Starting a general contractor business is a great idea right now. Construction spending is over $1 trillion. Plus, projects often last more than 9 months. General contractors can make more than $96,000 a year. For success, you need a good plan, the right licenses, a strong team, and sharp business skills.
This guide makes it easy for contractors to start their business. It covers choosing a business structure and name, and making a website. You’ll learn how to meet licensing needs, get insurance, and set your goals. This way, you’re ready and strategic about starting your contracting business.
Weighing the Pros and Cons
Starting a contracting business has its ups and downs. Knowing general contractor duties helps decide if it’s right for you. We’ll look at the good and bad of owning a contracting company.
General contractors typically charge between 10 and 20 percent of the overall job cost as a fee. By self-contracting a $200,000 build, homeowners could save around $20,000 to $40,000 or more.
Picking projects and setting your hours are big pluses of general contracting. But, contractors manage more than just projects. They handle workload and run their business. They need to know the industry, manage well, and have the right gear. They also face business risks.
BuildingAdvisor.com says self-contracting saves money but takes a lot of time. You might spend 25-40 hours a week planning and overseeing work. Professional contractors have the skills to manage projects and connections you might not.
In the U.S., general contractors make an average of $98,890 a year. But, salaries vary widely. The lowest 10% earn under $60,050, while the top 10% make over $163,800. The field is growing, with an 11% increase expected by 2030. This is good news for newcomers. About 10.3% of construction workers are women. They earn about 94% of what men make, better than the national gap of 81.5%.
Think about these points to see if the contracting company advantages are more than the business risks. If you love building and can handle the industry’s complexities, contracting could be great for you.
Drafting a Solid Business Plan
A good business plan is key to starting a successful contractor business. It acts as your blueprint and helps set future goals. It also shows your business idea is valid to investors and lenders.
Why a Business Plan is Crucial
A business plan is vital for getting funding. Banks and investors want to see a clear plan first. It shows your strategy, market, costs, and how you’ll make money. This information is needed for their financial planning.
As your business changes, updating the plan is common. This reflects new customers and what you offer them.
Components of a Business Plan
A business plan must have certain parts. These are financial predictions for three years, detailed balance sheets, and income and cash flow statements. Other important parts are:
- Executive Summary: A brief overview of your business idea.
- Business Description: Explains what your business does.
- Market Analysis: Looks at market demand and competition.
- Organization and Management: Shows team structure and main people.
- Financial Projections: Gives financial forecasts for revenue, expenses, and profit for three to five years.
- Appendix: Has extra items like resumes, permits, and patents.
Setting Your Goals
Having clear goals guides your business’s direction. Your plan should list specific aims, like becoming profitable in the first year. Being realistic in your financial estimates adds to your plan’s trustworthiness.
It’s good to include indicators of financial health like net profit margin. Lastly, a well-checked, accurate plan looks professional. Getting advice from mentors or groups can make your plan even better.
Licensing, Bonding, and Insurance Essentials
For a successful contracting business, know about licensing, insurance, and bonding. These are key to follow the law, protect your work, and show you’re serious. They help your business stand out.
Understanding Licensing Requirements
Licensing for contractors changes by state. You usually need to show you have experience and pass tests. For general contractors, this means knowing a lot about different construction areas.
You might look into construction courses or apprenticeships. These are like school but for building stuff. They mix real work with classes and can take four years to finish.
Choosing the Right Insurance
Getting the right insurance is very important. It keeps you safe and legal. General liability insurance is a must to cover accidents and lawsuits.
You also need workers’ comp, professional liability, and property insurance. They protect you from many dangers in your work. Each one covers different risks your business might face.
Securing a Bond
A bond makes sure your clients are safe if you can’t finish a job. It’s crucial for trust and showing you’re reliable. The rules for bonds change depending on where and what you work on.
It’s important to get the right bond. It follows the law and tells your clients you’re a safe bet. This helps with trust.
Starting with the basics of licensing, insurance, and bonding is smart. They protect you and help your business grow. It’s how you show you’re good at what you do in construction.
Choosing the Right Business Name and Structure
Choosing a business name and structure is key for your contracting business. It helps attract clients and ensures you follow the law. When registering your business name, pick one that shows what you do and stands out. This step is crucial.
Make sure your business name’s domain is available to stay prominent online. A name that sticks in people’s minds benefits contractor branding and being found online.
Contractors can choose from several entity types for their business, each with its own perks and legal rules:
- Sole Proprietorship: It’s simple and inexpensive to start, allows you to begin right away, but it doesn’t protect you from personal losses.
- Partnership: Great if there are multiple owners. You can go for a limited partnership or a limited liability partnership to reduce personal risk.
- Limited Liability Company (LLC): LLCs offer safety from personal losses and tax choices. They work for one person or more, depending on your business.
- Corporation: More complex, yet offers limited liability and easier financing. Nonetheless, it involves more rules and might cost more at the beginning.
Choosing your entity type affects taxes, growth, and how much you’re at risk. Getting advice from a business lawyer is smart. They’ll help you understand laws and prevent expensive legal problems later.
How to Start a Contracting Business
Starting a contracting business requires careful planning. It’s important to gain field experience first. This includes both hands-on work and management skills. These experiences build a strong understanding of the industry.
Next, you need to set up a contractor business with a detailed business plan. This plan should detail your business structure, services, target market, and marketing strategy. It should also include your initial costs and revenue projections. Resources like SCORE and Small Business Development Centers can offer valuable guidance.
