Business Formation

How to Start a General Contractor Business in 9 Steps

Follow our 9 step guide to build a strong foundation for your general contractor business.

Deborah Sweeney, CEO of MyCorporation

By Deborah Sweeney Opens a new window

If you're looking to start a general contractor business, there has never been a better time to enter the market. According to the U.S. Chamber of Commerce, the average backlog of projects for general contractors is a little over 9 months. The need for general contractors is on the rise with construction spending topping over $1 trillion dollars a year. And, thanks to an increase in housing demand, chances are the construction industry won't be slowing down any time soon.

Starting your own general contractor business is a great way to earn a living while leveraging both your construction knowledge and management skills. To take full advantage of these skill sets and maximize your chances for success, it is important that you become as fluent on the business side of things as you are on the construction side. This includes creating a solid business plan, acquiring the proper business licenses and permits, building a team of reliable subcontractors, and more.

As most business owners will tell you, starting your own business isn't easy. Entrepreneurship means investing time, energy, and effort into your contractor business. However, if you follow our guide you'll be able to get your business up and running in no time.

Our guide breaks down the steps you'll need to take to build a strong foundation for your new business and provides links to useful resources that can help you better understand what it means to break into the industry as a general contractor.

How to Start a General Contractor Business

Bookmark this page and follow along while you learn how to start a general contractor business. From setting up a basic structure for your business to creating your website, this guide contains everything you need to get your company up and running quickly.

Step 1. Weigh the Pros and Cons of Starting Your Own General Contractor Business.

A general contractor is the party responsible for organizing all phases of a construction project. They are typically hired by the property owner. You'll need to be knowledgeable in all stages of construction from start to finish. You'll also be in charge of hiring the necessary subcontractors to complete the work, so networking and making new connections will be vital.

Starting a general contractor company allows you to leverage your skills and experience, while giving you the freedom to set your own hours and choose the projects you want work on. However, this flexibility comes with added responsibilities. You will need to manage your business, your reputation, and your workload.

If you are thinking about venturing out on your own, make sure you meet these 5 basic requirements for success as a general contractor.

  • You have the passion and drive required to start a business.
  • You understand the ins and outs of the industry and what it means to be a general contractor.
  • You have strong managerial experience and/or an equivalent skill set and enjoy overseeing many moving parts.
  • You have the equipment you need to operate your business, or you have the means to raise enough capital to acquire professional quality equipment.
  • You fully understand the risks associated with starting a business.

If you answered yes to the questions above, starting a general contracting business is the right choice for you.

Step 2. Draft a Business Plan

When starting any business, creating a solid business plan should be among the first steps you take.

A general contractor business is no different; a carefully crafted business plan will help you gain a better understanding your long-term goals and serves as a proof of concept for the future success of your business.

Many people skip this critical step all together, don't make this mistake! The process of creating your business plan is straightforward. It is the blueprint for your business that outlines each step of your business journey.

Be especially thorough if you intend on applying for any small business loans. Most financial institutions, and interested investors, will need to review your business plan before issuing you a loan or capital for the business.

What details should be included in a business plan?

A business plan is your roadmap to profitability, and in some cases, a tool that can help you uncover gaps or blind spots you may have when starting out. Generally, your business plan should contain the following components:

  • The structure/management you intend to create for your business
  • Business description, concept, and strategy
  • The services you will provide
  • The type of work you plan on completing
  • Details about your target market
  • How many employees you will have starting out, if any
  • Estimated startup costs, including equipment expenses, business licenses, etc.
  • Financial projections (how much profit do you intend to make in year one, year five, etc.)

Determine the type of services your business will offer.

Some contractors offer highly specialized work, or limit services to a narrow scope of work where they have a competitive edge. Others are full service, bidding on a large variety of projects.

Knowing ahead of time what services your company will offer can help you get a better grasp on the equipment and staff you will need, making it easier to plan your startup costs. It also helps you evaluate your competition by allowing you to find local companies that offer services that overlap with your own.

Follow your passion, not the money. Choosing to focus on areas of construction you are truly passionate about will help motivate you to succeed when times get tough, and they also work to set you apart from the competition. You may develop a reputation for the work you do and retain steady, faithful clients because they trust you to do a great job.

How much does it cost to start a general contractor business?

Starting your own general contractor business can be an expensive endeavor. The initial investment required will depend on your existing assets (if any), the types of projects you intend on completing, the number of employees you will have, and other factors specific to your general contractor position. It's best to start out with just the essentials and grow your business slowly as projects come in and you begin to earn a steady profit.

