How to Start a Contracting Business (A Step-By-Step Guide)

According to a US Chamber of Commerce study, there is a 9.3 months average backlog for general contractor projects, which means there is a deficit in service providers in this industry, and there's a need to fill the gap in demand.

Starting a contracting business can be extremely profitable and beneficial to consumers. However, it's important to do your research beforehand and plan accordingly, as having a plan before starting your business will help you avoid any stressful surprises and better equip you for success!

If you want to find out how to start a contracting business, read on. We will walk you through the steps necessary to start a successful contracting business. We'll discuss everything you need to do, ranging from creating a business plan to acquiring equipment and insurance.

How to start a contracting business

Starting a contractor business is a great way to utilize your skills and earn a decent living. Like every business, starting a general contractor business is not easy. You'll need to invest lots of time and money to grow your business. To start on the right foot, there are numerous factors to consider. Here's a list of the most important steps to get you started:

how to start a general contracting business

1. Weigh the pros and cons of starting a contractor business

Before you start your business, weigh the pros and cons of owning a business. This step will be especially helpful if you are unsure if starting a business is the best option for you. Ask yourself if you're prepared to handle the day-to-day operations, manage a team of employees, and more.

Some pros of starting your own contractor business may include:

  • You will be your own boss: As the company owner, you'll get to call all the shots.
  • There is a high demand for contractors: As we mentioned before, the Chamber of Commerce found an average backlog of over nine months for general contractors.
  • You can make a lot of money: It is possible to earn a six-figure salary as a contractor with the right skills and marketing.

Now, let's look at some of the cons:

  • It's a lot of work: Starting a business is not a walk in the park. You'll need to put in long hours to get your business off the ground.
  • You need to be good with people: Since you'll be working with clients, it's important that you have good people skills.
  • You're responsible for everything: As the owner, you're responsible for the success or failure of your business.

Think about what you are willing to sacrifice before making a decision. If you're prepared to handle the challenges of owning a business, then starting a contracting business may be the right choice.

2. Create a business plan

The first step to starting any business is creating a business plan. This document will outline your company's goals, strategies, and execution. It's important to have a solid business plan before starting your contracting business.

Some things you'll need to include in your business plan include the following:

  • An executive summary: This part is a brief overview of your business plan.
  • Your company's mission and vision: What does your company hope to achieve?
  • A market analysis: This analysis will help you understand the current market for contracting businesses and where you can fit in.
  • Your target market: To whom do you plan on selling your services?
  • Your marketing strategy: How do you plan on marketing your business to your target market?
  • Your company structure: How will your business be structured?
  • Your financial projections: What do you expect your revenue and expenses to be?

The above list is just a small sample of what should be included in your business plan. Remember that a successful business plan should be detailed, well researched, and realistic. Also, do not forget to include the name of your business and the industry in which you'll be operating. A good business plan will come in handy if you choose to seek financial help from banks or investors!

3. Acquire the necessary equipment

Now that you have a business plan, it's time to acquire the equipment you'll need to run your business. The type of equipment you'll need will depend on the services you plan on offering. For example, if you're planning on doing roofing work, you'll need ladders, safety equipment, and roofing tools. If you're planning on doing electrical work, you'll need a van or truck to transport your equipment, safety gear, and electrical tools.

You can either purchase this equipment outright or lease it from a company. There are pros and cons to both options. For instance, while purchasing equipment outright is expensive, it's an investment that will pay off in the long run. On the other hand, leasing equipment is more affordable, but it's a recurring expense.

Other important factors to consider before buying equipment include the following:

  • Quality: Investing in quality equipment will help you save on maintenance and repair costs. If you're buying heavy lifting equipment, make sure it is high quality to withstand harsh weather conditions.
  • Knowledge of using the equipment: Make sure that you buy equipment that you know how to use to avoid injuries.
  • Fuel efficiency: Fuel-efficient equipment will help you save on fuel costs.
  • Cost: As we mentioned before, quality equipment can be expensive. Make sure you factor in the equipment cost when creating your financial projections.
  • Technology: Buy equipment that utilizes the latest technology to enhance the performance of your business and help you do more work in less time.

