Getting Started as a Contractor
A house of your own with a paid-off mortgage and the ability to retire early may be your ultimate dream. But owning your own business is a close corollary and big step toward reaching that goal. For those of us who work in the trades, becoming a contractor is our normal path to growth and being our own bosses. But what are the steps you need to take to get your contracting business set up?
Sometimes we still refer to starting a business as “hanging out your shingle” – meaning putting a sign up in front of your store and being underway. But it’s a lot more involved than that, of course. You can’t just make a sign or website and start selling your services.
This article isn’t a how-to guide for each step of what you need to know, because that can vary too much based on where you live and your particular needs. But we’ll outline the main steps you need to take so you can investigate each one more deeply according to your situation!
Are You Ready?
The first step you should take when you decide to become a contractor is to ask yourself, “Am I really ready for this?”. You’re obviously eager to get started, but it’s important to have all your ducks in a row. After all, it is a big commitment! We narrow it down to three key aspects: experience, business knowledge, and money.
The most obvious necessity, of course, is being skilled enough in your trade. Normally you should have at least a few years of experience under your built. You’ll need to have “seen it all” – or at least anything that could be reasonably expected to go wrong on a job. You’ll want to have successfully completed a lot of different types of projects. That way you won’t be stuck when you’re suddenly the one who has to make a call on how to proceed.
Got Business Knowledge?
Trade skills aren’t enough when you want to have your own businesses. You’re also going to need to know how to run the business side of things.
Even if you can afford to hire employees, you’re the one who is ultimately responsible for making everything work. That means bookkeeping, taxes, payroll, marketing, permits, licenses and everything else involved. There are guides to help get started, but you’ll need to be able to do all of these to even get started.
This one is easy to overlook, but you’re going to need a good bit of money tucked away while you get your business started. Many people recommend having at least enough money saved to run the business and live on for a year before giving up your old job. Act as if you’ll have zero income for the first year.
Why? Because you’re probably not going to have much more than zero. It takes time to get started, build your reputation and bring in clients. And you’ll have all the startup expenses of your business, like buying equipment, setting up your office and advertising yourself. Of course, you have to be able to support yourself and your family, too!
It’s important not to put yourself in a situation where you can’t afford to maintain the business while waiting for it to take off. It’s even worse when you can’t afford to maintain yourself in the process. So plan ahead!
Finding Out What Your State or Province Requires
Legal requirements for being a contractor vary widely depending on your province or state and sometimes also more local government levels. But practically anywhere, you’re going to need some type of license before you can start working and charging clients.
One aspect of this is a contractors’ license. Some places may require you to get a license for working in your trade. This may be a license specifically as a concrete contractor or it might be a license as a general contractor. Again, it depends on your location. In many cases, you have to take a test to show that you understand basic principles of the trade as well as relevant building codes.
This can also depend on what trade you’re in. It’s much more common in industries like electrical or HVAC. However, it’s still widespread in many other construction-related industries. You’ll probably also have to renew your license. The length of the license varies but generally is one to three years.
You probably will also need a business license. In some cases, the process of getting one is folded into getting your contractors’ license. However, it might be separate. Again, this might require taking a test to show you understand business laws that will affect you.
For both a contractors’ license and business license, we suggest you contact your state’s licensing body and ask them to refer you to the write board or commission for your trade.
Let’s toss “choosing your business name” in right now, for lack of a better place. That’s usually part of the business license. If you’re only using your own name, you probably don’t have to use anything. But if you’re going to call yourself “ACME Contractors” or “Joe Smith Carpentry”, you may have to register as using a fictitious name. Again, it’s usually up to local government.
Getting Your Tax Documents
Another important step is getting your tax papers together. In Canada, you may need a Business Number depending on a number of factors.. In the US, if you’ll have employees, you’ll need an Employer Identification Number (EIN). It’s nine digits, like a social security number, but is usually written with two digits, a dash, then seven digits: 12-3456789, for example. You’ve probably seen it when filling out your taxes in the past.