Most general contractors are going to need professional quality equipment and tools to complete their work. If you intend on hauling materials or materials to certain sites, you will also need reliable transportation. You will have legal expenses and startup costs, including business licenses, insurance, and administrative fees. It is also wise to set aside some funding for advertising and marketing your services, particularly if you are a freelance contractor.

Overall, you can expect to set aside $15,000 - $20,000 to start your general contractor business.

You may seek outside investment or consider taking out a small business loan to help fund your startup costs. Each method of raising capital comes with its own caveats, so keep that in mind when outlining your startup.

If you are planning on working with investors, you will need to set up the proper structure for your business ahead of time. Often this means incorporating your business as a corporation.

If you will be taking out a loan from the bank, make sure you put extra time and care into the details of your business plan concerning your financial projections and cash flow. Be prepared to discuss the reasons you think your business will be successful and what makes it worth the investment. Don't forget to conduct due diligence when comparing loan options, like interest rates and repayment terms.

What are the ongoing costs of operating a contractor business?

Building a strong foundation for your general contractor business can take time, with most of your early earnings being reinvested in the business.

Equipment and building material costs are always going to impact your bottom line, so be sure to focus on building strong relationships with reliable and affordable vendors to cut your expenses wherever you can.

Depending on your line of general contractor work, you may also need to hire sub-contractors. These individuals can handle specific construction-related tasks such as carpenters, electricians, and painters.

Be sure to set aside some budget for your operational costs. You may need to purchase materials and equipment upfront specifically to complete a job. You also should be ready for unexpected equipment repairs or replacement.

Finally, it is important to properly market and advertise your business to grow your client base. Word of mouth referrals, while helpful, sometimes aren't enough to keep the lights on all on their own. Invest in marketing materials and get your name out into the public with the help of social media campaigns, advertising brochures and billboards, and even commercials that run during TV shows or podcasts.

Define your target audience

Your target audience includes potential clients in the area where you operate your business that can afford your services and might hire you for a project.

It's important to consider early on what the demand is for the services you offer, as well as the areas you want to serve. Combining these two metrics can help you make an educated estimate of the potential volume of customers looking to hire you as a general contractor as well as estimate your yearly earnings.

Research your competition

Now that you have identified your target audience, it's wise to look at who you will be competing with for their business. Researching your direct competitors can help drive early business decisions by arming you with the knowledge of what seems to be working for customers, and what does not.

It can also help you determine your value proposition. This is the value that a company promises to deliver to customers should they choose to buy their product or service. Lean into what makes you, as a general contractor, stand out from the rest. Do you have a portfolio of existing work you can share? Are some of your clients big, household names? Are you skilled in a specific area of expertise? Consider the value you can bring to the table and use that to drive your success.

Step 3. Get Licensed, Bonded, and Insured.

Protect yourself, your clients, and your business by ensuring you have the required licenses and permits, bonds, and insurance to operate your business legally.

Business licenses for a general contractor

In addition to general business licenses, each state has its own licensing requirements for general contractors. Completing work in any state while failing to meet those requirements could spell disaster for your business. Keep in mind you'll need to be licensed in every state you intend on conducting business in. So, if you plan on working across state lines be sure to acquire the proper licenses first.

There are more than 40 different contractor classifications, including general building contractors, general engineering contractors and specialty contractors. A few examples which would fall into the specialty contractor category are:

  • Insulation and Acoustical Contractors
  • Concrete Contractor
  • Drywall Contractor
  • Fire Protection Contractors
  • Flooring and Floor Covering Contractors
  • Building Moving and Demolition Contractors
  • Plumbing Contractors
  • Earthwork and Paving Contractors
  • Fencing Contractors
  • Masonry Contractors
  • Roofing Contractors
  • Structural Steel Contractor

The process for getting your contractor's license will vary from discipline to discipline, but in general, you can expect to:

  • Take a written exam to prove your competency in certain contracting fields.
  • Prove you have the financial means to start your own business, or the ability to get funding.
  • Provide reference letters from your bank, previous employers and past clients and colleagues.
  • Prove you have on-the-job expertise, even if that experience is limited to apprenticeships.

MyCorporation's business license compliance package simplifies the of meeting your business licensing requirements by conducting the research on behalf, taking into account your business type and location, and providing you with the necessary forms you need to complete to get the required licenses.

Surety Bonds

Usually, every general contractor business needs construction bonds to operate. The purpose of surety bonds is to provide protection to your client if you do not fulfill your contractual obligations. Much like any other type of insurance, surety bonds are provided by a third party and require you adhere to state regulations, which vary from state to state. You can check out the Small Business Associations Surety Bond Program for help in acquiring these bonds.

Insurance

The level of insurance coverage your business will need depends on several factors, but in almost every case, you will be required to have some kind of coverage. Aside from general liability insurance, you may also need property insurance, and insurance for company vehicles.

