Construction contracting can be a lucrative profession. Indeed estimates that the average salary for a general contractor in the United States is more than $87,000 annually. And as your contracting business grows big enough to take on larger projects, that number could increase by a great deal.
Every contractor starts somewhere. Here are a few tips for getting your contracting business off the ground and building something sustainable — pun not intended.
Choose a trade
Many contractors make the mistake of offering various services under one company. However, in doing so, you run the risk of becoming a “jack of all trades, master of none.”
“Pick a couple of related trades to specialize in, such as carpentry and painting, and get really good at that,” said Chris Fallon, Owner of Fallon Contracting. “As your work gets better, your customer base grows, and you can start branching out into other areas.”
Fallon recommended working for established contractors in different fields so you can better understand your strengths and interests before starting your own company. Additionally, working with others in the industry can help you adjust to a contractor’s typical workload and schedule.
Set up and register your business structure
Unlike procuring a contracting license, registering your business is relatively straightforward. Registering your business with the state simply means you’re listed in the state registry and with the federal government. As part of this process, you’ll need to select a business structure.
“The first thing you would need to do before you put on your tool belt is choose a business structure that works for you,” said Fallon. “You may opt for a sole proprietorship, partnership, LLC, or a C or S corporation.”
Many small business owners choose to start as a sole proprietor, LLC, or corporation. There are tax implications for each of these structures that you should explore before you register. Note that it is possible to change your business structure in the future if you so choose.
“You will then have to establish a business address to receive business and tax information and register your company name with the county or state you will be operating in [and with the IRS],” said Fallon.
[Read more: How to Register Your New Business]
Explore business insurance
Business insurance is recommended for virtually all small businesses, but especially so for general contractors. In fact, contractors are typically required to obtain insurance before pursuing licenses and establishing their businesses.
“Before you can receive a license, you must show proof of liability insurance,” said Fallon. “Contact an agent that deals with commercial policies for information.”
General liability insurance is strongly recommended for general contracting businesses. You may also want to consider workers’ compensation insurance or a business owner’s policy that bundles insurance coverage for a wide array of situations.
Choose the right tools and equipment
Your tools and equipment will be one of your biggest startup expenses as a new contractor. Start by making a detailed list of all the tools, machinery, and equipment essential for your contracting projects. Then, rank the items you absolutely must have in order to complete your first projects. Budget these items first, either with your startup capital or through an equipment loan.
“If you want to save some money in the beginning, you can buy second-hand equipment or consider leasing larger equipment until you’re ready to purchase or upgrade,” wrote Homebase. Note that leasing or refurbishing tools may mean taking out additional insurance, but can also lower your tax burden. Check out this guide from Travelers to weigh your options when it comes to getting the right equipment.
Understand the licensing requirements
General contractors need specific skills to make sure what they create is built safely and to code. For this reason, states and local governments require general contractors to be licensed.
State and local licensing requirements vary widely, but most states want to see proof of industry experience and passing results from trade, business, or law exams.
“Before you meet your first job lead, check with your state’s [Division] of Consumer Affairs to see if there are licensing requirements for your trade,” said Fallon. “Plumbers and electricians have their own licensing program that requires years of study, tests, and on-the-job training. Other trades can fall under a general heading, such as home improvement contractor.”
Many license applications also ask you to take a test to show you are well-versed in your trade’s best practices, codes, and industry regulations. You may also be asked to present proof of your financial records, show your net worth, or provide evidence of general liability insurance.
Check this list of state-by-state general contractor licensing requirements to learn more about getting licensed to start a contracting business in your area.
The first thing you would need to do before you put on your tool belt is choose a business structure that works for you.
Chris Fallon, Owner of Fallon Contracting
Set a service rate
Before launching your business, determine how you will price your services. For instance, will you charge per project or per hour of work? How will the scope of each project impact its cost?
“Establishing a service rate is more art than science,” said Fallon. “Figure how much money you want to make in a day, multiply that by how many days to complete the project, and add your material costs. Although that’s a good place to start, there are many variables to take into account to determine your rate, so trial and error is the best guide.”