Picking a good business name and domain is key. Make sure your name stands out and reflects your brand. Your domain should be simple to spell and easy to remember. After choosing, register your business at both federal and local levels.
Getting the right insurance is crucial for your business’s legality and safety. Insurance types like workers’ compensation and general liability are must-haves. Registering your business also protects you personally and offers tax benefits.
Having a separate business bank account helps in managing your finances clearly. You may need funding for quality equipment and startup expenses. Look into options like bank loans or private lenders for support.
To legally operate, you must get the proper licenses. Hiring reliable subcontractors ensures quality work. Then, attract customers with effective marketing to build your clientele.
The contracting business is expected to grow significantly. But, a large number of construction companies fail early on. This often happens due to insufficient business knowledge or financial planning. Using this guide to set up your contracting business correctly can help you succeed in a competitive market.
Establishing Your Business Finances
Setting up your business finances is key for your contracting business. Good contractor financial management means keeping business money separate. It also means getting the right funding and setting up good accounting practices.
Opening a Business Bank Account
Contractor financial management starts with a business bank account. It makes tracking money and expenses easier. You can see where every dollar goes. Also, getting a business credit card is smart. It helps keep personal and business money separate. Plus, it builds credit for future needs.
Securing Funding
Starting your business often requires funding. You have several choices:
- SBA loans: Great for small businesses, offering up to $5 million with low-interest rates. They’re backed by the SBA, making them less risky for lenders.
- SBA 7(a) loans: Perfect for more working capital, refinancing, or renovations. They often have better rates than other loans.
- SBA microloans: Best for small needs up to $50,000, with flexible payback up to six years.
- SBA CDC/504 loans: For buying big stuff like equipment or real estate. They offer up to $5.5 million to pay back over 10 to 20 years.
- Equipment financing: For buying specific equipment, which then acts as collateral.
- Business term loans: Good if SBA loans don’t fit you. They provide lump sums based on your business’s history and credit.
Picking the right way to get funds helps set up your business for start-up costs and more.
Accounting Basics
Starting a solid accounting system is a must for contractor financial management. Good bookkeeping lets you watch cash flow, get ready for taxes, and decide on money wisely. You can use software or hire a pro. Keeping accurate records helps your business do well and grow.
In summary, by starting with a business bank account, considering different funding options, and keeping good accounting, your contracting business is set for success.
Hiring and Managing Subcontractors
When you look for subcontractors, focus on their ability, reputation, and dependability. Research them well. Check what former clients say about their work. Also, follow contracting rules to avoid legal issues.
Defining Project Requirements: Write down what you expect in terms of quality, communication, what needs to be done, when, and at what cost. This step makes everything clear for everyone involved.
Insurance Considerations: Make sure general liability insurance covers any damage or accidents that happen during the work. This is very important when you’re bringing in outside help.
Set up a system to keep track of progress. This could be weekly meetings or regular reports. Good team management means having a strong relationship with your subcontractors. Working well together and talking things through leads to a job well done.
General contractors should have a list of good specialty contractors. Getting several bids encourages competition. It’s also crucial to talk often to keep the project on track.
Safety is the top priority at the work site. A superintendent makes sure everyone follows safety rules. Pick subcontractors who are committed to safety and have the right insurance.
Plan your schedule carefully to avoid problems. It’s important to be ready for surprises that could throw off your plans or budget. Always have a backup plan and some extra funds.
Developing Your Brand and Online Presence
For contractors, having a strong brand and online presence is key to standing out. It’s about more than just a logo. It involves building visibility, credibility, and ultimately, growing your business.
Creating a Memorable Brand
Creating a memorable brand starts with understanding what makes you different. Your logo should echo your company’s values and quality. Know who you’re talking to. By doing this, you can craft messages and services that truly resonate.
Sharing your knowledge through blog posts or videos can make your firm a go-to in the industry.
Building Your Website
Think of your website as your digital shop. It’s where people check you out before they decide to hire you. With 92% of people researching online first, your website’s impact is huge. It should be easy to navigate, look good on phones, and tell your story.
Boosting your website’s visibility through SEO is vital. Happy customer testimonials add to your trustworthiness. Tailored emails keep potential clients engaged, moving them closer to hiring you.
Utilizing Social Media
Social media is powerhouse for connecting with future clients. Use Facebook, LinkedIn, and Instagram to talk to your audience and find leadsm. Targeted ads and lively posts can broaden your reach and spark conversations.
Remember, your clients are looking for you on social media. Use it smartly. With ads, you pay only when they contact you, offering a smart way to increase leads.
A strong social media plan keeps your brand active and engages potential clients. It helps spread the word about your services across digital spaces.
Conclusion
Starting a contracting business means careful planning and understanding the industry. This guide showed you key steps like making a business plan and getting the right licenses. It’s important to create a strong brand and hire good subcontractors for success.
The starting cost of a contracting business can change a lot. Market research is key. It helps to know industry trends and to find a special market niche. Choosing the right business type, great customer service, and a good reputation are critical. They help your business grow strong over time. Managing your finances well and always learning are also essential.
Success in construction relies on your dedication, detailed planning, and being open to change. By following the steps mentioned, like financial stability and a strong online presence, your business will grow. Remember, everything from hiring good subcontractors to following laws is crucial for a successful construction business.