What are the essential steps to start a general contracting business?
Essential Steps to Start a General Contracting Business:
- Gain Experience: Before you dive into starting a contractor business, gaining experience in the field is crucial. This will give you a chance to understand the industry and determine the types of projects you might want to focus on when you own your business. Depending on your state, you may be required to have at least 4 years of construction experience before obtaining a contractor license.
- Make a Business Plan: Preparation is key. Creating a well-thought-out business plan increases your chances of success. In the beginning, consider starting with a small business that services a select group of clients. Determine who you intend to build for and understand what it takes to be a successful contractor and business owner in that niche.
- Choose a Business Name and Domain: Choose an appropriate name for your business and establish an online presence.
- Register Your Contractor Business: To work legally as a contractor, register your business federally with the IRS and locally with the state and local governments, which may require additional business permits.
- Get Business Insurance: Protect yourself, your clients, and your business by ensuring you secure the required licenses, permits, bonds, and insurance to operate legally. Business licenses for a general contractor vary by state, and you’ll need to be licensed in every state where you intend to work.
- Get a Business Bank Account: Open a dedicated business bank account to manage your finances properly.
- Buy Equipment: Invest in the necessary tools and equipment to run your business effectively.
- Get Your General Contractor License: Once you’ve gained work experience, formed a business entity, acquired insurance, and purchased equipment, it’s time to become licensed. By obtaining your general contractor license, you demonstrate responsibility and trustworthiness. You will need to pass the National NASCLA Commercial Builder Exam as part of the licensing process.
- Find Customers and Get Started: After getting your license and assembling your crew, reach out to former employers and your network for referrals to land your first job and begin building your clientele.
- Budget and Financing: Establish a clear budget and be prepared to set aside $15,000 – $20,000 to start your general contractor business. Consider seeking outside investment or taking out a small business loan to help fund your startup costs.
- Educate Yourself: If you’re not from the construction industry, gain knowledge about the basics of construction and business management.
- Get the Necessary Permits: Understand that every municipality has its own construction regulations and rules.
- Establish Your Brand: Develop and define your brand to differentiate yourself in the market.
- Hire Subcontractors: Build a reliable team by hiring subcontractors as necessary.
How much money do I need to start a general contracting business?
The cost of starting a general contractor construction company varies significantly. It ranges from approximately $50,000 for smaller businesses to up to $500,000 for larger enterprises. This variation is largely dependent on the size and scope of the venture. Therefore, a well-thought-out construction business plan is essential to account for many one-time and ongoing expenses.
You can expect to incur the following startup costs:
- General business licenses and permits: $100 to $1,000
- General liability insurance: at least $3,000
- Construction equipment: at least $20,000
- Employee salaries: at least $250,000 per year
- Marketing and advertising: at least $20,000 per year
Most construction companies spend at least $50,000 on initial costs and $200,000 per year on ongoing costs. By employing budget-conscious strategies, such as negotiating with vendors and utilizing low-cost marketing channels, you can minimize startup costs and enhance your chances of success.
According to various sources, the general range for startup costs can be as low as $15,000 to $20,000. This depends on your location, the scale of your operations, and the necessary equipment needed. Key factors contributing to overall costs include licenses, permits, insurance, and basic tools.
Overall, you should set aside between $15,000 and $20,000 to start your general contractor business. Additionally, securing outside investment or taking out a small business loan may help fund your startup costs.
Alternatively, the average cost to start a construction company can also vary between $53,100 and $245,200. Notably, you can reduce startup expenses by cutting various costs. Typically, the average business startup cost ranges from $30,000 to $40,000. Some sources recommend setting aside $40,000, with the average cost as of 2022 being approximately $37,390.
What types of licenses and permits are required for general contracting?
A General or Mechanical Contractor’s license is required for anyone performing commercial construction over $10,000 in the regulated classifications listed in Title 40, Chapter 11, Section 40-11-410.
Licensure Applicants must designate a Primary Qualifying Party (PQP) for each classification or subclassification for which a license is desired as a prerequisite to licensure. To be eligible for certification as a PQP or QP, applicants must qualify by technical examination (when required), exam waiver/reciprocity, or MASC certification.
Furthermore, applicants are required to pass the S.C. Business Management and Law for Commercial Contractors exam. In addition, all applicants must submit at least 2 years of work experience performed within the past 5 years for the requested license classification or subclassification.
