Starting a General Contracting Company: What You Should Know
Are you thinking of starting a general contracting company? Then you’ve come to the right place. Although seven million different people work in the construction industry, but that doesn’t mean there isn’t room for a few more. And as with many other industries, there’s always a need for good business founders to provide jobs and high-quality services to communities.
If you think you’ve got what it takes to run a small construction business, keep reading to learn all about starting a general contracting company.
Real Talk: Is Starting a General Contracting Company Right for You?
Since you’re reading this guide, you already know that there’s a lot of opportunities and money to be made in construction. You’re probably really excited about starting a general contracting company of your own. But before you charge ahead and register your business, it’s important to honestly ask yourself if you’re prepared to stay the course.
No matter what your MLM-touting friends might tell you, starting a profitable business isn’t a walk in the park. Doing something you’re good at and getting paid for it is highly rewarding, however, and that — together with the high earning potential — is more than enough to make up for the difficulty. The only question you have to answer is, is starting a general contracting company going to be rewarding for you?
A Typical Day for a Contracting Business
Unless you plan to specialize in a specific field, like a plumbing contractor, contracting businesses have to wear a variety of different hats. And as the business owner, in many ways you are the business. Not only will you be responsible for the completion and quality of your clients’ projects, but also for your crew’s safety and professional well-being. Once you add business finances and marketing into the mix, starting a general contracting company becomes a very detailed challenge.
However, this is true for almost any business. Although it may sound overwhelming at first, as long as you know what to expect, there’s no reason why it should be more than you can handle.
As a contracting business owner, a typical day may look something like this:
- Reviewing and critiquing plans and blueprints for building projects
- Buying materials and either collecting them yourself or having them delivered
- Inspecting previous work and making punch lists
- Hiring subcontractors for specialized work, such as electrical work or commercial roofing
- Inquiring about and bidding on future jobs
- Managing business finances, or reviewing them if you have an accountant
- Making marketing campaigns and resources with your publicist
Skills and Experience You Might Need
You might have noticed that the daily tasks listed above don’t have much to do with actual contracting work itself. That’s because as the business owner, your job is to make sure that your employees all have jobs, and that they do those jobs well enough to meet your clients’ expectations. As you can see, that has less to do with construction know-how and more to do with effective leadership. As long as you can work effectively with people, you can get anything done.
That’s not to say construction knowledge isn’t important, by any means! You’ve got to know how things are done in order to make sure your crew is doing everything right. But the critical skill a business owner needs is the ability to manage multiple projects and people. That’s what separates a good construction worker from a good contracting entrepreneur.
Although every contractor and business owner is different, the following are some skills and experiences you might need to have:
- Understanding construction fundamentals (ideally with a background in construction work)
- Reading blueprints
- Understanding and following work plans
- Business and employee management
- Communicating effectively with employees and clients
- Managing business finances (even if you hire an accountant, you need a basic understanding of finances for small businesses)
If your experience in construction or contracting is minimal, you should consider apprenticing under an experienced contractor before you start your own business. After construction knowledge, the most important skills you can have are communication and management. If you’re good at talking to clients and managing employees, you’ll avoid making costly mistakes, and also mitigate the long-term impact of mistakes that are made. Clients are usually willing to overlook a mistake if you’re apologetic and understanding, and employees are more likely to give their all when they feel noticed and appreciated.
If you still feel that starting a general contracting company is right for you, read on to learn what your first steps should be!
Getting Started in Business
From retail stores to moving companies, there are several things every business must start with to have the best chances of success. One of the first things you should consider is finding a mentor who can help you take those first few steps in the right way.
Finding a Mentor
Business always involves more than one person. And although some businesses can technically be started by one person by themselves, it’s always better to get someone else involved in the early stages. A mentor is someone who has already succeeded in the way you want to yourself. For someone starting a general contracting company, that should be an older, more experienced contractor who has successfully built their own construction business.
A mentor can give you instant access to insight reserved for those with experience. This often means pointing out errors and potential mistakes before you see them yourself, thus saving you time, money, and embarrassment in the long run. Getting a mentor at the beginning stages of your business will help ensure that you set everything up properly the first time, avoiding unnecessary mistakes.
It can be difficult to find a mentor in a competitive industry like general contracting, but it will be well worth the trouble. There might be a retired contractor in your area. You could track down a successful contractor from another city, away from where you plan to do business. If you’re coming out of an apprenticeship, the contractor you apprenticed under might be willing to advise you as you get started.
Whether your focus is on roofing, basement finishing, or everything in between, a good mentor can be the most valuable resource you have. After that, the first step in starting your new business is planning your business.
Making a Business Plan
When it comes to playing the piano, practice makes perfect. But when you’re starting a business, planning makes perfect.
Having a clear business plan is critical to your entrepreneurial success. It should map out the specifics of your business and help you discover important unknowns. A good plan will answer the important questions on which your business rests: what will it cost to launch? Who is your target market? And how will you succeed?
