Key takeaways
- A successful contractor business starts with a well-thought-out business plan that guides your professional decisions
- You’ll need to register your business, obtain an Employer Identification Number, and acquire all necessary licenses and permits before working for clients
- A website, Yelp Business Page, and social media networks are critical components of your client acquisition strategy
The construction industry generated a whopping $2 trillion in revenue in 2019, demonstrating that it’s a booming sector. For aspiring entrepreneurs who have hands-on construction experience, starting a contractor business could be the perfect option.
Having your own contracting business means you can be your own boss and create a career that aligns with your values. However, it will require some careful planning if you want to successfully launch your own business. Use this guide to learn how to make that happen.
10 steps for starting a contractor business
Launching your own general contracting business will consist of thorough planning, filling out the necessary paperwork, and basic marketing preparation. Follow these steps for starting a contractor business.
1. Write a business plan
A solid business plan helps you organize your thoughts, lay out your business goals, forecast your startup costs, and determine the viability of your idea. If you’re going to be seeking loans or other funding opportunities, it’s also essential to present your plan to potential investors and banks. A successful business is built on having a well-researched business plan.
Here are the eight core sections to include in your business plan:
- Executive summary: Outline your entire business plan, and give a description of your construction business, competitive advantages, and current state of the market.
- Company description: Describe what makes your business unique, what problems you aim to solve, which customers you plan on serving, and why your business will succeed.
- Market analysis: Explain the current state of the construction industry in your market to determine the viability of starting your own contractor business. You can also include a competitive analysis that breaks down the strengths and weaknesses of other contractor businesses in your market.
- Organization and management: Describe the type of business entity you intend to form, and create an organizational chart to highlight who will be running your business.
- Services: Go into detail about which services you’ll offer customers. Be specific about how your service will help customers.
- Marketing and sales: There are many different ways to market and advertise your business, such as email marketing, referral programs, and online ads. Choose the marketing channels that best suit your business, and explain how you’ll attract and retain customers.
- Financial projections: Forecast what your sales will be for the next five years. Explain why your contracting business will be financially stable and has the potential to grow into a profitable business.
- Funding request: This section is optional, but make sure to include it if you plan on seeking business loans from a bank or other investors.
2. Form a legal business
You can register your business as one of four core business entities—sole proprietorship, partnership, limited liability company (LLC), or a corporation. Your best option is to register as a limited liability company.
A limited liability company combines the best aspects of all business structures as you’ll have limited liability as an owner, which is similar to corporations. Your personal assets are separate from the business and are protected in the event of financial burden or if someone decides to take legal action against your construction company.
You also have the ability to pass earnings onto your personal income taxes without being “double-taxed.” In other words, you won’t be taxed twice (once on your business tax return and again on your personal tax return).
You can begin the LLC registration process by visiting the Small Business Administration (SBA) website to register your business. From there, you’ll find fees associated with launching your business and the appropriate forms to fill out.
3. Apply for an Employer Identification Number (EIN)
An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is how the Internal Revenue Service (IRS) identifies your business. An EIN is necessary to file your taxes once tax season rolls around.
You must have an EIN if you’re registering as an LLC or plan on hiring employees. Obtaining your EIN is quick and easy and can be done online at the IRS website.
4. Open a business bank account and create an expense plan
It’s imperative to open a dedicated bank account for your business if you’re establishing an LLC. Doing so ensures your personal finances are completely separate from your business finances. You’ll also be able to easily file your taxes since all expenses and income are in one centralized location
A business bank account also enables you to accept payments to your business, sign up for a business credit card, and build credit for your business.
Note that you will need an EIN before you can open a business account at your local bank.
Once you have your bank account sorted, you can move onto budgeting. First, evaluate your expected expenses. Account for project-related expenses like materials, labor, and subcontractor services. Then add up your monthly overhead costs like rent and employee salaries.
From there, you can determine the rates that you’ll charge customers. You can mark up your services by a certain percentage of your total costs to come up with your final rates. This is known as cost-plus pricing, or markup pricing. For more ideas, check out our guide on different pricing strategies to meet your business goals.
5. Obtain licenses, bonds, and insurance
Getting the appropriate business licenses, surety bonds, and insurance enables you to legally conduct business. It also protects you and your clients.
Construction and contractor companies are required to have specific business licenses to operate. This could include trade-specific contractors licenses like HVAC, electrician, or plumbing certifications. You can find out which licenses you’ll need through your state business license office.
