or knowledge.
Finally, contract work can be incredibly rewarding because it allows entrepreneurs to directly see the results of their efforts while working towards their success and growth.
13 Steps to Starting a General Contractor Business
If you’re ready, here are the steps you’ll need to take to start your own contractor business.
Research the Local Market and Contractor Licensing Requirements
Researching the local market is an essential step for any contractor looking to establish a successful business in their area. It is important to understand what services are in demand, what potential competition may exist, and how price points may affect customer decisions. Additionally, a thorough understanding of all local rules, regulations, and insurance requirements is necessary before applying for a contractor license.
Accurately researching the local market can help contractors formulate effective business plans that work within their desired parameters and local laws. This allows contractors to focus on servicing customers with cost-effective solutions without compromising quality or safety standards. Understanding the competition helps contractors determine how they can stand out in their given market – whether that be through cost savings, additional services provided, or customer service.
Develop a Business Plan
A contractor’s business plan is a comprehensive outline of the company’s objectives, strategies, and projections. It’s like a roadmap for the business, detailing the mission statement, marketing plans, financial forecasts, and anything that could go wrong along the way and how you plan to solve it. By creating a solid business plan, you can set yourself up for success.
Services to Offer
A contractor business typically offers a wide range of services, including general contracting, construction management, specialty trade contracting (such as for carpentry, electrical, plumbing, and HVAC), building inspection and auditing services, zoning and permitting assistance, and project management. Depending on the size of the business and its resources, some companies may provide additional specialized services such as roofing installation or energy efficiency solutions.
The target clients of a contractor business are usually homeowners or small businesses interested in refurbishing existing structures or building new ones according to their needs. The business should identify its most profitable client base by studying factors such as job size (small vs. large), profitability margins (low vs. high), and geographic location (local vs. distant). Doing so allows the business to better plan its resources and tailor its pricing structure accordingly.
The financial forecast for a contractor business needs to include an estimate of possible costs associated with starting up the business – such as equipment costs for tools and materials, labor costs for hiring qualified workers, overhead costs for office supplies or renting workspace, insurance costs to cover liabilities associated with the project site(s), marketing costs for advertising services online or in local publications, licensing fees required by local authorities before being able to operate legally in the region, and other miscellaneous expenses.
A financial forecast should also include an income statement that estimates expected revenue from contracting projects over a certain time based on previous experience or industry data (if available) related to average job sizes in the region.
When deciding on pricing structure, consider factors such as overhead costs incurred by operating the business (materials/tools/equipment), taxes, and labor costs among others. Competitors’ prices should also be taken into account when determining an appropriate pricing structure so as not to become uncompetitive in the marketplace while still maintaining profitability margins that allow for re-investment into growing the business over time.
You must understand what your operation cost will be when running a contractor business since these will directly affect both your bottom line profits and your ability to deliver high-quality services consistently over time. For example: not properly budgeting for regular maintenance of tools or investing too little in quality materials when building out a project could end up costing more money down the line if either has to be replaced soon after completion; not having enough trained labor could lead to delays that result in missed deadlines; not understanding local zoning regulations could slow down permit requests thus causing further delays, etc. All these operational issues can severely affect cash flow if they aren’t taken into account beforehand when drafting up budgets and planning out timelines associated with each contracted job.
Name of Business
Choosing a unique name helps create brand recognition among potential customers, especially those who search online using keywords related to your type of service offering. You want to choose an easily recognizable name that communicates what type of service you offer without being overly long/complicated since longer names fail to become “memorable” compared to shorter ones which are easier to recall. You’ll also want to avoid any legal issues related to infringing upon someone else’s trademarked name within your same industry/region.
Create a Safety Plan
One of the first steps in creating a safety plan is to identify the safety hazards associated with the services your business offers. This could include electrical hazards, construction hazards, or other potential risks. Once you have identified these hazards, you can then take steps to mitigate them.
To ensure the safety of everyone involved, it’s important to implement safety measures such as providing personal protective equipment, ensuring proper ventilation and lighting, and using safe and appropriate tools and equipment. In addition, creating emergency procedures is crucial in case of an accident or other emergency. This could include having first aid kits readily available, designating emergency exits, and providing training on emergency response procedures.
