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How to Start a General Contracting Business

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Published on December 21, 2021

Updated on September 22, 2022

How to Start a General Contracting Business

Disclaimer: Step by Step Business’ content is for informational and educational purposes only. It’s not intended to be a substitute for professional legal or tax advice. All of our articles are thoroughly reviewed and fact-checked by our editorial team. Read our editorial guidelines for more details.

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Fast Facts

Investment range

$6,550 - $19,100

Revenue potential

$180,000 - $375,000 p.a.

Time to build

0 – 3 Months

Profit potential

$144,000 - $190,000 p.a.

Industry trend

Growing

Commitment

Flexible

How to Start a General Contracting Business

If you have construction skills and some experience installing new flooring or cabinets, now might be a great time to start a general contracting business. The remodeling industry is growing fast and worth a robust $131 billion. Profit margins in the industry are high, so you could rake in a nice chunk with your own general contracting business.

Starting any business, however, is not an easy task and will take hard work and time to build a successful company. You need to begin with knowledge in your toolbelt, and this step-by-step guide is loaded with the insights and information that you need to start building your entrepreneurial future.

Step 1: Decide if the Business Is Right for You

Pros and cons

A general contracting business has pros and cons that you need to weigh before you decide if it’s the right path for you.

Pros

  • Profit Potential – High profit margins will put cash in your pocket
  • High Demand – The industry is booming
  • Specialization – Focus on flooring, cabinetry, decks, kitchens, etc.

Cons

  • Backbreaking Work – Lots of physical labor!
  • Finding Help – It can be challenging to find reliable subcontractors
  • Difficult Customers – Many people are sensitive about work done to their home

General contracting industry trends

Remodeling and home improvement projects are on the rise. The US remodeling industry has expanded by more than half over the past decade. Home improvement spending, which includes contracting as well as DIY spending, totaled $457 billion in 2020 and is expected to reach $510 billion by 2024, according to research firm Statista. This suggests that the main competition of contractors is homeowners who decide to do the job themselves.[1]https://www.statista.com/topics/1732/home-improvement/#dossierKeyfigures

Kitchen, bathroom, and basement remodels are the most prevalent jobs, although, since the start of the pandemic, home office remodeling has spiked, according to a Google Trends analysis.[2]https://www.rocketmortgage.com/learn/renovation-and-remodeling-trends This is likely to continue as remote and hybrid work environments become the norm. One study by remote working site Upwork found that nearly one in four Americans will be working remotely by 2025.[3]https://www.businesswire.com/news/home/20201215005287/en/Upwork-Study-Finds-22-of-American-Workforce-Will-Be-Remote-by-2025

Industry size and growth

  • Industry size and past growth – Market analyst IBISWorld values the US remodeling industry at more than $131 billion, after growing more than 4% annually over the past five years.[4]https://www.ibisworld.com/industry-statistics/market-size/remodeling-united-states/  
  • Growth forecast – Demand for construction managers is expected to grow 11% from 2020 to 2030, according to the Bureau of Labor Statistics.[5]https://www.bls.gov/ooh/management/construction-managers.htm
  • Number of businesses – There are more than 36,000 general contractors in the US.[6]https://www.zippia.com/general-contractor-jobs/demographics/ 
general contracting industry size and growth

Trends and challenges

General contracting trends include:

  • Remote and hybrid work arrangements drive demand for general contracting work
  • Green renovations are in demand, including large projects like solar panels, and smaller changes like insulation or HVAC updates
  • Eco-friendly materials are also trending, such as paper-based or recycled glass countertops, and bamboo plywood

Challenges in general contracting include:

  • Competition from other contractors and homeowners who undertake DIY home improvement projects
  • High cost of construction materials might dampen demand
general contracting Trends and Challenges

Consumer spending

  • Average consumer spend – US homeowners spent an average of $7,560 on home improvement in 2018.[7]https://www.statista.com/statistics/809304/average-annual-home-improvement-spend-us/
  • Potential customer base – There are around 90 million owner-occupied housing units in the US as of 2020.[8]https://www.census.gov/quickfacts/fact/table/US/VET605220
general contracting consumer spending

What kind of people work in general contracting?

