How to start a contracting business in 6 steps
- A successful contracting business starts with a business plan
- Before accepting clients, you must register your business and obtain the appropriate licenses and insurance
- A website, social media profiles, and Yelp Business Page can help you get new customers and grow your business
The construction industry offers plenty of opportunities for contractors who want to be their own boss and start their own company. A big reason for that is because contracting companies report an average backlog of work that stretches nine months. This is great news for potential contractors who want to be self-employed and get their contracting business off the ground.
Learn how to start a contracting business—including the planning phase, legal requirements, and how to find your first clients.
How to start a contracting business
When you want to launch a contracting business, start by talking with other contractors who have launched successful businesses. Ask them questions about the challenges they faced and how they overcame them, and then go through the following steps to start a contracting business successfully.
1. Write a business plan
It may be tempting to jump straight into starting your contractor business and finding your first clients, but just like you need a blueprint to start a project, you need a blueprint to launch your business—it’s called a business plan.
Business plans help you determine the feasibility of your business, and they serve as the roadmap for the future of your company. They are also necessary to take out a business loan or seek funding from outside investors.
Your business plan can be broken down into the following sections:
- Executive summary: Give an overview of your construction business, including a mission statement, what services you’ll provide, and why you’ll be successful.
- Company description: Dig deeper into details of your company, including the problems you’ll solve, the customers you’ll serve, and your competitive advantages.
- Market analysis: Conduct market research to uncover current trends in the contracting business, and list your competitors’ strengths and weaknesses.
- Organization and management: Describe the type of business structure you intend to form and how your company will be managed in an organizational chart.
- Service or product line: Explain the services or products your business will provide and how they benefit your customers.
- Marketing and sales: Detail your approach to marketing and highlight your customer acquisition and retention strategies.
- Funding request: This section is only needed if you plan to seek funding from an investor. List the amount of money you’re seeking, how you’ll allocate these funds, and how you intend to pay off your loan.
- Financial projections: Forecast your expenditures and earnings for the next five years. You can provide forecasted financial statements, graphs, and charts to strengthen this section.
2. Build your brand
A successful business is supported by a unique name and professional-looking logo. These branding elements will help set you apart from your competitors.
Choose a unique business name that provides a clear idea about the services you provide. Don’t leave it up for interpretation with a name like “United Professional Services.” Stick to something more specific like “Turnkey Construction,” which is creative and clearly says you’re a construction company.
You also want to create a standout logo to wow potential clients. Graphic design may not be your forte, or maybe it’s simply too time-consuming, but there are affordable online services that can help design your logo and give you additional branding elements. Check out sites like 99designs or Fiverr to find affordable graphic designers who can handle this for you.
3. Register your contracting business
You can choose between four types of business structures for your contracting business—sole proprietorship, partnership, limited liability company, or S-corporation. A limited liability company (LLC) is a smart choice for a new and fledgling contractor business for several reasons.
Limited liability companies are easy to form, and they give you the benefits of pass-through taxation and personal liability protection.
Pass-through taxation means your earnings will only be taxed once rather than being taxed twice—once on your personal tax return and again on your business tax return.
An LLC also protects your personal assets if you run into financial trouble or someone takes legal action against your business. For example, let’s say one of your workers accidentally damaged a client’s property while on a job site and the client decides to sue for damages. Your personal assets are separate from the business, therefore you’re completely protected.
4. Create an expense plan
It’s important to have a strong grasp of your finances when launching your contracting business. An expense plan will help you plan and manage the fiscal health of your company so it can become a profitable business.
First, determine the startup costs required to get your business off the ground. These can include tools, work vehicles, business licenses, or work uniforms.
Second, lay out the ongoing expenses you’ll need to pay on a regular basis, which can include monthly insurance fees, salaries, or property rent.
Third, consider variable costs for each construction project you complete. These can consist of hourly wages, materials, or vehicle fuel consumption.
Once you have a clear view of all your expenses, you can determine the pricing for your services. You’ll want to build a pricing structure that leaves enough room to pay off all your expenses and still turn a profit at the end of the year.
5. Secure licenses, bonds, and insurance
Licenses, bonds, and insurance ensure you’re operating legally and help protect your contracting business. You’ll typically need to obtain the following for your business:
- Business license: You’ll need to obtain a general business license to legally operate in your state, county, and/or city. You’ll also need specific general contractor’s licenses that will vary from state to state, along with different types of specialty trades.
- Surety bonds: A surety bond can be arranged with a third party who will guarantee to pay your client if you’re unable to fulfill your contractual obligations. You can find more information about surety bonds on the Small Business Administration website.
- Insurance: There are several types of business insurance you’ll need, depending on the nature of your business and the state you operate in. Among these are general liability insurance, vehicle insurance, property insurance, and workers’ compensation insurance.
6. Establish an online presence
As with any small business, having a well-established online presence is a must to help secure new leads. This step requires getting a professional-looking website, creating social media profiles, and managing your online reputation.
Build a contractor website
Your website serves as the online face of your company. Potential customers will visit your site to research your company and decide if you’re the right contractor for their project.
When visitors land on your site, make sure they’re greeted with a unique value proposition, explaining why you’re a trustworthy contractor company, along with a call to action. For example, your landing page can feature a statement like, “First-class craftsmanship from a construction company you can trust.” You can follow this statement with a call to action that encourages visitors to reach out and request a quote for their project.
A contractor website should be split into the following sections for visitors to easily find the information they’re looking for:
- Home page
- Services you provide
- Service areas
- About your company
- Contact information
You can hire a web developer to design your site, although this may come at a steep cost. Instead, you could design your site with an easy-to-use website builder like Squarespace or Wix.
Create social media profiles
You can leverage social media marketing, with channels like Facebook and LinkedIn, to find new leads, maintain relationships with previous customers, and establish new partnerships with other business owners.
You can use Facebook to post promotional content and connect with specific communities, whereas with LinkedIn—which leans heavily towards professional users— you can establish partnerships with subcontractors or other companies where you can exchange referrals.
For example, you could establish a partnership with a company that specializes in a certain construction area, like a roofing company or HVAC company. You could subcontract roofing and HVAC services to your new partners, and in exchange, they could give you referrals for new business.
Claim your Yelp Business Page
A Yelp Business Page can increase your exposure on search engines and give online users an easy way to research your company. It features a range of vital business details, including your contact information, a business description, and project photos.
Yelp also shows reviews from previous customers. Positive customer reviews can significantly impact the success of your business: Over 90% of consumers read online reviews before making a purchase decision. Plus you can respond to reviews to show off your excellent customer service.
You can also use your Yelp Business Page to post photos of completed projects to let potential customers inspect the quality of your construction work. Photos are a great way to help consumers become more familiar with your output and more comfortable hiring you once they see real-life examples of your craftsmanship.
Claiming your Yelp Business Page only takes a few minutes and can expose your brand to high-intent, potential customers in your area.
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Start your contracting business today
If you’re a fan of entrepreneurship, there’s never been a better time to start your own contracting business where you can use your talents and industry experience to be your own boss.
Start by organizing your ideas with a well-thought-out business plan, then register your business and ensure you’re able to legally operate in your state. You can then move on to marketing your business and securing your first clients.
For more helpful insights, take a look at this guide that covers four strategies to grow your small business when first starting out.
The information above is provided for educational and informational purposes only. It is not intended to be a substitute for professional advice and may not be suitable for your circumstances. Unless stated otherwise, references to third-party links, services, or products do not constitute endorsement by Yelp.