You can feel overwhelmed when you research how to start a business as a general contractor. But starting a construction business can be fun and straightforward. You have to approach it methodically.
This guide includes many elements of creating a contractor business plan. You’ll learn the steps needed to set up a legal business and get insured. Then, get advice on how to stand out from the competition and price your services.
Finally, read expert tips on how to streamline sales using the latest online tools. With this checklist, you’ll be able to go from lead generation to sales. And then you can grow as your business matures.
Understand Licensing and Legal Requirements
Starting a construction business means you will likely need licensing. General contractor license requirements vary by state and typically include a fee. And each state has its own requirements to obtain a license.
Some states don’t require a license until you hit a certain job payment threshold. Others mandate licensing for specific types of work. For example, new home construction may be licensed differently from small jobs.
What’s involved in getting a license? The following may be required by your state:
- Passing a contractor exam
- Relevant coursework
- Years of construction experience
- Proof of business insurance
- Proof of surety bond
Further, you will need knowledge of your local building code. This may include state, county, and municipal codes.
Many larger projects require a permit before you can begin construction. These are issued by agencies like your area building or planning department.
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Register Your Business and Get Insured
You might be required to register your business before you get your license. However, sometimes this works the other way around. Usually, it’s your state that handles registration.
This task entails choosing a business structure, such as:
- Sole proprietorship
- Partnership
- Limited liability corporation (LLC)
An accountant can help you figure out which is best for your business model. How you incorporate can affect other business functions, like handling payroll and taxes.
It’s smart to separate your personal and work banking with a business bank account. Once you register your business, it’s time to set up a business account with a bank or credit union.
There are several advantages to having a separate business account:
- Protects your personal funds and assets
- Gives your business a more professional appearance
- Makes accounting and paying taxes easier
This is a good time to think about contractor software to assist with banking and invoicing. If you set it up right from the start, you can get paid faster. We’ll talk more about other software features you’ll want below.
Many states ask that you purchase general liability insurance, even if you don’t need a license. This pays for injuries or property damage caused by your business to a customer or third party.
Say one of your workers accidentally leaves a sharp tool in a customer’s yard at the end of the workday. The customer’s child picks it up and gets cut. Your general liability insurance should cover the family’s medical bills.
You may also need to get workers’ compensation insurance if you have employees. This covers medical care for them if they’re hurt on the job. Be sure to budget for it when calculating the cost to start a contracting business.
There are other types of insurance you should also consider:
- Builder’s risk insurance to protect buildings during remodeling
- Cyber insurance in case of a data breach or customer ID theft
- Commercial vehicle insurance, as your personal policy isn’t enough
- Property insurance to cover tools used in performing services
- Inland marine insurance, if you transport expensive items for clients
- Umbrella insurance for a higher cap on liability payouts
Build Your Service Offering and Pricing Model
You probably already know what type of contracting you want to do. Are you interested in remodeling? Home additions? Roofing or garage improvements?
You’ll want to narrow this down even more. Having a specific niche lets you attract clients who want your exact services. This is known as your USP or unique selling proposition.
Some examples include:
- Sustainable (aka “green”) homes
- Historic property renovations
- Apartment or small space remodeling
- Energy-efficient doors and windows
- Accessibility and senior living
- Luxury or high-tech properties
Related to this is your pricing model. How do you decide what to charge? There are a few factors to take into consideration:
- What other contractors in your area are charging
- What customers are willing to pay for your services
- What you need to earn to cover expenses + profit
Covering expenses means your revenue needs to pay for:
- Payroll for you and any employees (labor)
- Payments to subcontractors, like plumbers or electricians
- Materials and equipment used on a project
- Insurance, taxes, and other business fees
- Major overhead, such as office rent or vehicle payments
- Marketing and advertising expenses
- Computers, mobile devices, and software
Of course, you want to make a profit off your work. It’s not enough to break even on every job.
Making a profit on every project lets you save money for emergencies. Maybe you want to pay off a truck loan faster. And profits help you grow when the time is right.
Contractor profit margins in the US average about 5%. But you may want to set a goal closer to 10% for faster growth or a healthier savings fund.
You’ll need to calculate the cost of a job and your profit margin to create each client estimate. The cost of materials and your other expenses are dynamic, changing over time. So, be sure to put a “good until” clause on any estimates you give customers.
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Set Up Your Tools and Systems Early
As mentioned above, you want to get your computer software and tools set up ASAP. Say goodbye to old-fashioned pen-and-paper systems.
Instead, turn to online platforms designed just for your profession. They have features that streamline operations. These systems also reduce human errors that can cost your business money. They make managing leads and clients much more effective.
