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Starting a Contracting Business: Step-by-Step Guide

‹ Back To Blog HomeStarting a Contracting Business: Step-by-Step Guide

construction-contractor-holding-tablet

We’ve previously written about the advantages of pursuing and educating young people about careers in construction (e.g., high starting salary, fewer student debts, as well as high paying apprenticeships that allow aspiring tradespeople to launch new, lucrative careers more quickly than their cash-strapped peers).  

Furthermore, as previously reported, modern craftspeople are increasingly pursuing entrepreneurial occupational outlets, as they “apply entrepreneurial thinking, follow demand across categories, earn above average wages, and grow wages and income as skills build,” an Angi report summarizes.  

In this article, therefore, we’d like to further assist the industrious tradesperson like those described above, offering information to them about how to open a contractor business of their own. Whether you’re branching out and staring something on your own (like a small electrical, welding, plumbing, or general contracting business), launching an entirely new career, or you just need a refresher, there’s plenty to know when starting a contracting business; we’ll cover the basics here and provide resources to help you get started off on the right foot. 

How to Start Your Own Contracting Company: Steps to Getting Started  

If you’re here, you may be asking yourself, “how do I start a contracting business?” There are many steps to starting a contracting business, especially if you want to do everything above board. We’ll go over those below.   

Step 1: Create a Business Plan 

When starting a new business, you’ll first need to flesh out a business plan. This is an actionable step you’ll need to take that moves your initial business idea beyond a fleeting, feel-good bar story you tell your closest confidants toward a more tangible strategy underpinning your business aspirations. Your business plan can be shared with investors to help you earn financing, and it will serve as a roadmap toward profitability as you eye your long-term business goals and track your progress toward them. 

contractor-at-laptop-typing-plans

It will include important, contextual information, such as the location you plan to serve, investment costs that will be involved, your operating budget, as well as the necessary working capital you’ll need (to procure important tools of trade, materials, etc.) 

Example templates exist that can help you get started if you’re completely new to crafting business plans.  

Components of your plan might include 

  • Business overview: A summary of the business you’re starting. 
  • Product offerings: Will you be an independent general contractor or remodeler, or will you offer specialty contracting services as a plumbing contractor, an electrical contractor, a carpentry specialist, a welder or fabricator, etc.?   
  • Customer Focus: Who is your target customer? For example, will you pursue residential customers, or will you go after larger, industrial entities?  
  • Industry Analysis and Competitive Advantage: How do you fit within the larger industry and how do you compete with your traditional competitors? For example, can you offer better prices, better service, etc.? 

Further, online resource hubs like Coursera can help you upskill your business acumen and round out your education quickly and affordably without the need to earn a business degree. For example, Michigan State offers a whole class on how to start your own business, and additional classes offered through Coursera that relate to business can range from entrepreneurship, business strategy, and business analytics, to financial accounting and bookkeeping). 

Step 2: Determine the Type of Business You’re Looking to Start, Form a Legal Entity, & Determine Your Business Tax Liability  

Registering your contracting business is the process of making your business a legal entity in the eyes of the federal government and your local state’s business archives.  

The most common types of businesses include sole proprietorship (i.e., one person ownership), partnerships (between two or more people), limited liability companies (LLCs), and corporations.

The U.S. Small Business Administration provides a breakdown of the common business structures (see below). 

Business Structure  

Ownership 

Liability  

Taxes 

Sole proprietorship 

One person 

Unlimited personal liability  

Self-employment tax 

Personal tax 

Partnership  

Two or more people 

Unlimited personal liability unless structured as a limited partnership 

Self-employment tax (except for limited partners) 

Personal tax  

Limited liability company (LLC) 

One or more people  

Owners are not personally liable  

Self-employment tax 

Personal tax or corporate tax  

Corporation - C corp 

One or more people  

Owners are not personally liable  

Corporate tax 

Corporation - S corp 

 

One or more people, but not more than 100, and all must be U.S. citizens 

Owners are not personally liable  

Personal tax 

Corporation - B corp 

One or more people  

Owners are not personally liable  

Corporate tax  

Corporation - Nonprofit 

One or more people  

Owners are not personally liable  

Tax-exempt, but corporate profits can’t be distributed  

Table Source: U.S. Small Business Administration 

The U.S. Small Business Administration also offers a business guide to registering your business, which includes valuable information about registering with federal agencies as well as a lookup tool to look up registration requirements in your local state.  