Moreover, all general contractors in California must hold a state license from the California Contractors State License Board for any work worth more than $500. Applicants must meet these licensing requirements in California:
- Have at least four years of experience within the past 10 years, within your licensing classification.
- Pass a trade exam, as well as a business and law exam.
- Complete a background check.
More generally, most states require applicants to submit a license application, have a qualifying party pass exams, and submit background checks before a license is issued. Contractors typically must be 18 or older, show they have education or experience in the field, and also pass exams, from trade knowledge to business.
Finally, a General Contractor license is required for anyone looking to work on commercial and industrial projects valued at over $5,000.
How can I create an effective business plan for a contracting company?
Creating a business plan for your contractor business is vital. It establishes a clear direction and ensures the success of your venture. Here are the six primary sections of a business plan to get you started:
- Executive summary: This is a concise overview of your entire contractor business plan. It should provide a snapshot of your business’s mission, goals, products or services, target market, competitive advantage, financial projections, and funding requirements.
- Company and domain names: Information about your company and its web presence.
- Market analysis and research: Incorporating this section helps you understand the competitive landscape. Conduct market research to identify your target audience’s needs, preferences, and pain points. This allows for devising an effective business strategy.
- Operations plan: A detailed description of how your company will operate, including processes and systems in place.
- Marketing and advertising plan: Comprehensive strategies to promote your services and reach your target audience.
- Financial plan: This is a cornerstone of your business plan. It details how your business will be funded initially and outlines a timeline for achieving profitability. It includes projected revenue, expenses, and cash flow statements.
A well-written business plan can be instrumental in attracting investors and raising money for your business. Investors want to see a clear roadmap that outlines your business’s potential for growth and profitability.
Key components of an effective contracting business plan:
- Concise executive summary, highlighting the company’s mission, target market, key services, competitive advantage, and financial goals.
- Experience and qualifications of the management team.
To create a construction company business plan, follow these steps:
- Write an executive summary.
- Prepare a company overview section.
- Conduct a competitive and market analysis.
- Describe your construction service offerings.
- Propose marketing and sales strategies.
- Introduce your management team.
- Outline your operational plan.
In summary, an effective business plan for a contracting company should include a detailed executive summary, thorough market analysis, clear service offerings, comprehensive marketing strategy, robust operational plan, strong financial projections, and a focused management team. Emphasize expertise in the contracting industry, along with quality control, project management systems, client relationship building, and a strong safety culture.
What strategies can I use to find clients for my contracting business?
Here are some effective strategies to find clients for your contracting business:
- Direct Outreach: Going out and talking to clients is the #1 most foolproof way of getting leads. A good number to shoot for is 5-10 potential clients a week. Introduce yourself and give a short sales pitch to construction companies in your area. Doing it consistently can explode your business and provide a juicy list of prospects.
- Utilizing Plans and Bidding: Go to any set of plans and on the cover sheet, you will see a list of contacts. Call the architect or the owner to find out who else is bidding the job. This gives you a potential architect or owner for more work, as well as a list of General Contractors (GCs) to which you can send your bid. Call each GC to see if you can send them your bid and also get on their bid list. By doing this, instead of depending on 1 GC, you can have 3+ GCs with your bid, greatly increasing your chances of winning the project.
- Hiring Professionals: To attract more clients, you need to sell to more people. If you’re bogged down working as the all-in-one bookkeeper, project manager, and salesperson, consider hiring an estimating company. Delegate your estimating to improve your focus on income-generating activities. Detailed estimates provided by professionals can also improve your closing rates.
- Exposure Method: The exposure method involves consistently getting in front of a potential client. If you call, email, or visit consistently (but not annoyingly), clients will grow more familiar with you and are more likely to do business with you.
- Asking for Referrals: While working on projects, ask for referrals. A simple question like ‘Do you have any projects we can work on?’ can lead to new clients and projects.
- Online Presence: In addition to having an SEO-friendly website, maintain an active social media presence. Use platforms like Instagram, YouTube, Facebook, Twitter, and LinkedIn to reach more clients.