  • Gender – 91% of general contractors in the US are male, while 9% are female.[9]https://www.zippia.com/general-contractor-jobs/demographics/#gender-statisticsg
  • Average level of education – 45% of general contractors hold a bachelor’s degree.[10]https://www.zippia.com/general-contractor-jobs/demographics/#degree-level-types
  • Average age – The average age of a general contractor is 46 years old.[11]https://www.zippia.com/general-contractor-jobs/demographics/#age-statistics
general contracting industry demographics

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

Startup costs for a general contracting business range from $6,500 to $20,000. One of the main costs is tools and equipment such as saws, drills, and ladders. The other large expense could be a down payment on a vehicle to transport materials, though often contractors require customers to provide all materials themselves. Generally, suppliers will deliver materials, such as cabinets and tiling, directly to the customers, reducing the contractor’s need for a vehicle.

You’ll need a handful of items to successfully launch your general contracting business. Here’s a list to get you started:

  • Hammers, screwdrivers, wrenches, etc.
  • Saws, drills, ladders, etc.
Startup CostsBallpark RangeAverage
Setting up a business name and corporation$150 - $200$175
Licenses and permits$100 - $300$200
Insurance $100 - $300$200
Business cards and brochures$200 - $300$250
Website setup$1,000 - $3,000$2,000
Tools and equipment$2,000 - $5,000$3,500
Down payment on a vehicle to transport materials$3,000 - $10,000$6,500
Total$6,550 - $19,100$12,825

How much can you earn from a general contracting business?

When you first start, you can work by yourself, and with a single laborer for bigger jobs, and have a profit margin of 80%. The average cost of a bathroom remodel is $10,000 and the average cost of a kitchen remodel is about $20,000, putting the average remodel at $15,000.

In your first year or two, you could work from home and remodel 12 rooms in a year, bringing in $180,000 in annual revenue. This would mean $144,000 in profit, assuming that 80% margin. As your brand gains recognition, sales could climb to 25 rooms a year. At this stage, you’d rent out an office and hire staff, reducing your margin to around 50%. With expected annual revenue of $375,000, you would make close to $190,000.

General Contracting business earnings forecast

What barriers to entry are there?

There are a few barriers to entry for a general contracting business. Your biggest challenges will be:

  • Skills – You’ll need remodeling skills and experience
  • Competition – General contractors are plentiful so you’ll need to stand out

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Step 2: Hone Your Idea

Now that you know what’s involved in starting a general contracting business, it’s a good idea to hone your concept in preparation to enter a competitive market.

Why? Identify an opportunity

Research general contractors in your area to examine their services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a general contractor that specializes in tile flooring or turning dingy basements into cozy man caves.

It’s often a good idea to go niche and specialize in a certain aspect of your industry, like luxury kitchens or wooden decks.

This could jumpstart your word-of-mouth marketing and attract clients right away.

What? Determine your products or services

You need a list of services that you can offer your customers based on your skills or subcontractors that you can hire. These might include:

  • Custom cabinets
  • Tile floors, backsplashes, showers
  • Hardwood flooring
  • Countertop installation
  • Painting
  • Plumbing
  • Electrical work
  • General handyman services

How much should you charge for general contracting services?

Jobs will be priced according to the services and costs involved. Some estimates would be:

  • Cabinet installation – $300 – $500 per cabinet
  • Tile flooring – $13 – $21 per square foot
  • Tile backsplash – $25 – $30 per square foot
  • Wall painting – $4 – $8 per square foot

Your customers will pay for materials, so your costs will be for hired labor, tools, and your transportation to and from the job. Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market is going to be more established people that own homes. The best places to reach those people will be Facebook and particularly LinkedIn. For a contractor, being on LinkedIn will establish your credibility as a professional. You could connect with local realtors to get referrals.

