The home improvement industry in the United States is a major economic force, with a market size of over $5,267 billion in 2022. With home values rising and homeowners investing more in renovating their properties, demand for contractors continues to grow. There is huge potential for small contracting businesses to capture a piece of this sizable market.

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Many homeowners struggle to find reliable contractors they can trust to take on big or small projects, from kitchen remodels to fence installations. This presents a major opportunity for skilled tradespeople to start their own home contracting company.

This guide will walk you through how to start a home contracting business. Topics include market research, competitive analysis, registering an EIN, obtaining business insurance, forming a legal business entity, and more.

1. Conduct Home Contracting Market Research

Market research is essential to starting a new general contractor business in the United States. It provides important information for your business plan, including your target market, local market saturation, and trends in the industry.

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Some details you’ll learn through market research include:

• As the US housing stock continues to age, with over 80 million homes at least 20 years old, demand for remodeling work will remain strong.
• The West and South regions are seeing faster home value appreciation and population growth than other areas, presenting prime markets for contractors.
• Kitchen and bathroom remodeling make up over a third of all home improvement spending, while exterior replacements and indoor systems upgrades also draw major investment.
• Developing a stellar reputation and leaning on word-of-mouth referrals can be more valuable for a home contractor than a large advertising budget.
• The typical homeowner engages in remodeling projects every 13 years, providing a steady stream of leads.
• As homes continue rising in value, more discretionary income is available for renovations and upgrades.
• While the barriers to starting a contracting business are low, scaling the company by hiring additional workers often poses challenges.

Subcontracting other skilled trades can help supplement capacity without taking on the risks of adding full-time employees. Focusing sales efforts within a reasonable service area also promotes manageable growth for a small operation.

2. Analyze the Competition

When starting a home contracting company, carefully evaluating your competition is crucial to strategically position your business. Assess established players in the local market along with larger national operators looking to grow regionally.

Drive around neighborhoods and retail centers to observe physical contractor offices. Note signage visibility, location desirability, apparent customer traffic levels, branding, and curb appeal. Search online directories and chamber of commerce listings to identify key competitors and any specialties they promote.

Evaluating online presence equally matters since Internet visibility and digital reputation influence customer acquisition. Search relevant keywords related to your offerings on Google to see what companies rank highly in local search results. Click on individual sites to check ease of use, lead capture mechanisms, and photo and video content.

Search online review platforms like Yelp and HomeAdvisor to measure customer sentiment and volume of feedback. Positive online reviews, with a 4+ overall star rating, signal contractors who meet or exceed homeowner expectations. However, low review numbers could simply mean poor review solicitation rather than dissatisfaction.

Competitive research examines more than individual businesses. Pull permitting data from your county office to discover market share for large developers along with independent contractors. Drive around recent housing developments and record names on signboards outside active projects.

Analyze what they’re doing in terms of interior design and/or property management. All the services they offer are vital in determining which services you want to offer.

3. Costs to Start a Home Contracting Business

When starting a home contracting company, founders should budget for around $10,000 to $30,000 in initial start-up expenses before work begins. Costs scale higher for general contractors managing subcontractors across entire build projects compared to independent operators focused on specific trades.

Start-up Costs

• Administrative fees tally $500 to $2,000 covering business licensing, corporate formation, and basic legal/accounting guidance setting up the business entity and contracts.
• Essential equipment runs contractors around $7,500 for tools, work vehicles, and gear like ladders, scaffolding, and safety accessories.
• Many finance gently-used trucks for around $25,000 to keep lower monthly payments. Warehouse or flex space leases start around $1,000 monthly for those desiring an office.
• Pursuing bonded and insured status needs around $3,000 for surety and liability coverage to bid on public sector work or project financing through banks/credit unions.
• Most independent contractors instead operate under handyman exceptions.
• Robust websites cost $3,000 to $5,000 but basic online presence is achievable for under $500.
• Modest marketing budgets of $2,500 allow testing digital ads and print promotions to launch services.