4. Purchase insurance

Another important aspect of starting a contracting business is getting insurance, as it will protect you and your employees in the event of an accident or lawsuit.

There are different types of insurance you may need to consider, depending on the size of your business and the type of contracting work you do. For example, if you're doing any work involving asbestos, you'll need to have special insurance.

The best way to determine which insurance policies you need is to speak with an insurance agent specializing in businesses like yours.

The following are a few different types of insurance you'll need to consider:

  • General liability insurance: This insurance will protect you from lawsuits if someone is injured while on your property or if you damage someone's property.
  • Workers' compensation insurance: This insurance is required in most states, and it will protect your employees if they're injured while on the job.
  • Vehicle insurance: If you use a vehicle for your business, you'll need to have it insured.
  • Inland marine insurance: This insurance will protect your property while stored by a third party or transported.
  • Professional liability insurance: This insurance will protect you from lawsuits if you're accused of negligence or failure to deliver timely services.
  • Builder's risk insurance: This insurance will protect you from losses due to damage during the construction process. For example, if windows break during the construction process, your insurance company will cover the cost of buying new ones.

5. Acquire licensing and certification

Before you begin operations, you'll need to obtain the necessary licenses and permits from your state and local government. The type of license you need will depend on the type of work you're doing. For example, you'll need an electrician's license if you're doing electrical work.

You can usually obtain the necessary licenses by taking a test and paying a fee. The best way to find out which licenses you need is to contact your state's licensing board.

In addition to licenses, you may also need to get certified by professional organizations in your field. For example, if you're doing work that involves lead, you'll need to be certified by the EPA.

The best way to find out which licenses and certifications you need is to speak with a professional in your field.

6. Choose a business structure

Usually, you'll identify the best business structure for you when creating a business plan. All structures have their pros and cons, and they also have huge tax implications. Some possible business structures you can choose are the following:

  • Sole proprietorship: This structure offers simplicity since you'll be the only owner. It also means that you get to make all decisions for your business. When choosing a sole proprietor contractor business name, you can use your own name or file a DBA form to operate under a different name. With this
    structure, you do not need an EIN. The biggest downside is that you'll be held personally liable for all debts and liabilities incurred by the business.
  • Partnership: This structure is similar to a sole proprietorship, but there will be two or more owners. You'll need to choose a name for your partnership and file a DBA form if you want to operate under a different name, and you'll also need an EIN. The biggest downside is that you and your partners will be held
    personally liable for all debts and liabilities incurred by the business.
  • Limited liability company (LLC): This structure protects from personal liability since the LLC is a separate legal entity from its owners. You'll need to choose a name for your LLC and file articles of organization with your state. Furthermore, you'll need an EIN. One of the biggest downsides of this structure is that you'll be subject to self-employment taxes.
  • S corporation: This structure offers protection from personal liability since the S corporation is a separate legal entity from its owners. You'll need to choose a name for your S corporation, file incorporation articles with your state, and acquire an EIN. One of the biggest downsides is that, similar to LLCs, you'll be subject to self-employment taxes.
  • C corporation: This structure offers protection from personal liability since the C corporation is a separate legal entity from its owners. You'll need to choose a name for your C corporation, file articles of incorporation with your state, and get an EIN. One of the biggest downsides is that you'll be subject to double taxation.

Make sure that you consult with a tax professional before deciding on the business structure in order to choose the best one.

7. Open a business bank account

Do not wait until you have completed your first job to open a business bank account. Also, do not accept any payments from clients to your personal bank account.

A business bank account will help you to do the following:

  • Track your expenses and income
  • Build business credit
  • Apply for loans

To open a business bank account, you'll need to provide the following documents:

  • Proof of identity (driver's license or passport)
  • Proof of business address (utility bill or lease agreement)
  • EIN confirmation letter
  • Business license

Having a business bank account helps you protect your personal assets and gives you a professional outlook as you accept and make payments. Additionally, it helps you build credit, which can be beneficial in expanding your business.