Pick the right software for contractors, like MarketSharp, and you enjoy:
- Sales lead tracking and management
- CRM to turn more leads into sales
- Easy creation of job estimates and bids
- Online payment capability and reporting
- Project workflow optimization
- Reputation management with online reviews
You can integrate leads with outside providers, if necessary. Keep track of documents that would otherwise be lost in your glovebox or pockets.
And save time building project estimates with templates and information from previous estimates. There’s no need to reinvent the wheel with every new job bid.
RELATED ARTICLE — How Contractor Estimating Software Can Double Your Bid Speed
Learn How to Get Your First Clients
New business owners often wonder how to get contractor clients. You’ll be pleased to know there are lots of options here. Use one or two methods, or combine many of them based on what works for you.
The first step is to figure out where your ideal clients are. Do they use social media? Are they members of local clubs or charitable organizations?
You can reach out to them via Facebook community pages, for instance. But before you do that, you need to create a website.
Your business website should contain these elements, at a minimum:
- Home page outlining how you’re different from the competition
- Service page listing what types of contracting you do
- About page with your background and experience
- Contact page, so customers can reach you online and by phone
Some other things that will help your website rise to the top of search rankings include:
- Mention of local landmarks, your county, and the towns you serve
- Keywords clients use to search for a contractor (e.g., “kitchen remodeler”)
- A helpful blog with tips and links to authoritative websites (.gov, .edu, etc.)
- Testimonials and reviews from actual customers for trustworthiness
Be sure to make your website responsive. That ensures it can be used on mobile devices as well as computers.
Once your website is set up, you can link to it in your social media posts. You can also reference it in flyers or on business cards for in-person networking. Joining the Chamber of Commerce or a local membership club (Rotary, Kiwanis, etc.) is a great way to do that.
You should also set up a way for customers to leave reviews for you. A Google Business Profile is a must. Adding a Yelp account is also good for your field.
When you finish a job, ask the client right away to leave you a review. Even better, text or email the link to where they can do that.
You could also consider asking for a referral from friends or family. You might offer a discount on a future service in return for this favor.
RELATED ARTICLE — Easy Video Marketing Ideas for Contractors That Drive Leads
Create a Sales Process That Converts
Once you have an interested customer (aka lead), what do you do? There are three basic steps to convert leads into customers as a contractor:
- Schedule an in-home consultation to discuss the project. This is where you can see what the customer wants and offer your input. It also helps you avoid underestimating jobs based on just the customer’s description.
- Provide a professional estimate after the consultation. Remember, if you use software for contractors, this phase will go quickly. Are you bidding against other contractors? Be sure to mention why the customer should choose your company.
- Follow up with the lead to see where you stand. Maybe they decided to think about it for a while. Or perhaps they have questions about your estimate. But it’s up to you to pursue the job.
This is another place where contractor software comes in handy. You can set up your system for reminders, so you never drop the ball on a lead again. You can also track leads that aren’t yet ready for a consultation and need more nurturing.
Avoid Common Mistakes New Contractors Make
There’s a lot of information out there about how to become a general contractor. But much of it ignores reality and fails to warn you about common newbie mistakes.
Your general contractor startup checklist should include how to avoid the errors below.
Underpricing jobs
This comes from both not understanding your market and not properly preparing estimates. Doing more market research is vital before startup. And using estimating software will minimize errors that cost you money.
Poor communication
You should be in touch with customers from start to finish. This means confirming job parameters and updating schedule changes. It means following up afterward as well to ensure your work meets their expectations.
Lack of systems
You need organization and methods for everything from tracking leads to getting paid. Again, this is where having the right software in place will help you stay on target. No more loose papers and flying by the seat of your pants.
Not tracking leads or performance
Forgetting about a lead means you could lose a customer to the competition. Or you don’t know what information to send them to move them along the sales funnel. As discussed above, a formal lead-tracking system is a must. You can use the same system to monitor quality control and customer satisfaction.
Build a Business, Not Just a Job
When you start your own contracting company, you’re no longer just a 9-to-5 member of the workforce. You’re building a business to last. Here are three final tips to help you do that:
- Use systems and consistency to drive growth. Spend time before launching your business getting yourself organized. Then, stay consistent within your business plan to leverage growth opportunities.
- You’re the founder of a company. So you need to focus on operations and sales. Developing a lead and sales conversion system early on will give you time to do both with good results.
- Pick your tools carefully at the start to stay organized. Look for contractor software that covers the many aspects of your business. Choose the right platform, and you set yourself up for success. Book a demo to see how MarketSharp aligns with your goals.