Ongoing Costs

• While many bootstrap operations with personal credit cards and vehicles, $15,000 to $20,000 in capital eases transitions from full-time employment.
• Retained earnings then fund growth equipment like excavators and 1099 subcontractor labor.
• Veterans explore U.S. Small Business Administration general contracting loans around $50,000 to $100,000 to supplement personal capital invested.
• Once open for business, home contracting companies face monthly exposures including lease/mortgage payments, bookkeeping fees, software subscriptions, advertising, professional associations, and vehicle costs.
• These recurring expenses often total $3,500 to $7,500. Project materials also run 30-60% of quoted contract prices.
• Sales volumes must eclipse roughly $8,000 to $10,000 monthly for independent operators to turn profits after paying themselves reasonable owner’s draws against earnings.
• Bonded general contractors see higher gross margin returns from managing subordinates but assume more operating costs.
• Profitable contractors carefully control business overhead costs while ensuring adequate marketing investment to maintain lead pipelines.

4. Form a Legal Business Entity

Before you can start a construction business, every business owner must first form a legal business entity. There are various types of entities to choose from. The most common business structures for opening your own general contractor business include:

Sole Proprietorship

Sole proprietorships offer the easiest and lowest-cost business structure to form as you simply start working under your name with no separate business identity. However, you assume unlimited personal liability for debts and legal claims, placing personal assets at risk. Income also flows directly to personal tax returns lacking lower corporate rates.

Partnership

Partnerships enable multiple owners to combine expertise and resources launching a joint venture. A partnership agreement oversees profit distributions and decision-making authority. However, each partner remains personally liable for business activities. Partnership income flows through to personal tax returns similar to sole proprietors.

Corporation

Forming a corporation creates a distinct legal entity protecting owners’ assets from business liabilities and judgments. Shareholders elect corporate directors without direct management authority. Corporations face double taxation on company profits and shareholder dividends. They also incur higher formation costs and administrative paperwork.

Limited Liability Company (LLC)

Launching as a limited liability company (LLC) synthesizes the best aspects of partnerships and corporations. LLCs shield personal assets like corporations while offering pass-through taxation similar to partnerships with single-layer tax treatment. Members craft operating agreements outlining financial and managerial control without restrictive corporate governance.

5. Register Your Business For Taxes

An Employer Identification Number (EIN) serves as a contractor’s business social security number utilized when opening business bank accounts, applying for licenses, and filing tax returns. The IRS requires construction industry businesses to acquire an EIN.

Beyond federal requirements, local municipalities compel contractors to obtain sales tax ID numbers before issuing permits to commercially operate within city or county boundaries. Sales tax registrations also enable contractors to legitimately claim tax exemptions when purchasing equipment, vehicles, and materials from wholesalers.

Registering enables accurate reporting and remittance of sales taxes applied to customer invoices based on jurisdiction rates. While a contractor’s EIN establishes a federal tax identity, individual state registrations confer sales tax compliance. Some regions let businesses simultaneously acquire sales tax IDs when applying for state/city business licenses.

The IRS offers contractors a fast and free online EIN assistant walking through a few basic questions to instantly receive your registration number. Information required includes official entity name, address, and responsible owner/officer details. Expect email confirmation containing the EIN within minutes after submitting your information.

With EIN issuance, contractors qualify to open small business bank accounts and pursue access to financing options like company credit cards or lines of credit. An EIN also enables logging into the IRS portal to manage quarterly estimated income tax payments on company earnings.

Between acquiring an EIN federally and a sales tax ID locally, contractors establish legitimacy to be paid directly by commercial clients and home builders. Compliance removes barriers when competing for municipal contracts or projects utilizing bank loans. Obtaining identifiers progresses business readiness.

6. Setup Your Accounting

Meticulous financial recordkeeping provides the foundation enabling house contractors to strategically scale their company. Tracking income and expenses not only satisfies IRS obligations but also informs profitable decision-making relying on accurate data. Budgeting job materials and controlling overhead costs boost bottom lines.

