Did you know contract work makes up 4% of GDP in the United States? Construction is even a leading indicator of how the economy is likely to progress in the future.

We asked two general contractors, Marc Rousso and Vitaliy, how to start a contracting business and make sure it’s successful.

Marc Rousso lost everything when the Great Recession caused banks to collect on their loans, but today, his company JayMarc Homes makes $80M annually. Meanwhile, Vitaliy started with $80 bucks in tools and now earns 50% profits on his homes.

We’ll help you understand the different types of contractors and what each does. Along the way, you’ll get great information from these successful business owners.

Continue reading or click any of the links below to jump to the section that interests you:

Learn About Contracting

If you don’t already have a strong background in contracting, it’s important to learn about the industry before you consider starting your own business.

What is a contracting business?

Contractors are most commonly seen in the construction industry. There are different types of contractors with different skill sets and specialties. People hire contractors to complete specific tasks.

Common types of contractors include general contractors, subcontractors, and independent contractors. Like business owners, contractors work for themselves and may manage a team of subcontractors.

Next, let’s look at some of the specialized contracting companies you might see in the construction business.

What is a general contracting business?

A general contractor (GC) is responsible for overseeing construction companies. The GC is the direct point of contact between the construction crew and the property owner.

GCs are often responsible for maintaining budgets and timelines. They also hire subcontractors and inspect their work.

Marc is a general contractor who focuses on buying off-market properties. He demolishes them and builds multimillion-dollar custom homes on the land. Find out how in his interview below:

How much do contractors make?

According to IBIS World, the construction industry is worth $3 trillion and is still continuing to grow. When you divide that amount by the four million construction businesses in the United States, you get an average revenue of $750K per company.

The net and gross profit margins vary based on the type of contractor. To see how profit margins in construction compare to other fields, check out this data from NYU Stern.

JayMarc Homes makes $80M in annual revenue. Marc told us:

Meanwhile, Vitaliy makes nearly 50% margins building custom homes.

How much does it cost to start a contracting business?

Marc and his business partner, Jay Mezistrano, started JayMarc Homes during the Great Recession. This made it harder to start a general contracting business because banks weren’t lending and millions of homes were underwater.

That didn’t stop them. They sold their SUVs for $100,000 and put all the money into buying lots. Then they raised money from friends and family to get started and used hard-money lenders for three years before getting real loans.

Marc explained that the hardest part about starting his own business was getting the funding:

You don’t have to start that big. Take it from Vitaliy, who only spent $80 on tools and made $1,000 in the first week.

From there, he grew VP Homes into a $1.2M-per-year general contracting business. Check out our interview with him below:

How to Start a Contracting Business

Starting a contracting business takes a lot of planning, but most companies usually follow a similar process:

1. Decide whether you’re a fit.
2. Choose a trade.
3. Learn a bit of everything.
4. Write a contracting business plan.
5. Choose a business name.
6. Register your contracting business.
7. Get licensed and bonded.
8. Get a business bank account.
9. Get general liability insurance.
10. Plan funding and finance.
11. Set pricing.
12. Brand and market your business.
13. Find customers.
14. Follow regulations.
15. Get equipment.
16. Hire subcontractors.
17. Monitor performance and grow.

Step #1. Decide Whether You’re a Fit

Before starting a contracting business, you should take the time to consider whether becoming a contractor is right for you. You’ll need a diverse skill set and the right attitude. After all, you’ll be waking up early and working in inclement weather.

General contractors also need business skills, knowledge of project and people management, and an understanding of laws and regulations. Meanwhile, trades like HVAC, plumbing, and masonry require specialized skills and licensing.

If you have these qualities or you’re committed to building them, then you might be cut out for the contracting business.

Step #2. Choose a Trade

Most contractors start with a specific trade and then move to running full builds. There are more than 70 in-demand skilled trades in the U.S., but some aren’t in the construction industry.

You might want to take this easy trade quiz to find some ideas that fit you well.

Step #3. Learn a Bit of Everything

You’ll need to know a little bit about all the construction trades to become a general contractor. HVAC techs work with plumbers and electricians, and painting work can impact carpenters, tile layers, and carpet installers.

The more you know as a tradesperson, the more valuable your services. That’s true regardless of whether you work directly with homeowners or subcontract for a general contractor business.

Step #4. Write a Contracting Business Plan

Any contractor should have a solid business plan with the following elements:

• Description of the business
• Information about your competitors
• Challenges facing your industry and how you’ll overcome them
• Necessary licenses
• Regulations you’ll need to follow
• Amount of funding you’ll need
• Your pricing strategy
• Detailed information about your target market
• Your marketing strategies
• Equipment and tools

Whether you’re writing a general contractor business plan or a specialty trade business plan, you’ll be able to use that documentation to inform your management style, expansion efforts, and budget. Plus, you’ll need a business plan to get a small business loan.