To further promote safety, it’s important to create a training and education program for your employees. This should include training on all safety procedures and protocols, as well as ongoing education to ensure everyone stays up-to-date on any changes or updates to the safety plan.
By taking the time to create a comprehensive safety plan, you can help ensure the success of your contractor business while prioritizing the safety and well-being of everyone involved.
Choose Your Business Structure
This step is recommended for legal and tax purposes and involves setting up a separate entity such as an LLC or corporation for your contracting business. Doing so will help protect you from potential lawsuits and help you separate personal finances from business finances.
A sole proprietorship for a contractor is a business structure where a single individual owns and operates the business. The owner assumes full responsibility for all debts and obligations incurred by the company, making them liable to both civil and criminal proceedings. Although easy to set up and maintain, it doesn’t provide any protection from personal liability or creditors.
As a general contractor, you may choose to form a general partnership with one or more co-owners. In this business structure, each partner assumes personal responsibility for any debts or legal issues incurred by the company and shares decision-making responsibilities related to the business operations. However, disagreements between owners may pose a challenge in managing general partnerships, and each partner may be held liable for debts potentially incurred by other partners.
A limited partnership for a general contractor is structured similarly to a general partnership, with one key difference: there are two types of partners involved. General partners have control over day-to-day operations and income distribution, while limited partners do not take part in management but still receive profits from their investments. While limited partnerships may offer tax benefits, they require meticulous record-keeping and paperwork to remain valid.
Limited Liability Company
A general contractor can choose to form a Limited Liability Company (LLC), which is a unique legal structure that blends aspects of partnerships and corporations. LLCs provide liability protection to members beyond that offered by general partnerships while providing flexibility in terms of taxation, ownership structure, and management responsibilities. In addition, LLCs are typically pass-through entities, which means profits are taxed only once at the individual level, unlike corporations that are subject to double taxation.
A general contracting corporation is an independent legal entity owned by shareholders who have limited personal responsibility for its debts or liabilities beyond their initial investment in the company’s stock shares. Corporations also offer centralized management structures with greater longevity than other business structures since ownership can easily change hands without disrupting operations. However, this setup also entails significant paperwork requirements such as filing annual reports with state agencies to remain in compliance with laws and regulations.
Finance Your Business
There are several options available when looking to finance a contractor business.
For those just starting, personal savings or credit card financing might be enough to cover startup costs such as equipment purchases or building materials. For larger sums of money needed for more substantial investments, bank loans, angel investors or venture capitalists may prove helpful in kickstarting or expanding an existing enterprise.
Register Your Business
Registering a contractor business is an important step in launching and ensuring the success of your enterprise. Depending on the type of contractor business you’re running, you may need to consult with your local government or other governing bodies to determine what requirements are necessary before you can start operations. Most businesses, including contractors, require some form of registration with their state government, including a business license.
Once registered, a contractor business will have access to certain protections that come along with operating legally. They also open up possibilities for financing and partnerships that would otherwise be unavailable without registration.
Obtain Licenses and Permits
All general contractors must obtain a license from the state in which they plan to operate. This can include registering with the Secretary of State, obtaining an Employer Identification Number (EIN), and paying an annual fee. In addition, some states may require contractors to pass a licensing exam or participate in continuing education courses.
Open a Business Bank Account
Opening a bank account also gives you access to banking services such as loans, overdrafts, and other financing options that can prove invaluable when running a successful contracting business.
The process of opening a business bank account is fairly straightforward. You’ll need to provide some basic information about your company such as its name, address, phone number, legal structure, Tax Identification Number (TIN), list of owners/members/partners (if any), and primary contact person. You may also need to submit documents related to these details if required by the bank. Once all the necessary documents have been submitted and reviewed by the bank, they will contact you with further instructions on how to open an account.
Opening a business bank account is beneficial because it provides more separation between your personal finances and those of your company. This helps make sure that none of your own money is being used for the operations or expenses associated with running the business.