If you plan on hiring your own employees, you will also need workers' compensation, state disability insurance, and unemployment insurance to protect your workers.

Step 4. Choose a Business Name

Choosing a name for your business is an important part of starting any business. Potential clients should be able to easily read and remember your business name, and understand what it is that your general contractor business specializes in. Pick a professional name that properly represents the services your company plans on providing to the market and avoid names that could cause any confusion about what it is you offer.

How do I know if the business name I want is available?

Conducting a quick Google search for similarly named businesses is a fast way to find out if they are already taken, although it is not very reliable. You can also conduct a domain name search to see if your business name's URL is already taken. Again, while this method is prudent, it's not foolproof.

Get a Domain Name

Register a domain name and create your online identity.

www.

The most reliable way to find out if your business name is available is to conduct a business name search. MyCorporation can conduct a full name search on your behalf. Not only will we search for any potential name conflicts, we can also ensure that your intended name adheres to any business name rules your state may have.

What happens if your business name is already in use? It’s a good idea to brainstorm and jot down one or two alternatives, in case the name you choose is not available when you attempted to register it.

Step 5. Incorporate Your Business (Choose a Business Entity)

Now that you have outlined the basic details of your general contractor business, it's time to choose and form a legal entity for your business.

What is the best legal structure for a general contractor businesses?

When it comes to choosing the right legal entity for your business, you have plenty of options to choose from that may be the best fit. Corporation and limited liability company (LLC) entities allow you to establish your contractor business as a separate legal entity. This protects your personal assets, like your home, vehicles, and other privately-owned property, from being used negatively in an unforeseen circumstance such as settling a debt caused by a lawsuit against your business. That is why business formation is such a critically important step.

Both the LLC and corporation each have their own advantages and disadvantages, depending on the specific details of your business.

In the case that you decide to seek outside investment to help fund your business or have dreams of taking your contractor services worldwide and expanding them exponentially, you may want to form a corporation. A corporation provides features that make it a more attractive investment opportunity, as shares of stock can be offered as a representation of ownership. The entity does, however come with its own caveats, including additional corporate formalities such as holding annual meetings and keeping corporate minutes of those meetings.

An LLC offers a more flexible management structure and far less paperwork. It’s an ideal business structure if you are the sole owner or part of a partnership looking to minimize corporate formalities.

You may also find that each entity offers various tax advantages, depending on the details of your business. It is recommended that you seek the advice of an accountant you trust to help you navigate the potential tax implications of each entity for your unique circumstances.

Identify the entity that is right for the business by comparing the specific benefits of each entity type. Below are a few entity formations that are popular with consultancies and the differences between the structures for basic guidance.

Entity Type
Liability
Taxation
Maintenance
Limited Liability Company Combines limited liability protection with a pass-through tax structure. IRS rules allow LLCs to choose between being taxed as partnership or corporation. The easiest entity to maintain with the least amount of formal annual requirements.
Corporation Owners / shareholders have limited personal liability for business related debts. Separate taxable entity, corporate profits among owners and corporation. Meetings are required to maintain corporate status. Stock may be sold to raise capital.
Non-Profit Corporation A corporation formed for a charitable, educational, religious, literary, or scientific purpose. Contributions to charitable corporation are tax deductible. Can get tax exempt status with the IRS. Annual reports, minutes, meetings are required to maintain nonprofit / tax exempt status.
Tip: Try our free entity choice tool. Answer a few simple multiple-choice questions about your business, and our tool can recommend the entity type that best fits the needs of your business.

Step 6. Open a Business Bank Account

Don't accept your first payment from a client and deposit it into your personal bank account before you first open up a business bank account. Keeping your personal and business finances separate secures the liability protection gained by forming a legal entity.

Opening a bank account for your business allows you to do the following:

  1. Accept and make payments under the name of the business. Billing and invoicing customers from an individual/personal account as opposed to a business account may appear to be unprofessional in the eyes of a client. Chances are, you will also be making quite a few payments to subcontractors you'll need to hire to complete your jobs.

    Setting up a bank account for your business allows you to accept checks and payment under the business name. This conveys a high level of professionalism and credibility. It also helps separate your finances, making it easier to assess profits and losses.

  2. Protect your personal assets. When you combine your personal and business assets, especially those of a financial nature, you blur the line of separation between you and your business. This lack of a defined separation puts your home, car, or other valuable possessions at risk in the event of a lawsuit involving your business.

    This is known as piercing the corporate veil. Keeping your finances separate also reduces your chance of audit and makes filing your taxes easier.

  3. Establish credit. Building a credit history for your business which can be helpful when seeking outside investment or need to demonstrate buying power for your business. This is especially important for general contractors who will need to make large/expensive equipment purchases.