Step #5. Form Your Business

The next step is to actually form your business from a legal standpoint. This is usually a multi-step process.

Choose a Business Name

Contracting businesses need effective names. Your business name needs to be descriptive and easy to remember so that people can easily search for your website, reviews, and social media.

Check out our business name tips.

Start a Limited Liability Company for Your Contracting Business

Register through your secretary of state as either a limited liability company (LLC) or a corporation. This keeps your personal assets and business assets completely separate.

While starting a contractor business as a sole proprietorship is technically allowed, it’s a horrible idea for new business owners. A contractor business can be held legally liable if employees die on the job, and more than 300 people die each year across all contractor businesses.

Get Licensed and Bonded

In many locations, you’ll need a contractor’s license, which is like a business license with extra requirements. Business licenses typically only require paying a fee. A construction license, on the other hand, may require a surety bond, a background check, and passing a written test.

Check with your state and local governments for the exact requirements for each type of contracting business.

Open a Business Bank Account

Open a business bank account when starting your own business. In addition to registering as a limited liability company or a corporation, this is how contractor companies keep their business expenses and personal finances separate.

Note that you’ll need your business registration documents and your employer identification number to open a business account. Check out our blog about business accounts to learn about other benefits of business bank accounts.

Get General Liability Insurance (and Other Coverage)

Both general contracting companies and subcontractors need business insurance. You’ll want at least general liability protection and property insurance for your own company.

Most contractors will combine general liability, property insurance, and business income insurance under a business owner policy plan. You might also want to get these other types of insurance:

• Equipment insurance: Covers losses when equipment is stolen
• Commercial auto insurance: Covers automotive accidents
• Workers’ compensation: Pays out in the event of employee injuries
• Contractor’s broadening insurance: Protects from liability for professional mistakes that cause damage

Step #6. Plan Funding and Finance

You may struggle with funding when you start your own company. Equipment and materials can be expensive. Plus, there’s a period between when you need to buy everything and when you get paid.

Marc Rousso told us:

There are loans, partners, and other ways to start contractor business operations if you’re struggling with financing. Learn more about funding a contracting business.

Step #7. Set Pricing

One of the hardest parts of the construction industry is estimating the time and materials required to build homes or commercial buildings.

That means you’ll want to have estimating software like On-Screen Takeoff and add your pricing sheets to it. Using this software allows you to quickly and accurately measure the dimensions of each material and create an estimate. Both general contractors and independent contractors can benefit from this software.

You might also consider time-and-materials or fixed-price quoting methods. Both have advantages and disadvantages that you must consider when you’re operating on thin margins.

Step #8. Brand and Market Your Business

Contractors often rely on word-of-mouth advertising, but that’s not the only way to market your services. Vitaliy told us:

You need to be intentional in your marketing efforts. He also explained:

Step #9. Find Customers

Marc uses a strategy of finding distressed homes in nice neighborhoods. He buys and demolishes them, then builds beautiful custom homes.

Meanwhile, Vitaliy only works based on word-of-mouth referrals. He normally requires a 5% to 10% deposit when building a home.

From there, Vitaliy designs and builds each home from scratch. Some of his homes are commissions for specific buyers, while others go on the open market.

Step #10. Follow Regulations

A general contracting business is subject to many different laws and regulations. Vitaliy and Marc have to ensure they are up to date on all the rules that apply to their businesses to protect their customers and themselves.

Industry regulations include OSHA standards, building codes, and other laws. General contractors must ensure that the subcontractors follow the law as well.

They must also get the necessary permits for any projects, hire licensed subcontractors, and schedule inspections.

Step #11. Get Equipment

Successful general contractor businesses need a lot of tools and equipment. Vitaliy told us:

Step #12. Hire Subcontractors

A successful contractor can’t possibly be effective at every task. There are too many skill sets necessary for a single build, so the easiest way to offer them all is to hire talented subcontractors.

You’ll want to verify all subcontractors’ licenses, business insurance, and previous experience. Subcontractors will reflect on your company, so it’s important to do your due diligence and make sure they’ll behave properly on the site.

Step #13. Monitor Performance and Grow

General contractors need to monitor performance and get ahead of any potential problems. Your business’s finances and cash flow depend on consistent performance.

In addition to watching finances and timelines, you should also measure customer satisfaction. Your business entity should support customer requests after your initial services are complete.

While a general contractor might do well in the build phase, customer service can set you apart from competitors. Vitaliy mentioned:

This helps increase satisfaction, positive word of mouth, and your overall growth. Remember that you should always be seeking out new clients as you manage your existing projects.

Are you ready to start your own general contractor business?

We’ve explained how to start a general contracting company and clarified the different types of contractors. We also shared step-by-step recommendations for starting a contracting business and relayed advice from two successful general contractors.

The primary responsibility of a general contractor is to make sure construction contracts go well. Make sure you give the kind of service you can be proud of.

Now that you know how to start a contractor business, what else would you like to know about the industry?