How to Become a General Contractor—7 Step Guide
The construction industry is made up of many layers, roles, and opportunities. The ability to oversee and focus on a complete construction project is a special skill known as general contracting. If this is an area of interest, you may wish to learn more about how to start a successful general contractor business.
To get started, you should have a foundational understanding of the construction industry and a knack for general business practices. Time, research, and dedication will help as you move from being a basic contractor to expert entrepreneur.
In this guide, you’ll learn the basic principles of starting a general contracting business. We’ll start from the ground up to equip you with basic tools for success.
Here’s What We’ll Cover:
What Does a General Contractor Do?
A general contractor provides oversight and management for construction work. General contractors oversee the process of supplying crucial elements like materials, labor, and equipment. These small businesses are mostly privately owned or independent and function separately from builders and specialty companies.
Depending on the needs of the job, general contractors may facilitate the hiring of specialty contractors. This may include electrical, plumbing, or flooring contractors.
Types of General Contractor Businesses
Depending on who you ask, you may receive different definitions of what a general contracting business is.
For the purpose of this guide, there are four types of general contracting:
- Corporate contracting: This business is best suited to handling large scale, corporate construction projects than small. The business structure is expansive and includes many subcontractors, employees, and resources.
- Midsize contracting: Midsize contracting is a popular option for residential builds and smaller projects. This type of business can offer expertise in a broad range of fields like HVAC, framing, plumbing, and electrical.
- Independent, small-sized contracting: These small businesses are one- or two-person operations involving contractors who actually engage in the physical work themselves. This is not necessarily true in large contracting companies in which the contractor is more of a site manager.
- Government contracting: Government entities regularly engage with private contractors for a variety of construction-related projects. You may choose to specialize in this area if you have many government or military contacts.
7 Steps to Starting a General Contracting Company
Although there is a lot to know about general contracting, don’t feel intimidated if you have dreams of owning a contracting business. Take the process one step at a time, beginning with the seven steps listed below.
1. Start with Training and Mentorship
Many construction business owners get their start by receiving direct training from other leaders in the industry. Apprenticeships, mentorships, and formal training opportunities are all things that you can pursue over time as you develop connections as a contractor.
By taking advantage of others’ knowledge and expertise, you can benefit in significant ways. First, you can develop a better understanding of whether owning this type of business is right for you before moving forward. Additionally, you can take advantage of invaluable lessons and tips that can only come from individuals who have years of experience.
2. Establish Your Business Model
When starting your general contracting business, you’ll also need to develop an established business plan and make sure to pick a business model. When deciding on a business model, there are generally four main options to choose from:
- Sole proprietorship
- Limited liability company (LLC)
There are different legal implications for each option, most of which revolve around personal liability of debts and assets. This choice should also be outlined in an official business plan that outlines how you plan to operate, generate revenue, and mitigate risk.
3. Secure Permits, Bonds, and Insurance
In construction, it’s incredibly important that you operate according to industry best practices. Without the proper coverage, your business risks facing potentially devastating penalties or lawsuits if something goes wrong.
Three coverage areas you should secure before starting a construction company are:
- Permits: Business license options vary based on where you live. Check with local administration to see what applications and fees you’ll need to submit in order to get your business license.
- Bonds: Surety bonds may be required for your construction activities. If for some reason your company can’t fulfill a project, these bonds serve as protection.
- Insurance: Business insurance choices can include general liability insurance, workers’ compensation, and vehicular insurance policies to cover your equipment.
4. Pursue Loan Options and Financial Support
Startup costs in general contracting can vary based on what type of specialty you choose, but they may be more costly than for other types of companies. This is because you’ll often need to invest in equipment, vehicles, and building materials which may fluctuate with the economy.
If you aren’t able to make these purchases out-of-pocket, you should speak with a local banking institution or online lender to see what small business loan you’re eligible to pursue. Unique financing options include business lines of credit, credit cards, equipment loans, and invoice financing.
5. Complete Training and Certifications
Depending on where you live, your state or locality might require additional training and certification to become the owner of a contracting business.
Some of this training might involve the Occupational Safety and Health Act (OSHA). OSHA standards are fairly rigorous for construction companies and workers, so it’s important that you’re trained on these policies and any other safety training courses that are relevant to the type of work you plan to perform.
6. Hire Workers and Subcontractors
Unless you work on very small residential projects, you’ll likely need to hire a range of different workers and subcontractors for your business. This could include full or part-time employees, in addition to specialty tradespeople who provide one type of service per job site.
In order to do this effectively, you should plan out what type of workforce you’ll need and how much labor costs will affect your business’ overhead expenses. Using an accounting software program for construction businesses can also alleviate stress when it comes to managing payroll, processing invoices, and gaining better visibility into your business’ labor costs.
7. Acquire New Business Leads
Finally, once you’ve handled the administrative logistics for your small business, you can focus on customer outreach. It’s always important to start any marketing effort you make with a clear understanding of your ideal customer. How will you target this type of buyer and sell them on your services?
In the realm of general contracting, you’ll also need to formulate a pipeline of new business leads to generate recurring business contracts. If you can develop a method for automating this process, you’ll never have to worry about your ability to get clients.
Consider the following methods to get new leads:
- Establish an online presence
- Join local trade associations
- Post content on social media
- Participate in local chambers of commerce
- Network within your community
- Run print or digital advertising campaigns
Accounting Considerations for Contracting Businesses
Maintaining your small business’ financial standing should be one of your primary areas of focus as the owner. When you neglect to have strong organization and don’t follow best practices, you may be setting your business up to fail. This is because financial visibility affects not only the daily operations of your company, but it influences the long-range financial outlook as well.
The good news is that you don’t have to be an accounting whiz to start implementing some of the most important tactics. These will keep your business afloat and provide peace of mind as you pay bills, put money in savings, and pay your employees.
The top accounting considerations for construction business owners include:
- Having an accurate estimating system: Estimates allow you to communicate with potential customers about how much a job could cost. This not only helps a client make the choice to work with your company, but it also gives you valuable information about purchasing and preparation.
- Staying on top of invoices: Receiving paid invoices is how your business generates income, so it’s important that you have an invoicing system that offers reminders and payment insights.
- Keeping detailed track of expense records: In construction, you’ll encounter both significant and minimal expenses in order to get and keep things running. Keeping records of everything, from large gear to small items like nails and gloves, is the best way to see where your money is going and what you can write off at tax time.
- Performing regular financial analysis: Bookkeeping is not just a numbers game. In fact, it can provide important data about the trajectory of your entire company. Keep a pulse on debts, assets, and revenue projections in order to plan for the future.
Become a Successful Contractor Today
Are you ready to launch your contracting business? If so, the seven steps above will help you formulate a plan that works. As you do the work required in each step, remember to be adaptable, humble, and hardworking.
Becoming the owner of a general contracting business can open up future career paths and specialties that you may not have considered previously. As you expand your own knowledge and skill set, you can pass along these tips to other future entrepreneurs who may wish to follow a similar path.