How to Start a Construction Contractor Business

Start a construction contractor business by following these 10 steps:

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

We have put together this simple guide to starting your construction contractor 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 important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Construction Contractor Business Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

• Your state's business records
• Federal and state trademark records
• Social media platforms
• Web domain availability.

It's very important to secure your domain name before someone else does.

What are the costs involved in opening a construction contractor business?

Starting your own contractor business won’t be cheap. You’ll need professional quality tools and equipment, business licenses and insurance, including workman’s comp, as well as advertising, to make people aware of your business. You’ll also need reliable transportation and a trailer for hauling materials, tools, and other pieces of equipment necessary for the job(s). Finally, you’ll need a company phone and website, as a method for connecting and communicating with clients. Initially, you’ll want to start small, and grow as the work becomes steady. A beginning figure in the $10,000-15,000 range will get you started but, be careful not to overspend without work to support your bottom line.

What are the ongoing expenses for a construction contractor business?

Most ongoing expenses are also job specific. Materials and equipment costs will always factor into your bottom line. Communication and advertising will also continue to factor in as costs, as well as maintenance or replacement of equipment and tools. As your business grows, you may want to add additional workers, hire a bookkeeper, or hire sub-contractors to handle specific tasks, such as painting, electrical, plumbing, or HVAC installations.

Who is the target market?

Your target market will be individuals and families with enough continuing assets to afford to build. Often, clients with just enough to make a project work will become nervous about the money being spent during the job. This may cause them to cut corners or put a job on hold, indefinitely. This kind of inconsistency will erode your business quickly. A customer’s bottom line must be financially solid enough for them to continually supply the funds to keep the project moving, no matter the economy. Part of your assessment of your clients, therefore, has to be their overall financial sustainability. Consider them as a partner in your business, while you complete their project.

How does a construction contractor business make money?

Construction contractors are paid to start, continue, and complete the build project. Money is supplied, up front, to buy materials and pay workers to begin the project. The customer is then billed regularly for the continuing work and materials, and again, at the completion of the project. The contractor will make their cut after all other bills and workers are paid.

How much can you charge customers?

Customers are charged by job specific rates, meaning the scope of the job will influence much of the pricing. You’ll also need to determine an hourly rate for your crew and a salary for yourself. The salary will be your net earnings, as all other costs will relate to materials, workers, and day to day intangibles needed to keep the job moving forward. Research other contractors and contractor companies in your area to establish a baseline cost for your work. Be competitive, but don’t undercut your competition or overprice your services.

How much profit can a construction contractor business make?

Success in the construction contractor business rarely happens overnight, so you may see many years with little net earnings. Most profits will go right back into the growth and success of the business. Once established, though, contractor work can be lucrative with businesses earning anywhere from $100,000 to $1 million annually.

How can you make your business more profitable?

Some contractors choose to “lend” their contractor license to other businesses. You, as the contractor, pull the permit for the work being done and collect a fee for this service. Make sure you trust and, if possible, have a contract with the workers doing business under your license.

Another option for increasing your business is to become specialized in your work. Trim carpentry, masonry and tile work, remodeling, and construction of outdoor structures, such as decks, fences, docks, and gazebos will all require a contractor’s license, but may be lower overhead projects. These are especially helpful during down periods in the economy and in your business’ work schedule.

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 construction contractor 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.

State & Local Business Licensing Requirements

Most states require retail businesses to obtain a seller’s permit. A seller’s permit enables states to record and collect taxes from the sale of taxable goods and services. More information can be found here:

• Sales Tax Institute - Sales Tax FAQ

• SBA - sales tax 101

Certificate of Occupancy

A construction contractor business is generally run out of a storefront or a mobile trailer. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO).  A CO confirms that all building codes, zoning laws and government regulations have been met.

• If you plan to lease a location:
• It is generally the landlord’s responsibility to obtain a CO.
• Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a construction contractor business.
• After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
• If you plan to purchase or build a location:
• You will be responsible for obtaining a valid CO from a local government authority.
• Review all building codes and zoning requirements for your business’ location to ensure your construction contractor business will be in compliance and able to obtain a CO.

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?

Construction contractors often have to wear a number of different hats. They are responsible not only their own crew and business’ success, but also the construction and completion of the customer’s house or commercial structure. Being able to manage finances, organize workers and materials, and effectively communicate with customers are all critical for business success.

What happens during a typical day at a construction contractor business?

Day-to-day activities for a construction contractor business focus on the building of the customer’s structure. Whether it be residential or commercial contractor work, there are certain activities and materials necessary to keep the job going. Some examples of these necessities will include:

• Following blueprints and plans for the build project
• Purchasing and ordering more materials
• Inspecting prior work and creating punch lists
• Hiring subcontractors for specific build stages (plumbing, electrical, painting)
• Bidding and inquiring about future jobs

What are some skills and experiences that will help you build a successful construction contractor business?

A successful construction contractor must be familiar with reading blueprints, following work plans, understanding construction fundamentals, and communicating successfully with a crew and the clients. Having a background in construction is necessary to avoid costly mistakes from lack of experience. It is best to apprentice with an experienced contractor first, in order to learn the finer points of guiding your own business. You should also be well versed in small business finances and employee management techniques. Finally, being able to talk to the customers and your crew will often play a large part in developing your overall reputation as a contractor and business owner.

What is the growth potential for a construction contractor business?

Construction is constantly taking place. New houses and neighborhoods are popping up daily. Just the same, the construction industry is competitive and, at times, saturated with workers and businesses looking for work. Growth potential is fairly good, but you must make sure you stand out from the crowd, both with your build creativity and skill, as well as with your professionalism and business acumen. Annually, residential construction industry earnings in the U.S. average in the multi-billions. The industry is robust, yet businesses fold every year from lack of a proper business plan and mismanagement of earnings. You won’t get rich overnight, but there is plenty of room to grow and establish your business long term if you plan properly and stick to your plan.