Where? Choose your business premises

In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office. You can find commercial space to rent in your area on Craigslist, Crexi, and Commercial Cafe.

When choosing a commercial space, you may want to follow these rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
general contracting business idea rating

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better
  • The name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords, such as “contracting” or “remodeling”, boosts SEO
  • Choose a name that allows for expansion: “Jim’s Bakery” over “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

  • Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe your offerings in detail.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assess their strengths and weaknesses, and create a list of the advantages of your services.
  • Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
  • Appendix: Include any additional financial or business-related documents.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to general contracting.

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your general contracting business will shape your taxes, personal liability, and business registration requirements, so choose wisely.

Here are the main options:

  • Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
  • General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
  • C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
  • S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just needs to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using ZenBusiness’s online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have. 

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

  • Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
  • Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
  • Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best options, other than friends and family, for funding a general contracting business.

Step 8: Apply for Licenses/Permits

Starting a general contracting business requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your general contracting business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business.

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.

You can use industry-specific software, such as HCSS, PROCORE, or FieldWire, to help manage your projects, costs, billing, and scheduling.

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero
  • If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Marketing

Some of your business will come from online visitors, but still, you should invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.

Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area. 
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Get Quote Now.” This can sharply increase projects.
  • Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.

Kickstart Marketing

Take advantage of your website, social media presence, and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:

  • Competitions and giveaways – Generate interest by offering prizes for customers who complete a certain action, such as 20% off in January.
  • Signage – Put up eye-catching signage at your store and website. 
  • Flyering – Distribute flyers in your neighborhood and at industry events. 
  • In-Person Sales – Offer your services at local markets and trade shows. 
  • Post a video – Post a video about your general contracting services. Use humor and maybe it will go viral!
  • Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
  • Seek out referrals – Offer incentives to generate customer referrals to new clients. 
  • Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
  • Payper-click marketing – Use Google AdWords to perform better in searches. Research your keywords first.
  • Testimonials – Share customer testimonials about how your services helped them.
  • Create infographics – Post infographics and include them in your content.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your general contracting business meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your general contracting business could be:

  • Master tiling services for bathrooms, kitchens, and more
  • Enjoy the outdoors with your brand new wood deck
  • The ideal home office for your new work-at-home lifestyle
unique selling proposition

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a general contracting business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working as a contractor for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in construction. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.

Step 12: Build Your Team

If you’re starting out small from home, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a general contracting business would include:

  • Laborers – Assist with jobs, clean up
  • General Manager – Scheduling, staff management, accounting
  • Marketing Lead – SEO strategies, social media, other marketing

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.

Step 13: Start Making Money!

As a general contractor, it’s to your advantage if you’re a skilled builder and have experience in project management. You could be a master of all trades, or just one. The possibilities are endless, from focusing on woodworking to building entire home additions. The US remodeling industry is worth more than $131 billion and growing fast, so now is a great time to start building your general contracting business.

You’ve got knowledge in your tool belt now, so it’s time to roll up your sleeves. You’re ready to start your entrepreneurial journey and hammer your way to success!

General Contracting Business FAQs

Is a general contracting business profitable?

A general contracting business can be very profitable. Profit margins are high, especially if you do most of the work yourself. The average kitchen remodel price is about $20,000, so if you just do 5 a year, you’re still making a healthy profit.

What licenses do I need to start a general contracting business?

You need a general contractor’s license from your state. You may also need special contractor’s licenses if you do work like plumbing or electric. Other business licenses and permits may be required by your state or locality.

Do I need an LLC for my general contracting business?

You can choose any kind of business structure for your general contracting business, but an LLC has many benefits including personal liability protection. If your business is ever sued, your personal assets are not at risk.

How can I get customers for my general contracting business?

Eventually, you will get referral business, but to start, you should sign up on LinkedIn and start connecting with people locally. Connect with realtors who may be able to give you referrals, and post pictures of your work.