You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your electrician business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
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 are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening an electrician business?
The costs for starting an electrician business vary, but generally include licensing, insurance, fees for union dues, overhead and equipment costs, and rent for office space. In general, many startup companies spend at least $5,000 to get started. These costs do not include schooling or apprenticeship, which can range anywhere from $3,000 to upwards of $20,000, depending on whether you choose to attend a community college, a technical school, or a private university.
What are the ongoing expenses for an electrician business?
Ongoing expenses of running an electrician business are minimal. Most businesses must cover the cost of rent, licensing, and insurance. License renewal can cost up to $200 - $300 per year, depending on your state. You should budget $1,500 - $2,000 for annual insurance premiums. Rent costs will vary dramatically depending on your location. Price per square foot of office space can range anywhere from $1.50 - $6.00 or more. The best way to cut down costs would be to work from home or share office space with other small business owners.
Who is the target market?
Electricians make money by charging customers for their services. They may charge on an hourly basis, or they may request a flat fee for services.
How does an electrician business make money?
Preferred client types for this business are commercial accounts. However, residential customers can also be an ongoing source of income, provided that the business can service a rotating base of clients. This could involve contracting with a Homeowners Association, or some other organized community, to service residential customers.
How much can you charge customers?
Electricians may charge a wide range of fees, depending on their level of skill, the average local rates, and the type of work involved. However, most will charge between $40 and $100 per hour, with master electricians charging $100 to $150 per hour or more.
How much profit can an electrician business make?
Profit for an established electrician business ranges from between 1.5% to 2.0%, depending on the size of the company. Larger companies have lower margins, while smaller companies tend to have higher margins.
How can you make your business more profitable?
Expanding your team with some entry-level electrician helpers to take care of simpler jobs can help you increase your overall efficiency and take on more jobs. Adding additional, ancillary services, might also help. For example, consider partnering with a professional plumber and carpenter to take on larger jobs.
What will you name your business?
Choosing the right name is very important. 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.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your electrician business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
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!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
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
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment 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.
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 electricians to pass an exam and receive certification before working as an electrical contractor or journeyman electrician. To find out more about specific licensing and examination requirements in your state, visit the National Electrical Contractors Association website.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
In addition, certain local licensing or regulatory requirements may apply. For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Electrician businesses should consider requiring clients to sign a service agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership. Here is an example service agreement.
Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your electrician business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.
Certificate of Occupancy
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 an electrical 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 you business’ location to ensure your electrical business will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market an electrician business
If you buy into a franchise, a lot of the marketing is done for you. All you need to do is put up the capital. If you are starting your own brand, then you’ll want to focus on what works in this industry. Referral marketing will likely be the largest source of new clients. You can also hand out business cards and send direct mail promotions to develop a strong customer base.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
Electricians who outperform their peers are ones who progress from journeyman to master-level. Specialization can help, as can joining a union, since you have more negotiating power when it comes to setting wages and fees. Buying into a franchise may also help, since you can leverage the existing infrastructure and brand recognition, charging clients more than if you had to first prove yourself with your own brand.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start an Electrician Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
This business is right for individuals who are good with their hands, have good people skills, are good at solving complex conceptual and mechanical problems, and can work in a variety of different environments. To own and operate an electrician business, you must also be a skilled electrician. Most business owners are master electricians who have studied for many years as an apprentice.
What happens during a typical day at an electrician business?
Day-to-day activities of an electrician include repairing or replacing electrical systems, including main systems, fuse and breaker box panels, running electrical wiring, repairing and maintaining electrical wiring, transformers, and related systems. Electricians also spend a fair amount of their time on a job troubleshooting electrical problems.
Because wiring in a home or business is often hidden behind walls, electricians need to know how to diagnose what might be wrong with a system before fixing it. They may not have the luxury of taking down all the walls in a building to solve the problem, either.
What are some skills and experiences that will help you build a successful electrician business?
Becoming an electrician is the first step in starting an electrician business. There are two paths to do this: apprenticeship and college.
An apprenticeship is a long-term training program, typically run by a professional organization or a business. There are three types:
- Unionized apprenticeships, which are usually run by a group called the International Brotherhood of Electrical Workers (IBEW).
- Non-unionized apprenticeships, such as the Associated Builders and Contractors (ABC) and Independent Electrical Contractors (IEC).
- Local apprenticeships, which are offered by the federal government.
During your apprenticeship, you will learn everything you need to know to become a professional electrician. This includes knowledge of electrician-specific tools, techniques, and methods. A further advantage of an apprenticeship is that it gives you the benefit of on-the-job training (OJT). You also get classroom instruction, and and the opportunity to study under a master electrician. In total, apprenticeship can last up to 5-6 years.
The major drawback on choosing the apprenticeship route is that competition is fierce. It’s very difficult to get an apprenticeship, which is why many people opt for formal schooling at a community college or university. All you need is a high school diploma or a GED to apply.
Either route you take, you start as a journeyman and progress to a master electrician.
General skills that are valuable to an electrician include strong problem-solving skills, strong conceptual skills, communication skills, the ability to work in harsh and unpredictable environments, and strong spacial and mathematical skills.
What is the growth potential for an electrician business?
Most electrician businesses are run as owner/operator businesses. However, you can take on an apprentice or work with many different partners and establish a higher-volume business. Some electrician businesses are also run as franchise operations. If you go this route, you should be prepared to pay a substantial amount of money upfront. However, franchises do offer several great benefits, such as an established brand name, protected service territories, and ongoing marketing support.
TRUiC's YouTube Channel
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One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting an electrician business?
To get into this business quickly, consider buying into a franchise after completing formal schooling. This will cut down on the learning curve since you won’t have to worry about marketing, branding, and overhead. The downside, of course, is franchises tend to cost more money up front than if you were to start from scratch.
How and when to build a team
Many electrician businesses never outgrow the owner. However, there’s no reason to stay a small business. Hire more electricians as you can afford them. The theoretical upper limit in terms of revenue and size is unlimited.