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Starting a construction contracting business can be quite easy, especially if you have extensive industry experience and a reputation as a good carpenter. If you do not, you will need to proceed with care and go about the start-up process correctly, surrounding yourself with the right people and having a strong plan.
Gain construction experience. The most successful contractors have spent many years in the trenches swinging hammers and doing the physical work necessary to build houses and other structures. It is, therefore, wise to have at least three to five years of construction experience under your belt before starting your own contracting business. It is also smart to familiarize yourself with how to bid on jobs, understand blueprints, read and negotiate contracts (see Resources) and hire subcontractors.
Write a business plan. Although it is sometimes very helpful to write a business plan for any professional venture, as a contractor a strong business is a must. You must know where and when to obtain financing on projects, deal with unions, hire the right help and keep a close watch on your financial data. Make sure your plan details a comprehensive three- to five-year expansion plan. You can hire a CPA, attorney or marketing company to help you, or purchase a contractor business plan kit (see Resources).
Form an official construction company. Choose a professional name and contact your secretary of state to incorporate your company by forming a limited liability company. An LLC is often a good official business entity for contractors, as you will be hiring subcontractors, dealing with a variety of customers and taking on significant amounts of debt to fund some of your projects. An LLC will allow you to enjoy the benefits of both a corporation and a sole proprietorship and allow you to operate as a credible and official business (see Resources).
Obtain a construction line of credit. As a general contractor, you will need a considerable amount of working capital on an ongoing basis. Contact a commercial banker that commonly works with contractors in your area. Show them your business plan, or search for the line of credit for your needs online (see Resources). When your credit is approved you are ready to fund your jobs. As your projects are finished and buyers buy the properties you build, your credit line gets paid down.
Get a state license. Some states require construction contractors to be licensed. Contact your secretary of state or governor’s office to inquire if construction contractors require a license in your state. Some states have many contractor licensing classifications. The process, therefore, can be quite detailed. In California, for example, there are more than 40 different classifications of contractors, most requiring different licenses. You will likely be required to complete a training course and pass a state construction/contractor’s examination. Download or have sent to you the correct license application and complete each document according to the guidelines. Have vital information about about your company handy: your financials, proof of incorporation, banking information, references and a satisfactory criminal background check in case you need to disclose it to obtain a license. You may also be required to purchase a surety bond.
Get insured. Contact your insurance agent for a quote on a contractor’s liability policy. Based on your assets, liabilities and the size of your firm, purchase enough insurance to cover you in the event of an accident, act of God or other loss of income.
Decide on a staff. Some contractors hire salaried or hourly tradesmen to work directly for them. Some use only subcontractors or union workers. Some hire both. Depending on the type of work you will do, you may be able to hire only subcontractors to start. Join your local carpenters union. Although some contractors choose to avoid union help, it is often the only way to hire solid tradespeople. Hire at least one person to work your phones, keep your books and expedite jobs. At least one staff member should be hired to do blueprint take-offs and bid on jobs.
Find a location. Depending on your specialty, you should find ample space to store materials, park vehicles and have a professionally set-up office so you can meet with clients to review prints and negotiate contracts. Find a reputable Realtor to help you find a suitable space.
Find good suppliers. Work with full-scale lumber companies and other suppliers that offer price-point discounts for contractors and cater to the building community. Get to know your suppliers well. You will likely need to open accounts with several vendors. It is common for some suppliers to require a business credit card, check references or ask for a cash deposit to open accounts with them.
Market your firm. Get to know everyone in the trades. If you have experience in the industry, this will be easy for you. If you are new in town, join your local Home Builders Association and Chamber of Commerce. Network with bankers, Realtors, framing companies and developers. Use direct mail, email blasts and classified advertisements in your local newspaper. Ads in real estate and construction trade publications are also very effective ways for contractors to get business.
Get a business license if one is required in your area. In addition to a contractor’s license, you may be required to get a state or city business license or both. Contact your state and local government for information.
Keep yourself educated and certified where necessary. The construction industry often changes. There are always new building techniques and changes to best methods of construction. Keep aware of these changes by attending seminars, taking continuing education classes and communicating with others in the industry.
Always pay your vendors according their invoice terms. Building material suppliers are often quick to close the accounts of contractors and place mechanic's liens on properties owned by builders who fail to pay their bills on time.
Research unions carefully before joining. Some contractors find it more cost-effective to avoid using union help. Do not allow union representatives to coerce you into joining a union until you know the ins and outs of local union politics.
Don’t try to be all things to all people. Start your business based on your area of expertise. If you have residential home building experience, run with that experience at first. Don’t branch off into other areas of construction until you have the capabilities.