Accounting Software

Purchasing small business accounting software like QuickBooks streamlines recording financial transactions flowing through company bank accounts and credit cards. Integrations automatically log spending without manual data entry. Applications produce requested reporting on demand like profit/loss statements, tax deductions, project ROI, and cash balances from any mobile device.

Hire an Accountant

While accounting platforms efficiently organize finances, the expertise of a bookkeeping professional proves invaluable in handling reconciliations, payroll, quarterly taxes, and financial statements. Bookkeepers charge around $100 per month for routine tasks like transaction coding, payment entries, and report generation always presenting current financial health.

Open a Business Bank Account

As a best practice, house contractors should establish dedicated small business checking accounts and credit cards solely for company expenditures. Separating personal and commercial finances simplifies reporting. Business credit cards often offer higher limits thanks to expected revenue flows evidenced through business registration documents.

7. Obtain Licenses and Permits

Operating a home contracting company legally necessitates securing appropriate professional licenses and project permits beforehand. Find federal license information through the U.S. Small Business Administration. The SBA also offers a local search tool for state and city requirements.

General contractor licenses broadly enable oversight and coordination across remodeling projects utilizing subcontractors for individual trades. Licenses get obtained through state agencies or professional associations verifying liabilities insurance minimums, bonding, and perhaps testing. Fees range from $50 to $500 renewed every 1-2 years.

Specialized trade licenses specifically confer certified status for direct hands-on contracting work like plumbing, electrical, HVAC, roofing, etc. Governing bodies similarly vet experience levels and insurance coverage through applications. Local municipalities connect trade licenses to passing focused exam sessions. Licenses run $100 to $350 with renewal fees.

Lead renovator certifications mandate participation in Environmental Protection Agency programs covering safe handling procedures when dealing with old paint containing lead. Especially critical for contractors handling pre-1978 homes. Requires $370 training class and exam registration.

Home improvement contractor registrations distinguish legitimate operators licensed to pull city/county permits and legally advertise services compared to unregistered handymen. Jurisdictions limit registration to contractors passing criminal background checks and showing minimum insurance policies. Registrations cost $50 to $100 annually.

Securing appropriate permits remains an indispensable final step before initiating any remodeling work once licensing credentials are satisfied. Building departments require submission of project plans ensuring compliance with zoning codes and construction methods. Permits authorize county inspectors to access monitoring stages from demolition readiness through to final walkthroughs.

8. Get Business Insurance

Carrying adequate business insurance represents a non-negotiable pillar protecting contractors from financial ruin when the inevitable occurs. Without policies defraying liability claims or replacing damaged gear, otherwise, thriving companies collapse under six-figure exposures. Coverages safeguard livelihoods.

Consider a workplace injury lawsuit from an uninsured fall by your lead carpenter off a homeowner’s roof costing permanent disability. Six figures in medical bills and lost wages stick with you without corporate protections. Even if proven not at fault, legal defense fees could still run tens of thousands of dollars out-of-pocket.

Alternatively, envision finishing an exquisite $50,000 bathroom renovation when your plumber starts the walkthrough. He accidentally leaves a valve slightly open flooding the home over hours resulting in $100,000 in repairs. The owner justifiably sues to recoup costs and your business assets get seized to pay absent insurance.

Finally, picture driving to a kitchen cabinet installation with $15,000 in custom boxes and tools. A text distraction causes you to veer off the road crashing your work truck. Equipment and materials losses sink your contracting schedule until you can finance replacements. The client insists you broke the contract.

General liability insurance covers personal and property damage from activities like these with typical policies running $50 to $150 monthly. One claim can render ten years of premiums a bargain. Larger contractors pursue umbrella policies extending millions more protection.

Begin getting insured by identifying target coverage levels to obtain competitive business quotes through agents. Provide experience details and equipment rosters so underwriters customize optimal packages. Expect approvals within two weeks before making the first payments. Renew policies on schedule to perpetually remain covered.

9. Create an Office Space

Establishing a professional office presence lifts the credibility of home contractors who directly meet with clients to finalize project scopes. Storefront spaces also securely warehouse equipment and materials between jobs. While home offices minimize overhead, location limitations hinder sales expansion.