Check with your local tax authorities to find out if you need to charge sales tax/VAT as well. This can vary depending on what you sell and the services being offered. For instance, you may have to charge taxes on materials but not labor.
We know we’ve said “You might have to …” and “You may need to …” a lot! Local laws and individual situations vary widely, so it’s hard to give concrete advice. Actually, we’re really good at concrete advice; it’s the business advice where it’s hard to be specific! (ok, ok, we’ll find better jokes!)
Opening a Bank Account
Now that your license and tax documents are in order, you can head to the bank and open a business account!
If you’re going to be working alone and under your own name, you might not need this. Still, it can still be helpful to keep the business’ money separate from your personal money. It will let you more easily track the financial health of each.
If you’re going to have employees, it’s definitely wiser to have a separate account. You’re going to have to worry about payroll, taxes and a ton of other issues.
Also, you’re going to have to make payments from this account – so it’ll help that you have checks that are in your business’ name!
You’ll need to have insurance to run your business as well. This is often a requirement of getting your contractor’s license. Each province or state may set a minimum amount of insurance you need. You can always choose a higher amount, depending on the size of your business and other considerations.
Insurance helps protect your clients against anything that may go wrong in the work you perform for them. It also protects you. If something goes wrong, your insurance company will handle the issue and hopefully see it through to completion without the need to go to court.
You should also be covered in case you or your employees are injured, equipment is damaged or any other harm is caused.
Setting Up Shop
Actually getting your office running might have been the first thing you thought of, but it’s not necessarily the first thing you should do.
However, once you’re ready, you need to figure out where you’re going to work. This could be your basement, garage or a spare room, of course. But be sure to check laws about whether you can run a business from your home. You could also buy or rent another location.
One of the great things about being a contractor is that you don’t necessarily need an office in a “prime location”. We’re not in the kind of business where people generally stop by. Instead, we bring our service to them. So it can be acceptable to be somewhat out of the way.
You’ll have to add a phone line and internet, get a computer and printer as well as other office supplies.
We also recommend that your office be an office. And that’s all. Even if you’re working from home, it’s far better to have space dedicated to the job. Otherwise, it’s too easy to get distracted or confused. .
Setting up the Books
Another vital element is keeping good books. Be sure to track all your expenses and income right from the get-go. Save receipts. Write anything to do with finances down. What did you buy, why did you buy it and when did you buy it? How many miles or km was it to visit the clients home? Were there tolls? Did you break a trowel on the job? All of that affects your financial picture.
Carefully note everything. You’ll need it for tax purposes, but you’ll also need it for making decisions about how to proceed with your business. It will help you understand where you’re making money – and what type of projects just aren’t worthwhile.
We recommend that, if possible, you hire a bookkeeper at least part-time. But we’ll talk more about bookkeeping skills you need as a contractor in another article.
Spread the Word
Marketing your contracting business is a topic we’ve covered more in-depth elsewhere. However, let’s just remind you how important it is.
You could be the most skilled person in the world in your field. And yet, if no one knows about you, you’ll go broke. It’s important to develop a marketing strategy to let people know that your services are available.
There’s a lot of ways you can do that, and it’s usually best not to concentrate on only one. But a good place to start is spreading the word with your family and friends. Let them know you’re now the proud owner of your fledgling enterprise. Tell them in person; tell them on the phone. Put it on your personal social media.
At least some people will then know what you’re up to. Then you can start in on a broader outreach to the area you serve.
Don’t ever forget how important it is to actively promote your business. Don’t sit back and wait for clients to come to you. Go out and find them for yourself!
Finally being able to start your own contracting business is an exciting moment. We’ve gone through the major steps you’ll need to undertake. For more details on many aspects, you’ll have to check with state or provincial offices. But with this outline you’ll know how to get started and be well on your way to becoming a successful business owner!