How To Start A Construction Contractor Business

Here’s a fact—construction is one of the best industries for startups. Here’s another fact—it also has one of the highest failure rates, with only 36.4% of construction companies ever reaching their fifth year of business, whether due to a lack of finances, planning, or a lack of business knowledge experience. But this article isn’t about starting a construction company. It’s about starting a construction contractor business. 


Freelance or self-employed contractors are a massive contributor to the economy because they will always remain an absolute necessity to the construction industry. Without construction contractors, you can be 100% certain that new buildings and office headquarters would literally be impossible to construct, and old ones would start to fall apart.


Photo by ThisIsEngineering from Pexels

Consequently, if you’re an experienced contractor who’s tired of being an employee and feel like you’re ready to conquer the next step of being a successful business owner, kickstarting your own construction contractor business can prove to be a very lucrative business operation.


To do that, you’ll need to learn how to build your business from the ground up, including selecting the proper business structure, obtaining adequate contractor licenses, permits, and insurance policies, the skill to manage different jobs efficiently, and understanding the financial part of the business. So, before you get too far involved, here’s a short guide that can help you build your contractor business from scratch.

Step 1: Assemble A Solid Business Plan 

Once you get a good feel and understanding of your local market and its needs, you can start drafting your new business plan. A solid business plan is one of the essential documents you’ll create when first starting, as it can help you keep your business on track and enhance your chances of success. The business plan is also what you’ll give to lenders to help source funding, which means it’s crucial to be detailed and put all that market research into good use.  


Your construction contractor business’s business plans should include the following: 


  • The way you’ll structure and manage your business; 
  • The kind of services you’ll offer; 
  • The types of jobs you’ll bid on;
  • Defining your target market; 
  • The initial number of employees;
  • How you plan to market your company;
  • The estimated cost of starting and maintaining your company;
  • How much you expect to earn in your first year and other essential KPIs.

Step 2: Register Your Contractor Business 

After assembling your business plan, it’s vital to register your contractor business to make it a legal entity, which can provide legal benefits, personal liability protection, and, of course, tax benefits. The good thing here is that registering your business is as simple as registering your company’s name with state and local authorities. 


Nevertheless, as not each state may provide them automatically, you should also take the extra step and register your business on the federal level to get your federal tax ID and Employer Identification Number. This will also permit you to trademark your company name and logo with the United States Patent and Trademark Office. 

Step 3: Secure Insurance And Liabilities 

Right from the very start, you should start thinking about insurance for your company, for yourself, and your employees. Given the hazardous nature of all construction jobs, making sure you’re covered in case of an injury to yourself or your employees is absolutely vital. 


Accidents occur, and any construction business owner needs to fully understand all the eventual liabilities involved and obtain a general contractor’s liability insurance to protect their business better. Also, most states and construction contracts will demand you to carry valid workers’ compensation insurance. So the sooner you secure your insurance policies, the better it will work out for your business.


Photo from The Fabricator

Step 4: Obtain The Right Permits And Licenses 

Subject to your state, your business location, the size of your new company, and the type of work you plan to do, you’re probably going to need multiple permits and licenses to operate legally on both state and federal levels.


Federal law requires permits for specific business practices, from mining and drilling to transportation. For instance, there are special permits demanded for the operation of heavy vehicles if you’re planning to transport building materials. To acknowledge which federal permits and licenses you may need, you should select your business activity on the federal permits and licenses page. At a state level, your business’s location is the primary factor in these requirements.


Without the proper permits and licenses, your contractor company may not only be looking at costly fines and tax penalties but also the possibility of governmental closure.

Step 5: Secure Your Financing 

At this point, you want to make sure that you have the money to finance your new business and all the processes and operations that go with it. If you’re not in the position to use your own savings, you can secure financing elsewhere in various ways. These include bank loans, private lenders, government loans, credit unions, or even government funding programs.


As you’ll need to purchase rent or lease equipment, tools, and vehicles to get your contractor business off the ground, securing your financing beforehand is very important to your business’s future success. Besides, you’ll need to invest in advertising, pay your bills, and meet the payroll. You will need to secure some funds before you bid on your first contract, so apply and secure financing early on.

Step 6: Network With Other Contractors, Suppliers, And Business Associates 

Invest some time in networking and create good relationships with other fellow contractors, so you have people from the branch to call upon to help you finish jobs you can’t complete on your own or don’t have the time to finish within the deadline. Make sure to open accounts with multiple suppliers and establish credit with them, and establish good relationships with other industry professionals like building inspectors, for example.

image 3

Photo by Andrea Piacquadio from Pexels

Step 7: Determine Whether You’ll Hire Employees Or Contractors 

The last step we’ll recommend when starting a construction contractor business is to determine whether you’ll keep full-time employees on your payroll or you’ll hire contractors when you need them.

image 4

Photo by Becca Tapert from Unsplash


As you probably know, there is bigger flexibility and lower costs involved when dealing with contractors because you don’t have to pay their benefits or continue to provide their salary when business is slow. 


However, at least you might consider having a full-time assistant whom you can prepare to know all ins and outs of your business and keep things running smoothly.

Final Thoughts 

Beginning a construction contractor business isn’t the most uncomplicated process in the world, but countless generations of contractors know how rewarding this business can be. The steps mentioned above are the first things you should consider to establish a thriving contractor business. Also, never forget that office work plays a vital role in keeping a positive cash flow, so besides securing the best contractors you can find on the market, do your due diligence and employ a first-class administrative person to handle all the paperwork for your new company!




Leave a Reply

Your email address will not be published. Required fields are marked *