How to Start Your General Contracting Business and Adequately Insure It
By Pekin Insurance · Jan 19, 2021 ·4 min read
You’ve spent years honing your trade and perfecting your craft. You have the knowledge and experience in the construction industry, and you’ve completed many successful projects. Through the years, you’ve built many relationships in your field, and you’re ready to launch your own General Contracting business. It’s a demanding and competitive field that requires many different skills. But, with some detailed planning and research, you can make it happen.
First, let’s take a look at what a General Contractor really is. The construction industry defines it as follows:
A general contractor is a party with the responsibility to oversee a construction project and who enters into the prime contract with the property owner.
In other words, if you’re acting as a business and you’re hired directly by a property owner, you’re a general contractor. In reality, being a general contractor can mean anything from the most-simple home repair to constructing a giant office building. Let’s assume you’re somewhere in between.
Here are some very basic steps you should take to start your General Contracting business. We can’t provide all the answers, but we hope this list will give you some food for thought and a place to start your journey toward starting your own business.
- Start With a Business Plan
A business plan can be complicated. There are many resources online to help you write yours, but you’ll need it to set the stage for your new company. Should you need to secure additional financial resources, your lender will likely require it. It shows you have a thoughtful, detailed plan about how you expect your business to progress.
You’ll define things like who your target audience is. This might be obvious to you, depending on what type of construction you specialize in, but make sure it’s clear to those who will be reviewing your plan.
Your business plan will also outline your financial projections over the next few years. This will help you define how much money you’ll need to get started and keep your business going over the long-term.
Plan Builder offers some great templates and some free services to get you started.
- Choose a Name for Your Business
This is probably one of the easiest things you’ll do. You’ve probably had a name rolling around in your head for many years, but be sure to look it objectively. Ask others what they think of your business name. Maybe try a few variations. But, most importantly, make sure your name is not already trademarked. You can start by searching the United States Patent and Trademark Office to see if your name is already reserved. You may also want to enlist the help of a trademark attorney to determine whether there could be challenges to your business name down the road.
It’s also a good idea to look at domain names to see if your business name is available. Your domain name doesn’t have to match your business name exactly, but it might cause less confusion if it’s at least close. Be wary of odd spellings or hard to pronounce names as well.
- Determine Your Business Structure
You may want to enlist the help of an attorney for this part, too. Do you want to register your business as an LLC, sole proprietorship, or something else? The structure you choose will affect many aspects of your business, from liability to taxes. It’s best to consult a legal professional to see what’s right for you.
- Legally Form Your Business
Depending on the structure of your business, there may not be any formal paperwork to file, but it’s likely you will need to work with your Secretary of State’s office to start your LLC or file articles of incorporation if you decide to form a corporation. You’ll need to include some basic information about your business. Your attorney can point you in the right direction, and there are a number of online resources available, as well.
- Create Your Corporate Policies and Procedures
You must not leave your corporate policies and internal procedures to chance. You must get them down in writing, especially if your business is a partnership. Smartsheet offers some great resources to assist you with this.
- Attain an EIN and Register for Taxes
What the heck is an EIN? An EIN is a federal employer identification number from the IRS. Check this website for more information: https://www.irs-ein-tax-id.com/ You must have an EIN if you file corporate income taxes, have employees, or file certain franchise taxes. Your EIN is for federal taxes. You’ll still need to set up an account with your state’s Department of Revenue for state and local taxes.
- Go to the Bank
You’ll want to set-up a business account at your favorite bank. It’s always best to keep your business and personal expenses separate. But, if you’re a good customer of theirs on a personal level, they may be more inclined to help you with your business needs going forward.
- Obtain the Required Licenses and Permits
Most businesses require a business license to operate. Typically, various zoning requirements and other permits must be considered, as well. You’ll want to check with your local government (city, county, or state) to be sure all of your bases are covered.
- Partner with Reliable, Quality Subcontractors
General contractors tend to hire a lot of subcontractors. It’s vitally important there is subcontractor agreement in place. You’ll want to consult an attorney to help put this contract together.
The Subcontractor agreement outlines many things, but one of the most important is detailing your insurance requirements. Subcontractors must be adequately insured.
Additionally, you’ll want to partner with reliable subcontractors with good reputations that do excellent quality work. This will naturally lead to forming long-standing relationships with only the best subcontractors, which will be of great benefit in many aspects of your business.
- Talk to Your Commercial Lines Insurance Agent
Before you hang up your sign, you’ll be required to have a Commercial insurance policy in place. Pekin Insurance® offers policies that are tailored to your needs with a variety of coverage and endorsement options. Some of these include coverage for your buildings, business personal property, general liability, plus IMPAC, a package endorsement designed specifically for contractors that includes dozens of valuable coverages. Pekin Insurance also offers Errors and Omissions coverage designed for contractors, as well as Workers Compensation insurance and Loss Control Services. To learn more about your Commercial coverage options, contact one of our agents.
- Develop Your Marketing Plan
Once you have all your ducks in a row, you’ll want to make sure people know about your business. A marketing plan is extremely important and probably one of the most overlooked pieces of running your own business. As a General Contractor, you’ll be competing for business with all kinds of competitors, from the big firms to the weekend handyman and maybe even the do-it-yourselfers. You’ll need to let people know why you’re the best and why they should choose your firm when they are considering starting a project. This is a chance for you to toot your own horn and get the word out about your business. Do not skimp on marketing expenses. A business can’t function without customers, and it takes a continuous effort to attract them. So, you’ll want to spread the word as much as possible. For help in getting started with your marketing plan, check out this resource.
Watch for future blogs that will go more in depth about the details of insurance coverage for your business or visit our website: https://www.pekininsurance.com/personal/business-owners
Note: The information contained within this blog is for informational purposes only and should not be considered as legal advice in any form.