Coworking Office

For public accessibility advancing sales, consider memberships at shared workspaces like WeWork providing movable offices, meeting rooms, phone booths, lounges, and events space. Customizable terms allow scaling desk rentals expanding contractors alongside projects without long leases. All-inclusive monthly plans start at around $300 per desk.

Commercial Office

Securing small stand-alone office suites within retail plazas enables contractors branding storefronts as their own. Signage drive-bys boost neighborhood impressions by serving walk-in inquiries from the 1,000 to 5,000-square-foot spaces. Triple net leases run $2,000 to $7,500 monthly factoring in property taxes, insurance, and maintenance.

On-Site Office

If your construction company includes a warehouse, building supply storage site, or other building already, an on-site office may be ideal. Save money for the signing of an extra contract and perform administrative duties at your work site.

10. Source Your Equipment

Home contractors require reliable work vehicles, job site tools, safety accessories, and project materials to deliver professional services. Strategically acquiring necessary gear based on budget and usage factors saves money as companies scale.

Buy New

Purchasing new enables custom ordering specific makes/models built to handle contracting demands. Dealers also include multi-year warranties and maintenance packages with purchases of around $50,000 for loaded vans and trailers. Open lines of credit finance costs over time. The latest accessories integrate with emerging technologies.

Buy Used

Scouring local classifieds sites like Craigslist and Facebook Marketplace connects contractors to lightly-used equipment priced around 40% below retail. Previous owners often upgrade recently despite decades of useful life remaining. Meet sellers inspecting functionality and negotiate based on wear. Financing rarely transfers.

Rent

Rentals from national chains like Home Depot supply commonly used tools and lifts when managing crews away from home workshops. No storage worries transporting between sites. However, daily/weekly rates add up quickly exceeding buying costs on lengthy projects. Avoid for everyday needs.

Lease

Leasing acquires customizable equipment bundles on affordable monthly plans without major outlays. Packages scale as the business grows. Maintenance and repairs stay included along with driver telemetry services tracking vehicle locations and health metrics. Interest rates stay low through solid leasing partners.

11. Establish Your Brand Assets

Strategically branding a home contracting company plants seeds for accelerated growth as specialized services get promoted locally. Logos, taglines, websites, and other identifiers differentiate amid commodity competitors allowing personalities and unique value propositions to shine.

Get a Business Phone Number

Securing a dedicated business phone line paves credibility when homeowners see callbacks from professional voicemail greetings rather than personal cell numbers. Digital services like RingCentral deliver smart call routing, voicemail transcriptions, vanity numbers, and unlimited long-distance. Plans start at around $30 monthly per user.

Design a Logo

Crafting an iconic logo contracts visions into recognizable symbols conveying quality and trust. Looka‘s AI generations synthesize requested concepts with fonts and colors mirroring target aesthetics. Revise designs iteratively to encapsulate intended messaging around craftsmanship. Simplistic brands resonate strongest.

Print Business Cards

Business cards exchange in-person establish lasting first impressions for homeowners and industry partners. High-quality card stock conveys success deserving of referral relationships. Order 500 or more cards from printers like Vistaprint catching quantity discounts around $20 total. Share cards at networking events, sales meetings, and site walkthroughs.

Get a Domain Name

Domain names uniquely identify online presences when promoting and protecting personal brands from copycats. Secure .com registrations through registrars like Namecheap enabling email hosting and website development. Brainstorm short memorable domain options before competitors or cybersquatters capitalize for ransom.

Design a Website

Websites showcase abilities through galleries, testimonials, service descriptions, and booking integrations advancing conversions. Prefab builders like Wix accelerate tailored site launches without technical skills through user-friendly page editing and SEO guidance. Those seeking true one-of-a-kind designs hire web development pros from freelancing marketplaces like Fiverr to code on WordPress.