Surety bonds may also be necessary to legally operate your general contractor business. A surety bond protects your clients by paying them if you’re unable to meet the obligations that were agreed upon in your contract. You can obtain a surety bond through Surety & Fidelity Association of America or the Small Business Administration’s Surety Bond Guarantee program.
Lastly, you’ll need to sign up for one or more types of insurance. These could include insurance coverage like general liability insurance, vehicle coverage, property insurance, or workers’ compensation insurance.
6. Build your brand
Professional branding will help establish your company as a trusted contractor and build brand awareness. Your business name, logo, and additional branding elements will build a positive, trustworthy perception and help customers remember your brand.
Start by coming up with a business name that’s memorable and clearly describes your services. Get creative and come up with something unique like “Green Home Construction” or “Turnkey Contractors.”
Take your new business name and start brainstorming ideas for a logo and brand elements. We recommend hiring a skilled graphic designer if you don’t have any design experience. It doesn’t have to cost a lot of money, and doing so will give you a professional-looking logo that wows potential clients. You can hire a graphic designer online through websites like 99designs.
You can then incorporate your polished logo and color palette into marketing materials like business cards, flyers, company T-shirts, and vehicle decals.
7. Claim your Yelp Business Page
A Yelp Business Page allows customers to leave online reviews for others to see before they decide to hire you. It also showcases details about your business like a business description, contact details, and photos from previous jobs.
Having a Yelp Page also allows customers to directly send you requests for job quotes. You’ll receive the request in your Yelp inbox, where you can easily respond from your desk or send a reply on the go via the Yelp for Business mobile app.
It also gives you the opportunity to respond to customer reviews—whether they’re positive or negative—and show potential customers the level of service you provide and how you interact with clients.
Claiming your Yelp Business Page only takes a few moments and can help you start managing your online reputation.
8. Design a website
A website is among the most significant online marketing tools your company can have. It serves as the digital face of your company and gives potential customers a way to learn more about your company and services. Nearly 90% of consumers will shop with another competitor if they have a poor experience on a company’s website, therefore it’s crucial that your website is user-friendly.
Make sure your website has an easy-to-use interface and provides potential customers with everything they need to know to hire you. At the very least, your website should include the following information:
- Services
- Service areas
- About your business
- Testimonials
- Contact details
Your homepage should also have an enticing value proposition statement that quickly explains the benefit of working with you and how you can fulfill your clients’ needs.
For example, you can write something like, “Affordable home construction without cutting any corners.” You can then follow up this statement with a call to action—like “Request a quote”—and link to your contact page.
You can hire someone to build your site, or you can go the DIY route with a site builder like Wix, Squarespace, or WordPress.
9. Launch social media accounts
Social media channels like Facebook can help you build stronger connections with existing customers and forge relationships with new customers. More than 40% of digital consumers use social networks to research new companies.
Social networks allow you to communicate with potential clients, promote your business, and post photos of previous jobs. Social networks also serve as digital word of mouth among consumers, allowing customers to see and share information about your company. Encourage happy customers to tag your business in photos of the finished product, and then reshare to spread the word even more.
Social media platforms are also a great way to share discounts, freebies, and giveaways. Get more coverage by granting extra entries for every additional share or tagged handle in the post.
You can also use LinkedIn’s professional-focused social platform to connect with other business owners or potential commercial clients. It’s ideal for establishing relationships with other businesses that may be interested in contracting services or establishing new partnerships and referrals.
10. Maintain positive client relationships
Managing client relationships will help your business flourish and naturally spread goodwill to potential clients. You can build great relationships by prioritizing communication and setting the appropriate expectations.
Communication is key throughout the duration of the job. Be honest with clients, and keep them up to date with the progress of the job. You should also be an active listener and consider any feedback they may give you. You’ll be able to build trust with your clients when they see that you’re genuinely taking their thoughts into consideration and adjusting your services accordingly.
Become a business owner in the contractor industry
When starting a contractor business, draft a business plan to organize your thoughts and determine if having your own business is a viable option for you. Then you can do the necessary paperwork, like registering your business, obtaining an EIN, and applying for a business bank account. Once that’s done, move on to building your brand and growing your online presence.
You can find more information on growing your business using these contractor advertising ideas. Before you know it, you’ll be making your mark in the contracting industry.