Besides giving you a bird’s-eye view of establishing your business, a business plan is also essential for getting investors or partners on board. Below we’ve described the questions you need to ask to make a business plan for your contracting company.
What Does it Cost to Launch a Construction Business
Starting your business won’t be cheap. You’ll need industrial-grade tools and equipment, business licenses and insurance (including workman’s compensation), reliable transportation, and marketing and communications systems. If you aren’t comfortable with business finances and marketing, or you’re unprepared to take on all of that at once, you’ll need to hire skilled specialists to keep your books and help promote your business. Advertising and bookkeeping software will probably be necessary expenses. If you don’t already have all the necessary equipment, you may need to visit local hardware stores and truck dealers to get what you need.
You may end up needing between $10,000 and $15,000 just to launch, but be sure to calculate the right amount yourself based on your actual needs. As you calculate startup costs, remember to prioritize the right things. You should always avoid overspending, but at the same time you mustn’t be afraid to spend on the important things. High quality is important for continued business.
What Ongoing Expenses Are Involved?
When you’re starting a general contracting company, most of your ongoing expenses will be job-specific — they’ll be for materials, paid for by your clients. However, advertising, communication, and maintenance or replacement of your equipment must factor into your monthly expense projection.
Who Is Your Target Market?
A business must clearly define an appropriate target market in order to be viable. For you, your target market will be mostly made up of families and individuals with enough extra income for building projects. Sure, homeowners will always need home air conditioner contractors, regardless of income level. But to build a thriving business, you must set your sights on people with disposable income that they’re comfortable putting towards construction upgrades.
How Will Your Business Make Money?
For most entrepreneurs starting a general contracting company, money will be supplied up-front by your clients, and these sums will pay for materials and initial labor costs. The client will then be billed at regular intervals for the remaining construction costs, until the project is completed. You, the contractor, will take your cut after your crew and business expenses are paid.
How Much Can You Charge Clients?
Construction clients are used to paying job-specific rates. This means the scope of a project will influence much of its cost: basement finishing will have a different cost than pouring a concrete walkway, for example. Beyond that, you’ll need to factor in an hourly rate for your crew and a salary for yourself. Your own salary will be whatever your net earnings are: basically whatever’s leftover after paying your crew and keeping the business running. (As a side-note, the more efficiently you set up and manage your business, the more you can stand to make!)
To establish a baseline cost for your work, research what other contractors and construction companies are charging. Your goal should be to offer competitive services without undercutting your competition or overpricing your services.
How Much Profit Do You Stand to Make?
Success in contracting rarely happens overnight, and you may go a few years without little net earnings. After all, while you’re still starting a general contracting company, most of your profits will be reinvested into the business to keep it growing. However, once the business is established, you stand to earn anywhere from $100,000 to $1 million per year.
There are lots of strategies you can use to increase your earnings and minimize your expenses without compromising your quality of work. Part of your business research should involve discovering some of these ideas and finding ways to make them work for you.
What Will You Name the Business?
Finally, we get to the fun part: coming up with a name for your contracting business!
Choosing the best name is more important than you might realize. A great brand name can invoke feelings of trust, respect, and curiosity in consumers, just by the way it sounds. Your business’s entire brand and marketing material will be based around your company name, and it’s your marketing that will tell your target market what to expect out of you before they’ve hired you. This can be critical to getting your first few projects, so it’s not a bad idea to hire a highly-rated marketing agency to help you come up with a great brand name and logo. As soon as you’ve settled on a business name, it’s important to claim a domain associated with that name: ideally one ending with “.com,” since that’s the most authoritative and professional format.
With that, your business planning should be mostly completed. Next you’ll move on to the final stage of starting your business before actually acquiring equipment and crew and opening up shop.
Do Legal Paperwork and Financial Setup
Whether you plan to keep it simple with basic small construction or you’re going all out with building facade restoration, there’s some paperwork to be done before you can get to work. We’ll discuss those things next.
Form a Legal Entity
Your business needs to be its own legal entity. Forming your business’s legal entity will separate your personal assets from those of your business. This way, if your business gets sued or eventually files for bankruptcy, only your business’s assets will be impacted — your personal properties, vehicles, and checking and savings accounts won’t be affected.
As a small business owner, you’ll probably form your venture as an LLC, or limited liability company. Other business structures include DBA’s and corporations. You can form your LLC on your own if you’re up to the task, but you can also hire a professional service to do it for you. If nothing else, you should at least consider using a registered agent service to make sure you stay legally compliant and protect your personal information.
Register for Taxes
Next you’ll need to register for several state and federal taxes. To do this, you must apply for an EIN. This can be done via fax or mail, or through the IRS website. If things like taxes and computer networking make your head spin, you can find countless guides online as well as professional guidance.
Open a Business Bank Account and Credit Card
Finally, you’ll need your own business checking account and credit card. Again, this is important for keeping your business’s finances organized and separate from your own.
With that, you’ll be all set up and ready to start your general contracting company!