12. Join Associations and Groups

Joining regional professional associations, attending meetups, and participating in online communities immerses contractors in insider circles sharing tips for scaling local success. Surrounding businesses with like-minded peers provides sounding boards when strategic questions arise.

Local Associations

Area contractor guilds and real estate consortiums host regular meetings and continuing education events centered on advancing best practices. Groups like the County Association of General Contractors bolster reputations by allying with established brands. Annual dues run $500 on average per company.

Local Meetups

Meetup facilitates exploring relevant seminars or networking gatherings drilling into niche topics like green building certifications, solar implementations, and smart home contracting. Meet creators and attendees famine with the events sparking potential partnerships. Use the site to monitor local happenings.

Facebook Groups

Facebook furnishes private communities engaging around specific contractor interests rather than general posts getting lost across personal newsfeeds. For instance, the Contractors & Subcontractors group provides advice and support. Profitable Contractors Association is another great group to join.

13. How to Market a Home Contracting Business

Implementing ongoing marketing distinguishes thriving contractors continually acquiring quality leads from stagnant competitors relying on sporadic referrals alone. Multi-channel promotions raise awareness, drive inquiries, boost conversions, and foster loyalty from satisfied homeowners over the years.

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Personal Networking

Tap personal networks first requesting introductions to Known remodeling needs among friends, family, and previous colleagues. Offer incentives for customer referrals such as gift cards or discounts on future projects. Building a referral engine takes time but ultimately wins very profitable jobs.

Digital Marketing

Digital channels grant targeted access to local homeowners actively searching for services online and through social media. Consider:

• Search engine marketing campaigns with Google Ads target homeowners searching for cabinet installation, kitchen remodeling, bathroom renovation, and other specific projects. Pay only for clicks to your site.
• Facebook ads showcase photo galleries and special offer lead magnets to highly customized homeowner demographics within set geographic radii. Retarget visitors across devices.
• Creating a YouTube channel builds authority answering common remodeling questions from prep to cleanup. Rank highly in local video search results.
• Write contracting tips articles and publish them on local news sites. Embed keywords and location mentions to get found locally.
• Comment on neighborhood forums and NextDoor helping locals. Share useful insights without aggressive sales pitches.

Traditional Marketing

Traditional options also improve local impressions:

• Design full-color flyers and mail to targeted zip codes. Include limited-time offers.
• Home shows booth rentals mix great networking with lots of prospects in the buying mode. Collect business cards for following up.
• Arrange to speak at local libraries, chiropractor offices, and chamber meetings about specialty topics like cracked foundation repair techniques. Become the expert source.
• Radio ad flights on popular stations drive brand familiarity reciting jingles and offerings commuters hear. Use call-to-action codes to measure results.

The most effective marketing contractors provide consistent value rather than always pushing sales. Content, advice, and helpfulness build authority and familiarity converting sales when homeowners ultimately seek contractors for large projects. Mix channels to maximize reach.

14. Focus on the Customer

Delivering exceptional customer service creates enthusiastic brand advocates who voluntarily drive referrals for home contractors. Homeowners appreciating professional, high-quality workmanship happily recommend contractors to friends needing similar services. Positive word-of-mouth builds pipelines.

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Consider a homeowner overwhelmed trying to compare intricate HVAC replacement bids from various companies. By patiently explaining technical considerations and pricing differences in everyday language, you ease selection frustrations. Knock their socks off on delivery by finishing early with immaculate cleanups.

Now envision the gratitude of elderly clients living independently when specially installing comfort-height vanities and grab bars in aging-in-place renovations. Taking extra time to ensure ideal accessibility adaptations and easing safety worries earns immense goodwill.

In both scenarios, delivering above-and-beyond customer service focused purely on household needs cements referral-worthy contractor relationships spanning years and projects. This drives sales growth more profitably than any amount of advertising spending alone could achieve.

However mediocre service risks driving customers to share poor experiences with many more networks. Unreturned calls, confusing invoices, and messy worksites frustrate clients. Every homeowner contact represents a make-or-break opportunity to earn a promoter or detractor. Manage experiences accordingly.