- Customer Acquisition Strategies: Some examples include:
- Customer research
- Search engine optimization (SEO)
- Content marketing
- Email marketing
- Customer testimonials and reviews
- User-generated content
- Influencer marketing
- Paid and organic social media marketing, such as LinkedIn or Facebook Ads
- Referral programs
- Professional Website: Create a professional website that showcases your previous projects, client testimonials, and services offered. Ensure that your website is optimized for search engines, as effective construction marketing hinges on understanding customer behavior.
What are the most common challenges in running a general contracting business?
Running a general contracting business comes with its own set of obstacles, including:
- Handling Cash Flow: Managing cash flow is critical for business success. Payment delays can cause disruptions to finances. To maintain a healthy cash flow, businesses should track all incoming and outgoing payments. Setting clear payment terms with clients helps prevent delays. Offering early payment discounts can encourage timely payments. Regularly reviewing accounts receivable ensures no payments are overlooked. If delays occur, following up promptly with clients is important.
- Dealing with Workforce Shortages: This can be challenging for any business. A staff shortage can delay projects and increase workloads for existing employees. Companies should focus on hiring and retaining skilled workers. Offering competitive wages and benefits can help attract new talent. Cross-training employees allows for more flexibility during staffing gaps. Outsourcing certain tasks may also help fill the void during a shortage. Clear communication with clients about potential delays is essential.
- Handling Changing Regulations and Compliance: Staying updated on new laws and industry standards is essential for success. Subscribe to relevant newsletters or attend workshops to remain informed. Regularly reviewing contracts and business practices ensures alignment with current regulations. Work with legal professionals to navigate complex compliance requirements. Implement a system to track and manage regulatory changes that affect your business.
- Estimating and Managing Project Costs: This is essential for staying on budget. Start by carefully assessing all expenses before the project begins, including costs for materials, labor, and other necessary resources. Track spending regularly to ensure adherence to the estimate. Address unexpected costs quickly to avoid budget overruns. Communicate any changes in costs with the client as soon as possible.
- Improving Client Communication: Regular updates keep clients informed about project progress. Listening to their concerns and feedback shows that you value their input. Setting clear expectations at the beginning helps avoid misunderstandings. Be honest about timelines and potential challenges to manage expectations.
- Other Common Challenges: Labor shortages, budget overruns, communication breakdowns, safety hazards, delays in material procurement, managing subcontractors, resistance to technology adoption, and environmental compliance and sustainability are also pressing challenges faced by general contractors.
Running a general contracting business requires careful planning, effective communication, and excellent project management skills. It’s a multifaceted role that demands versatility, adaptability, and the ability to handle the various challenges that construction projects often present.
How do I successfully market my general contracting services online?
A strong digital marketing strategy is key for contractors to build brand equity and loyalty. This guide will show you how to go beyond ‘showing up’ online. You will learn how to make your website THE go-to home services resource in your local market. However, it’s not just about having a website. It’s about creating a trusted digital presence with branded assets that present, promote, and persuade your ideal customers to convert.
The benefits of digital marketing for contractors, construction companies, builders, and remodelers include:
- Targeted marketing for ideal clients
- Attracting a wider audience with SEO-optimized content
- Increasing leads and sales with inbound marketing
- Boosting brand awareness, equity, and loyalty
- Effective campaign tracking and measurability
Our top 5 digital marketing strategies for contractors, construction companies, and remodelers are:
- Local SEO
- Content Marketing
- Social Media Marketing
- Google Ads
- Video Marketing
Focusing on these strategies will help you connect with your ideal clients and effectively promote your services.
Online marketing strategies for general contractors include:
- Build a modern and updated contractor website
- Increase website traffic through effective search engine optimization (SEO) strategies
- Get authoritative backlinks
- Optimize your Google Business profile
- Run pay-per-click (PPC) campaigns
- Engage with leads through social media marketing
- Share your expertise as a contractor through content marketing
- Use video marketing to engage your audience
To attract more clients as a general contractor, start by defining your target market through in-depth research. A professional website optimized for local SEO is crucial for visibility. Additionally, invest in local SEO to improve your website’s performance and visibility in your community. Utilize social media platforms to showcase your work, interact with potential clients, and establish your expertise in the contracting field.
SEO creates long-lasting, organic growth for your website. Optimizing your Google Business Profile to rank and stand out in search can significantly grow your business. Quality search engine optimization is key, involving crucial steps such as keyword research, technical SEO, link building, and optimizing your website metadata.