When you're ready to open a business bank account, you can choose from various online and brick-and-mortar banks. Be sure to compare the fees, terms, and conditions of each account before deciding.

8. Staffing

Another important aspect of starting a contracting business is staffing. Before you begin hiring, ask yourself if you want to hire your own employees or work with independent subcontractors.

Remember that both options will have tax implications, in that you will need to withhold taxes for your employees but not for your subcontractors. Additionally, you will be responsible for payroll taxes and workers' compensation insurance for your employees but not for your subcontractors.

If you choose to hire employees, hire those skilled in the trade in which you're working. For example, if you're a plumber, you'll need to hire plumbers.

In addition to trade skills, you'll want to look for employees who have the following traits:

  • A strong work ethic
  • The ability to take direction
  • Good communication skills
  • The ability to work well with others

When you're first starting out, you may not be able to afford to hire full-time employees. In this case, you can hire part-time or contract workers.

The best way to find employees is to post job ads online and in trade publications. You can also ask for referrals from other contractors in your area.

9. Advertising

Once you begin operations, you need to let people know that you're offering the services for which they are looking. To achieve this goal, you have to advertise your business by using the following strategies:

  • Yard signs: These signs are effective for contractor businesses as they are visible to people driving or walking by your business. To ensure that your yard signs are successful, make sure they are aesthetically pleasing and placed in strategic locations. One of the biggest advantages of yards signs is that they are cost-effective and can help you target your areas of operation. However, note that they are easily vandalized and can be taken out by competitors.
  • Business cards: These cards are a must for any business, especially for those in the contracting industry. Business cards help you stay top of mind with potential clients and referral sources, and also allow you to leave a lasting impression. Ensure that your business card design is professional and that your contact information is accurate.
  • Website: In today's digital world, a website is essential for any business. If you're in the contracting business, a website can help you showcase your work, attract new clients, and generate leads. Investing in local SEO can also be beneficial as it will help your website rank higher in search engine results pages
    (SERPs), making it more visible to potential customers. In order to get started, you'll need to choose a domain name and hosting plan. Once your website is up and running, make sure to populate it with high-quality content and images.
  • Social media: Social media platforms like Facebook, Twitter, and LinkedIn offer tremendous opportunities for businesses in the contracting industry. You can use social media to share photos and videos of your work, post special offers and discounts, and engage with potential customers. When used effectively, social media can help you build brand awareness, generate leads, and boost sales. Create profiles on the major social media platforms and start sharing engaging content to get started. Also, make sure to include links to your website as well as contact information on your profile pages.
  • Direct mail: Direct mail can be an effective marketing tool for businesses in the contracting industry. You can target potential customers in a specific geographic area with a customized message using direct mail. Direct mail can also be used to promote special offers and discounts. For this strategy to be effective, develop a list of potential customers and create a direct mail campaign that includes a strong call-to-action.
  • Email: Email is a cost-effective way to reach many potential customers with your marketing message. When creating an email campaign, use a professional template and include a strong call-to-action. You can also segment your list of subscribers to ensure that you're targeting the right people
    with your message.
  • Word-of-mouth: Word-of-mouth marketing is one of the most powerful tools at your disposal. When customers are happy with your work, they'll be more than happy to tell their friends and family about your business. To generate word-of-mouth marketing, ensure that you provide high-quality work and excellent customer service. You can also offer referral bonuses and discounts to encourage customers to spread the word about your business.

contractor business

No matter which marketing channels you decide to use, it's important that you track your results to see what's working and what's not. By tracking your marketing efforts, you can make adjustments to ensure that you're getting the most out of your campaigns.

If you were wondering how to start a general contracting business, this guide should give you a good starting point. Create a business plan, acquire the necessary equipment and insurance, find qualified staff, identify potential clients, and market your business effectively. By following these steps, you'll be well on your way to success!

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