Get Business Insurance
Most states will require a general contractor to take out liability insurance to cover any potential damage or injuries that may occur on the job. This includes both property damage coverage and workers’ compensation insurance.
Some states may also require contractors to obtain bonding protection.
Establish a Network of Vendors and Suppliers
Establish connections with vendors, suppliers, and subcontractors: When starting in the contracting business, it’s important to build relationships with local suppliers and subcontractors who can provide essential materials and services at competitive prices. It’s also helpful to have contacts with reliable tradespeople such as electricians or plumbers who can complete specialized tasks that are outside of your own skill set or expertise level.
Purchase Necessary Equipment
It’s important to choose equipment that is reliable, durable, and meets industry standards. Here are some of the necessary equipment that a general contractor may need:
- Power tools such as drills, saws, and nail guns
- Heavy equipment like excavators, bulldozers, and backhoes
- Safety equipment including hard hats, safety glasses, and harnesses
- Hand tools such as hammers, wrenches, and screwdrivers
- Ladders and scaffolding for working at various heights
- Trucks and trailers for transportation of equipment and materials
- Concrete mixers and other concrete equipment for foundation work
- Surveying equipment for accuracy in measurements and layouts
Buying quality equipment may require a larger upfront investment, but it’ll save you money in the long run by reducing repair and replacement costs, minimizing downtime, and increasing productivity.
Hire and Train Your Staff
When selecting staff, consider both technical qualifications and interpersonal skills. Technical qualifications refer to the skills needed for a particular role such as construction experience or specific certifications in certain areas. Interpersonal skills refer to qualities that are more difficult to quantify such as communication, problem-solving, and collaboration. By taking into account both types of qualifications, employers can ensure that they hire capable individuals who can work effectively in a team environment.
Once personnel is recruited, you’ll need to train them. Providing new hires with detailed information about safety protocols, job responsibilities, equipment use, etc., ensures that they have a thorough understanding of their role on site. It also helps prevent accidents or misunderstandings due to a lack of knowledge or confusion about policies or procedures. Providing ongoing training opportunities can help keep employees up-to-date on industry trends and best practices so that they can continuously improve their performance.
Market Your Business
Once all of the groundwork has been laid it’s time to start bringing in clients. Developing an effective marketing strategy should involve creating branding materials such as logos, websites, and brochures. You’ll want to work on:
- Distributing press releases
- Leveraging social media
- Joining industry organizations
- Hosting public events
- Attending trade shows
- Targeting radio/TV advertising
- Cold call/email outreach campaigns
- Developing partnerships with local businesses
- Engaging influencers
Building a Strong Foundation with doola
By following the steps outlined in this article, including obtaining proper licensing and insurance, developing a business plan, and purchasing necessary equipment, you can set yourself up for success. However, running a successful contractor business also requires effective bookkeeping practices, which is where doola can help. With their expert bookkeeping services, you can focus on growing your business while they take care of your financial records and provide you with valuable insights to help you make informed decisions.
Is general contractor business profitable?
Whether or not a general contractor business is profitable depends heavily on the size and scale of the business. Large-scale businesses will typically be more profitable than smaller ones, as they have the resources to take on larger projects and generate higher income.
How much does it cost to start a contractor business?
Generally speaking, it may cost between $2,000-$5,000 to start a contractor business depending on the type of license needed, equipment costs, and other related expenses.
How can I be a profitable contractor?
To be a successful and profitable contractor, it’s important to have an in-depth understanding of the industry including local rules and regulations, develop strong relationships with clients, invest in quality tools and equipment, engage in effective marketing techniques, keep accurate financial records, and strive to deliver quality workmanship.
How much tax do you pay as a contractor?
Contractors need to pay taxes on their earnings like any other business. Depending on where you’re located, applicable taxes can include federal income tax, self-employment tax (which is 15.3% of net earnings), state income tax (if applicable), sales tax (if applicable), property tax (if applicable), and more. Contractors need to research all relevant laws concerning taxes in their jurisdiction before starting any business activities.