Additionally, online companies like LegalZoom also make it easy for individuals to start and grow small businesses, even offering a free tool to determine what kind of business classification is right for your unique situation. 

Keep in mind, if you’re starting a construction business, there are a few possible construction safety hazards and liabilities to consider. A safety manager, who can develop safety plans and appropriate safety metrics, may be one of your critical hires to build a safety-first culture at your newly formed contracting business. Further, it may prove advantageous to roll out smart tools, packing safety features like antikickback, across your fleet. Similarly, electrical contracting business owners should be aware of common electrical safety best practices 

Paying the tax man 

Taxes play a key role in keeping your business above board. The IRS offers resources on business taxes as well as a small business and self-employed tax center, where you can find important tax information. Additionally, they offer a small business tax workshop offering information on the following topics: federal taxes; small business taxes; filing taxes electronically; business use of your home; federal taxes when hiring employees or independent contractors; managing payroll to withhold the correct amount of taxes; tax deposits and filing a return to report payroll taxes; and hiring people who live in the U.S. who aren’t citizens. 

What licenses are needed to start a construction business? 

In addition to registering your contracting business, federal and state licenses and permits may be required.  

The US. Small Business Administration provides a list that describes business activities and their applicable issuing agencies. For example, construction business owners may need to apply for a license with the U.S. Department of Transportation if they’re operating oversize or overweight vehicles such as heavy machinery and equipment. 

Step 3: Open a Business Checking Account and Credit Card 

As the Balance Small Business notes, setting up a business checking account signals to the IRS the contracting you’re doing at your small business has moved beyond the occasional freelance passion project to a legitimate business from which you derive your main source of income.  illustration of stacked coins expontentially growing taller beside construction workers

Additionally, the U.S. Small Business Administration notes of some of the benefits of starting a business bank account, including personal liability protection, professionalism, preparedness via open line of company credit that can be used in emergency, as well as purchasing power to make large startup purchases and help establish a credit history for your business. 

Step 4: Get Business Insurance  

Business insurance can help ensure both your personal assets and your business assets are fully protected from unexpected catastrophes.  insurance-policy-paperwork

The U.S. Small Business Administration provides helpful business insurance resources, including a chart of the 6 common types of business insurance (see below).  

Insurance Type 

Who It’s For 

What It Does 

General liability insurance 

Any business 

This coverage protects against financial loss as the result of bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, and settlement bonds or judgments. 

Product liability insurance 

Businesses that manufacture, wholesale, distribute, and retail a product 

This coverage protects against financial loss as a result of a defective product that causes injury or bodily harm. 

Professional liability insurance 

Businesses that provide services to customers 

This coverage protects against financial loss as a result of malpractice, errors, and negligence. 

Commercial property insurance 

Businesses with a significant amount of property and physical assets 

This coverage protects your business against loss and damage of company property due to a wide variety of events such as fire, smoke, wind and hail storms, civil disobedience, and vandalism. 

Home-based business insurance 

Businesses that are run out of the owner’s personal home 

Coverage that’s added to homeowners insurance as a rider can offer protection for a small amount of business equipment and liability coverage for third-party injuries. 

Business owner’s policy 

Most small business owners, but especially home-based business owners 

A business owner’s policy is an insurance package that combines all of the typical coverage options into one bundle. They simplify the insurance buying process and can save you money. 

