How to Start a Basement Remodeling Business

Start a basement remodeling business by following these 10 steps:

1. Plan your Basement Remodeling Business
2. Form your Basement Remodeling Business into a Legal Entity
3. Register your Basement Remodeling Business for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Basement Remodeling Business
6. Get the Necessary Permits & Licenses for your Basement Remodeling Business
7. Get Basement Remodeling Business Insurance
8. Define your Basement Remodeling Business Brand
9. Create your Basement Remodeling Business Website
10. Set up your Business Phone System

We have put together this simple guide to starting your basement remodeling business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

• What will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

What will you name your business?

Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.

What are the costs involved in opening a basement remodeling business?

If you decide to earn a remodeling certificate, this may cost around $850 to $1,250. You'll have to buy tools, protective gear, and other equipment. Tools cost considerably less if you wait for a sale and buy them in large sets. Remodelers spend up to $400 on state licensing fees. Unless you already own a suitable vehicle, you will need a commercial vehicle. Remodeling professionals frequently prefer vans. Consider buying a model with a service body since they have storage compartments for supplies and tools. A new van with this feature may sell for $45,000 to $65,000.

What are the ongoing expenses for a basement remodeling business?

This work involves many risks, so you'll face relatively high insurance costs. Both professional and general liability coverage prove desirable. The premiums add up to around $1,600 per year. You're likely to need workers' compensation and commercial vehicle coverage as well. Consider insuring your equipment; insuring equipment could potentially save you money and is an  affordable policy that normally costs under $200 per year. Other expenses include auto maintenance, supplies, marketing, storage, and wages.

Who is the target market?

Homeowners may turn to basement remodelers when they desire more living space and lack the land or money needed for an addition. Survey data reveals that millenials remodel cellars more often than anyone else. Many of these individuals have only owned one home. Some budget-conscious clients might want to complete a portion of the work on their own, supply the materials, or only partially finish the basement. These projects are less desirable, but they can help fill your schedule during the slower months.

How does a basement remodeling business make money?

Contractors charge homeowners for labor and materials. They usually aim to earn a profit in both areas. Basement remodelers tend to become busiest in the spring; work slows down by autumn.

How much can you charge customers?

HomeAdvisor reports that homeowners usually pay around $11,000 to $30,000 for this service. The exact cost depends on the square footage, materials, and features. For example, adding a bathroom substantially increases the expense. A homeowner will probably spend over $50,000 to create an apartment with an entry door, kitchen, and adequate plumbing.

How much profit can a basement remodeling business make?

The National Association of Home Builders reports a 5.2% net profit margin and a gross margin of just over 30% for remodeling. These average figures may differ depending on your business location, size, and practices.

How can you make your business more profitable?

Carefully calculate all direct and overhead expenses when offering quotes. Some contractors have lost money because they didn't take every cost into account. Keep records of all related purchases like equipment, newspaper ads, and license fees. Most business-related expenses remain tax deductible even when they're not essential.

• Vehicle-related costs may provide your biggest tax deduction. Always make a note of the distances traveled in a commercial vehicle.
• Subcontractors often cost less than employees, but it's important to ensure they have the appropriate licenses, insurance, and training.
• Tasks that require more materials and less labor tend to yield greater profits. Prioritize clients with projects of this type.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your basement remodeling business is sued.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It's really easy and free!

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money later on.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.

Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.

Is this Business Right For You?

Perhaps you spend a lot of time working on projects in the basement. A future remodeler probably likes to fix or upgrade things without help from professionals. While you need the ability to work independently, you should also excel at cooperating with others and choosing suitable partners. Your business may prosper if you're ambitious and don't mind messy work. A willingness to keep learning and adapting to new trends can help you succeed in the long run.

What happens during a typical day at a basement remodeling business?

You'll speak to potential clients, travel locally, inspect cellars, and supply detailed estimates. If a customer decides to start a project, the next step is to acquire permits and materials. Remodeling tasks range from retrofitting stairs to installing insulation, drywall, and fixtures.

What are some skills and experiences that will help you build a successful basement remodeling business?

Any type of renovation work, such as painting, laying floor tiles, or installing built-in cabinets, can be helpful to this practice. You can get started by remodeling your own cellar. This will create a sample of your work and help attract your first clients. Plumbing, heating, or electrical skills are valuable but not essential. You could gain experience as a contractor's assistant or apprentice. Certain universities offer online and hands-on courses.

What is the growth potential for a basement remodeling business?

This service continued to gain popularity in 2020. Some firms gradually add more staff and vehicles so that they can handle numerous projects. Most firms concentrate on serving locals, and they don't expand elsewhere. Nonetheless, it's feasible to open multiple offices. Matrix Basement Systems has two locations that enable the company to serve clients across a large geographical area, including Detroit and Chicago. You could also set up a franchise. For an example of a basement finishing franchise, read about the Owens Corning program.