    Most financial institutions will require you to obtain an employer identification number (EIN) for your business before you can create a business account. An EIN, also referred to as a tax ID, is a nine-digit number that is issued by the IRS. It is used to uniquely identify your business for tax purposes. Think of an EIN as a social security number (SSN) for your business only slightly less sensitive.

    An EIN is also required by the IRS if you plan on hiring employees. If you plan on expanding your consulting business in the future, an EIN is a must-have and is relatively easy to acquire. MyCorporation can help you complete the necessary paperwork to file for an EIN for your general contractor company. The process is simple and only takes only a few minutes to complete.

Step 7. Hire Subcontractors

It is not uncommon that much of the work completed on your projects will be completed by subcontractors. Hiring the right people with the skills and reputation to get the job done is a job all on its own, and an important part of your general contractor business. After all, your clients will be relying on you and your subcontractors on the finished product.

Whether you choose to hire your own employees, work with independent contractors, or outsource work to various subcontractors, you need to be aware of the tax implications and legal formalities of hiring and paying your employees.

Distinguishing between employees and independent contractors can impact your bottom line, as this affects how you withhold taxes and avoid costly legal consequences. Learn the differences before hiring your first employee.

Independent contractors operate as a separate business, and will invoice clients directly for work completed. Independent contractors can qualify as employees in a legal sense under some circumstances. If your contractor is later determined to meet the legal definition of employee, you may need to pay back taxes and penalties, provide benefits, and reimburse wages.

Step 8. Develop and Define Your Brand

Creating a strong brand helps distinguish your general contractor business from your competitors. It's also a representation of what your company stands for, values, and goals for client and business success. Depending on the kind of construction business you plan on opening, developing, and defining your brand will involve a few steps.

  1. 1. Create Your Logo. Your logo is not only an important part of your company's advertising and marketing efforts, but also often your first impression to potential customers, so make it count! Your logo design should clearly represent your company and who you are as a business.

    Conduct some basic research and find out what resonates in your industry for ideas. Most importantly, you know best what vision you have for your business, so trust your instincts.

    One option is to use one of the many available free online logo maker tools, which can help you design your own logo online with no software or previous design experience required. This is a great option for your business when you want complete control of your logo at a substantially reduced cost.

    You can also choose to hire a professional logo design team with a large portfolio of successful designs. This is a great option if you have a bit of budget to spare and really want a unique, professional design that grabs attention.

  2. 2. Promote and Market Your Brand.Now that you have created your brand, it's time to promote it! Stay ahead of your competition by helping people remember your business while also demonstrating professionalism.

    Promotional/informational products can be great way to drum up interest in your business and get your name out there. Printing high quality brochures and fliers outlining your services and distributing them to local businesses is a solid method for building local brand awareness.

    Professional business cards are a tried and true way of creating brand awareness and are an absolute must for any serious business owner. Business cards are easy to carry everywhere you go; you never know when a marketing opportunity may arise. A savvy business owner is always on the lookout for a new source of potential clients.

    Email Marketing is a simple but effective way to provide a huge return on a small budget. Email marketing is a great way to put your business in front of thousands of new potential customers all at once or promote a new service or offer. 

    Networking is critical for growing your client base and getting referrals. Joining in-person networking events and online participation in Twitter chats allows you to establish word of mouth about your business. You may connect with and pitch potential new clients during networking nights and using professional connection platforms like LinkedIn. Attending industry events is also key to getting your name out there, establishing yourself as a thought leader, and staying in touch with influential experts in the space.

Looking for more ideas? Check out 6 ways to make your business idea stand out from the rest.

Step 9. Establish Your Online Presence

A professional website is an incredibly valuable asset for any general contractor. It is a valuable method for collecting contact information from potential clients, sharing more information about your offerings, pricing, and getting in touch to learn more.

For many new general contractors, the prospect of building a website can seem overwhelming and expensive. This couldn’t be further from the truth. In fact, there are lots of easy and affordable ways to get a custom website for your business without hiring an expensive web design firm or freelance web developers. 

You can use one of many website builder tools that provide you everything you need to build a website out of the box, with no coding skills necessary. This can be a great starting point from which you can build a full site.

If your business relies on your website to sell your service, we recommended that you work with a team of web design experts. In many cases, a professional can help you create a more functional website.

Summary

From discovering your niche to incorporating your company, your general contractor business now has everything it needs to ensure success and thrive with its audience. Keep that momentum going!

As you continue to build your client base, focus on additional services you can offer. Invest in equipment, tools, and expanding your staff. Over time, you may even make revisions to your business plan once you've hit certain goals and milestones.