Table source: U.S. Small Business Administration  

They also recommend following 4 steps when buying business insurance: 1) assessing risks (thinking about accidents, natural disasters, and lawsuits related to your business); 2) finding a reputable, licensed agent; 3) shopping around to get the best rates, terms, and benefits; and 4) re-assessing your coverage every year. 

Step 5: Build Your Website 

A critical part of advertising your business is advertising it online.   website-construction-illustration

Website builders like Squarespace, Wix, and Weebly offer you the ability to get a legitimate-looking website off the ground quickly, with little technical knowhow (offering, for example, drag-and-drop editors) and in most cases you should be able to choose your own custom domain and add additional features (like your own custom email integration) for an added fee. Like the legitimate business checking account, we recommend you set up your own custom domain and email, which signal to prospective customers you’re legit, much more so than a standard Gmail account (i.e.., professionalbusinessname@customdomaindotcom looks much more professional than professionalbusinessname@gmaildotcom).  

If you’re serious about your business, you might also consider hiring a digital marketing agency (e.g., here are some companies in Milwaukee) who specializes in building websites. Professional marketing agencies will be able to offer a few services: 

  • Running usability tests, heatmapping, and A/B tests to enhance the overall website experience and ensure the final product is received the best by visitors.
  • Using search engine-friendly code that’s not bloated offering local search engine optimization for your area to ensure your website appears in search for hyper-localized search queries (e.g., “milwaukee commercial general contractors”). 
  • Providing branding and visual design like professional logos you can use on letterhead, in your email signature, on business cards, on handouts, etc. 
  • Providing professional video production services for company promotional commercials and ad spots. 

Other important considerations when building your website include 

  • What is your customer intake process? Using a free customer relationship management (CRM) system like HubSpot allows you to intelligently intake email contacts when people land on your website and engage with it (e.g., subscribing to your newsletter, reaching out for a demo or to talk to sales, etc.). This can help you automate sales and marketing processes, as well as educate your teams more about your current and prospective customers, allowing your team to better serve them. 
  • Have you set up a business phone system? This can help you separate your personal life from your business and keep your personal life private. 

Final Thoughts: Can Contractors Be Millionaires 

The question on the mind of the entrepreneurial-minded is only naturally: can contractors become millionaires 

a female construction business owener with tattoos uses tablet device

As we’ve previously reported, a general contractor salary ranges from $57,309 to $116,000; however, that’s not to say that the industrious entrepreneur can’t theoretically achieve 7 figures if they’re determined, hardworking, and possess a lot of business acumen.  

The biggest companies don’t limit themselves to what they make today, but rather, they constantly innovate and think strategically how they can grow. For example, Coca Cola doesn’t call itself a soda company, but instead a beverage corporation. A list of its subsidiaries proves its wide reach, and makes logical its colossal revenues. Similarly, Amazon, which started as a book seller in the dot-com bubble, named itself prophetically after the longest river in the world, and now is virtually inescapable, crushing brick-and-mortar stores and launching its peculiar founder into space. 

The entrepreneurial contractor, by that same token, is not only thinking of how they can best serve their customers of today (or even just this season), but also, they’re scrappy and resourceful, offering, for example, creative cold weather construction services to get them through the construction offseason, (e.g., snow removal, holiday decorating, interior remodeling, air conditioning and heating services, and critical masonry repairs). They’re thinking, too, further down the roadmap, how they can land larger customers, bigger projects, and reshape their brand. 

ForConstructionPros ran a story highlighting 10 factors of wealthy construction contractors that may prove insightful with its strategies to help aspiring construction contractors with 7-figure aspirations. Among them, adopting cutting edge technology, methods, and techniques rounded out their list.  

As previously reported, we live in a big data ocean. The millionaire contractor is the one thinking about how they can leverage the data ocean to create workable channels that serve them to more intimately know their customers; they’re thinking how they can use inventory to inhibit construction downtime, create an Internet of Things  and roll out digital twins to realize smarter, more connected jobs that drive profitability and clench that 7-figure payday. 

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