Other factors to consider when pricing your services include overhead costs like equipment, insurance, and administrative costs, as well as your competitors' prices. As a local business, you’ll be competing with companies in your area offering the same service, meaning your clients will be comparing your estimates. Don’t forget to budget for permitting costs, which will vary depending on the town, county, or state you are working in.
“A good rule of thumb is if you get every job you bid on, you’re not charging enough,” said Fallon. “If you win little or no bids, your price is too high.”
Market your business locally
Marketing can look a little different for general contractors. Your business is built on trust: Customers need to trust that you have the expertise and integrity to get the job done on time, on budget, and with high attention to quality and detail. As a result, contractors benefit from word-of-mouth marketing more so than many other businesses.
Ask for referrals and reviews each time you finish a job. Tapping into sites like Angi (formerly Angie’s List) and Houzz can help build your network and improve your reputation, making it easier to find new customers.
Additionally, consider digital marketing tactics to help boost your business in your community.
“With consumers becoming more computer savvy, it’s more important than ever for your company to have an online presence,” said Fallon. “Without a Google listing or posts on social media platforms, your business can become virtually invisible.”
Your business should show up when prospective clients search for contractors in your area. To increase your visibility, develop an SEO strategy that ranks your website high on search engines. This might mean working with a digital marketing agency that specializes in SEO and content marketing.
“Most contractors are too busy making sure their jobs are running smoothly to invest time in their online activities,” said Fallon. “Consult with a professional marketing company to make sure your business is reaching the right clientele.”
Doing so can also establish you as an expert in the industry, increasing your credibility and cultivating trust from your clients — thus improving your word-of-mouth marketing.
Join an industry association
When you first start out, having other general contractors with whom you can work can be a big help. Join industry associations and trade groups to meet other general contractors.
Not only can they offer mentoring and industry-specific advice, but they may be able to send business leads your way. If you don’t have enough experience to get a license as a contractor, you may be able to work under someone else’s license as a subcontractor. This arrangement can help you learn the ropes while growing your business simultaneously.
“Like running any business, the hours can be long, and the work can be taxing,” said Fallon. “It takes time and patience to find your groove, but when you do (and you will), the rewards for getting paid to make people happy with a job well done is priceless.”
Building a client base
It can take time to build a steady stream of clients. One way to build a business pipeline is to maintain strong relationships with suppliers.
“When individuals use the same suppliers time and time again for various household projects, they tend to put a lot of trust in them. They value the supplier’s opinions and advice, so it’s only natural that customers would go to their supplier to ask for recommendations when construction needs arise,” wrote Bluevine, a business banking solution.
Keep in touch with your local suppliers so you’re top-of-mind when someone asks for a contractor recommendation. Likewise, when you’re working on a project, introduce yourself to those in the area — neighbors, local businesses, and other contractors. Some contracting projects take months; becoming a familiar face to those nearby can help put you in the lead when something else comes up.
Finally, put some effort into recruiting and maintaining online reviews. Many customers search the internet for a contractor with a strong reputation. Make it easy for them to choose you by showcasing the positive experiences you’ve delivered in the past.
Hiring and managing subcontractors
As your business grows, you may find you have too many requests to handle on your own, or that you need specialized expertise for a project. That means it’s time to bring in a subcontractor.
“[Subcontractor] management goes beyond simply hiring and overseeing subcontractors. It involves proactive risk management, clear communication, and efficient documentation processes,” wrote Workyard.
Make sure you do your due diligence when hiring a subcontractor: This person will be representing your business, and you want to ensure they deliver high-quality work. Do a background check, ask for past references, and check to make sure they have up-to-date permits and insurance. Ask for multiple bids so you have plenty of options to choose from.
Managing subcontractors takes a fair amount of organization. Once you have a pool of vetted subcontractors, make sure you build in risk assessments and contingency plans for new projects. These measures can help avoid delays if one subcontractor suddenly drops out.
Sammi Caramela also contributed to this article.
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