7 Steps to Start a Construction Business

March 2019
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Ready to take your experience as an artisan contractor and start building your own business? If you’ve been dreaming of starting your own construction business, here are 7 steps to get started.

“How Do I Start a Construction Business?”

  1. Create a Business Plan
  2. Obtain Funding
  3. Determine Your Business Structure
  4. Choose a Business Name
  5. Apply for Federal/ State Tax IDs
  6. Get Permits and Licenses
  7. Get Covered with Insurance and Bonds

1. Create a Business Plan

“If you fail to plan, you plan to fail.”

Whether this quote was uttered by Benjamin Franklin or Winston Churchill (no one seems quite certain), it’s sound advice when starting your own contractor business.

The very first thing you need to do is put together a business plan.

A solid business plan acts as the roadmap to help you start and run your business.

Requiring that you do competitive research, look closely at financials, and calculate startup costs, a formal business plan prompts you to make lasting decisions about the structure, organization, and management of your business.

Not sure where to begin? Download our free contractor business plan template to get started.

2. Obtain Funding

There’s no way around it: starting a business takes money.

If you’ve been working in the trades for a while, you’re like to have amassed plenty of the necessary tools and equipment that you’ll need to do your job. But even if you don’t have to purchase any equipment, you’re still going to need some cash to get things up and rolling.

Here are some of the most common startup costs you’re likely to have, even if you’re operating out of your own home:

  • Licenses and permits
  • Insurance
  • Lawyer and accountant
  • Employee salaries
  • Advertising and marketing
  • Market research
  • Printed marketing materials
  • Website and URL
  • Utilities

So, where does the money come from? Two common ways to fund a contractor business start-up are self-funding and small business loans.

Self-funding leverages your own financial resources to support your business. You may tap your savings, investment, or retirement accounts (check with a financial advisor first), or even turn to family and friends for capital.

To get a small business loan, you’re going to need a business plan, expense sheet, and have financial projections ready so you know how much you’ll be asking for. Talk to multiple banks and credit unions, comparing offers to get the best possible terms on your business loan.

3. Determine Your Business Structure

The business structure you choose can affect everything from your taxes to your liability, not to mention your ability to raise money for your business.

Some of the more common business structures are:

Sole-proprietor: the easiest to form, this gives you complete control over your business. Your business assets and liabilities are not separate from your personal assets and liabilities.

Partnerships: the easiest structure for 2 or more people who want to go into business together. Can be limited partnerships (LP), where one party has unlimited liability and the rest have limited liability, or limited liability partnerships (LLP), which protects each party from the debts of their partners.

Limited liability companies: a limited liability company (LLC) can protect your personal assets against company debts or lawsuits. Profits and loss can get passed through to your personal income without corporate taxes.

Do your research – speak to an attorney and tax professional to determine the best structure for your business.

4. Choose Business Name

Put some time into naming your business. Choose a name that’s easy to spell, read, and pronounce, and that won’t limit your growth.

Got a killer business name in mind? Make sure to claim it!

  • Entity name protects you at state level
  • Trademark protects you at a federal level
  • Doing Business As (DBA) doesn’t give legal protection, but might be legally required
  • Domain name protects your business website address

5. Apply for Federal and State Tax IDs

Your Employer Identification Number (EIN) is your federal tax ID. You need it in order to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits.

It's free to apply for an EIN, and you should do it right after you’ve chosen your name, structure, and registered your business.

Depending on where you live, you may need a state tax ID number, as well. Research your state’s income and employment tax laws, and check with your state government to determine what the steps are to getting a state tax ID.

6. Get Required Licenses and Permits

Chances are, you’ve already got your contractor license in place. Now it’s time to get your business license and permits lined up, too.

State, county, and city regulations can vary, so you’ll have to do a little research to find out what kinds of permits or licenses you’ll need to start a contractor business where you live.

7. Get Covered with Insurance and Bonds

You may already have your contractor bonds and insurance coverage, but the liabilities and risks you face as a business owner can be greater than those you face as a tradesperson.

Discuss your new business with a trusted insurance professional. Find out which additional coverages or higher limits you should consider to protect your assets.

In addition to general liability insurance to protect your business against third-party damages and injuries, you may also need to consider commercial property, commercial auto, inland marine, course of construction, pollution liability, employment practices liability, and/ or workers’ compensation coverage.

Starting your own business may feel like a daunting endeavor. But if you break it down into actionable steps, you can see that getting on the road to creating your own contractor business is just a matter of checking things off your list one-by-one... until the job is done.

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