Globally, the electrical services market is booming. In 2021, the market made more than $301 billion. It is expected to grow at a compound annual growth rate (CAGR) of 2.7% from 2021 to 2027. If you’re considering the electrical business market, now is the time to get involved.
Entrepreneurs with electrical skills can capitalize on this demand by starting their own contracting company. Setting up an electrical business requires obtaining licenses, securing startup funding, purchasing equipment, hiring employees, and bidding on jobs in your local area.
This guide will walk you through how to start an electrical business. Topics include market research, registering an EIN, obtaining business insurance, opening a business bank account, marketing, and more. Here’s everything you need to start your own electrical contracting business.
1. Conduct Electrical Market Research
Market research is important to developing a successful electrical business plan. It offers insight into starting your own electrical business through info on the target market, market saturation, trends among services, and more.
Some details you’ll learn through electrical businesses market research include:
- When assessing the viability of an electrical contracting startup, research your local market first.
- Populous states like California, Texas, and New York have the most electricians already competing for business.
- Less populated states may present more opportunities to establish your brand.
- Thriving markets will have strong demand, higher revenues per electrician, and fewer competitors. This suggests room for a new player to establish operations and win clients.
- Slow growth markets with low revenue per electrician ratios reveal saturation and signal you may struggle to get off the ground.
- Focus initial efforts on areas poised for construction booms and development.
- Use the Census Bureau’s statistics on new housing starts as well.
Essentially, choose markets with increasing population and construction, properly staffed to service demand, with favorable electrician income levels. This indicates clarity on who your customers are and what revenue targets to set.
2. Analyze the Competition
After identifying your target market area based on growth potential, the next crucial step is scoping out competitors. Examining existing electrical contracting firms helps set competitive pricing and service offerings as you build your operations.
Here are a few steps to get started analyzing competing residential electrical services:
- Search online business directories like Manta, Cylex, and Yellow Pages to uncover local electricians.
- Document the company names, addresses, websites, and any details listed.
- Investigate contractors operating in nearby major metros as well since you may compete for the same regional projects.
- Visit each competitor’s website to gather key information. You may find that some competitors offer computer repair services as part of their electricity services offer.
- Drive by physical office locations as well. Assess the condition of their facilities and inventory company vehicles. Successful contractors continuously reinvest profits into growth.
- Google the businesses to find any media coverage and further information. News mentions and awards indicate a strong reputation.
- Follow owners and executives on social networks to monitor the latest activities.
- Use all this data to form an analysis matrix comparing competitors across key metrics.
- Identify potential weaknesses you can exploit.
Ongoing competitive monitoring helps adapt your pricing and offerings to stand out. Sign up for competitors’ email lists and social media to stay updated on new service launches, promotions, and more. Tap into your target market needs competitors fail to address.
3. Costs to Start an Electrical Business
Starting an electrical contracting company requires significant upfront capital to cover licensing, equipment, facilities, hiring, and insurance until you begin generating revenue. Many costs will be ongoing as you pay employees, maintain your fleet, and finance operations.
Licenses & Permits – $300-$5,000
- Electrician’s license – $100-$300 application and exam fees
- State business license – $50-$500 depending on location
- Federal EIN – Free
- Sales tax permit – Often free
Tools & Equipment – $15,000-$40,000
- Company vehicles – Used cargo vans start around $25,000
- Power tools – Invest in commercial-grade drills, saws, and testers ($2,500+ to outfit)
- Basic supplies – Conduit, wiring, safety gear ($5,000+ initial inventory)
- Laptops – $1,000 per office employee
- Software – $1,000+ for project management, accounting
Facilities – $2,000 per month
- Retail office – Approximately $1.00-$1.50 per square foot monthly rent
- Workshop/warehouse space – Industrial rental rates apply
Hiring Talent – $50,000+ first year
- Electricians – $55,000+ salary and benefits
- Office staff – $40,000+ salary and benefits
- Sales staff – $50,000+ salary and benefits
Insurance – $3,000+ annually
- General liability – Protects against property damage, injuries
- Commercial auto – Covers company vehicles
- Workers’ comp – Employee injury claims
- E&O insurance – Professional liability
Marketing – $5,000+
- Website – $3,000+ for custom development
- Print materials – Business cards, flyers ($500+)
- Advertising – PPC, sponsorships ($1,500+ per month)
Estimate $100,000-$150,000 total to launch including 3 months operating expenses as an electrician or handyman.
Once up and running, regular monthly expenses will include:
Facilities – $2,000+
- Utility bills
Staffing – $25,000+
- Electrician payroll
- Office/sales payroll
- Benefits, payroll tax
Transportation – $5,000
- Gas, vehicle repairs
- Equipment rental
Tools & Inventory – $3,000
- Supply reorders
- Equipment maintenance
IT Expenses – $500
- Software, online services
Marketing – $2,000+
- PPC ads
- Website Hosting
- Printed collateral
With proper planning and control of overhead, electrical contractors can achieve strong profit margins. However, the startup costs are significant. New entrepreneurs should secure financing through small business loans, partners with capital to invest, personal assets, or alternative lenders before leaping.
4. Form a Legal Business Entity
Choosing the right legal structure establishes how to report taxes, protect personal assets, and expand ownership over time for your electrical startup. The main options, each with its pros and cons, are sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.
A sole proprietorship is the easiest entity to register, with no distinction between personal and business financials. This exposes your assets to liability if faced with a lawsuit or bankruptcy. While startup costs and paperwork are low, financing options are limited. Tax preparation is easy but credibility for larger bids suffers without a formalized structure.
Forming a partnership between co-founders requires an operating agreement to manage equity splits. It still exposes personal assets, however, partners can divide upfront costs and contribute complementary strengths. But there is equal responsibility for debts which can lead to conflict. Dissolving partnerships also gets complicated if relations sour.
Limited Liability Company (LLC)
LLCs come with liability protection limiting your exposure if the business faces legal actions or insolvency. Taxes get filed through personal returns as pass-through income. Startup costs exceed sole proprietorships but remain affordable, especially given LLC status lends more credibility for financing, bidding, and winning larger commercial contracts.
Establishing a corporation means the highest levels of personal liability protection but faces double taxation with business income taxed at the corporate rate and then shareholders paying taxes on dividends. Corporations can sell stocks but must adhere to stricter recordkeeping and reporting requirements.
5. Register Your Business For Taxes
Before taking on any paying jobs, electrical contractors must register for tax IDs at both state and federal levels. This legitimizes your business entity and enables processes like applying for business bank accounts.
At the federal level, apply for an Employer Identification Number (EIN) which functions as the business’s social security number used on tax returns and other financial documents. This unique nine-digit code identifies your LLC or corporation to the IRS for reporting and monitoring purposes.
Obtaining an EIN takes just a few minutes online from the IRS website. Simply provide details on your business structure, ownership details, and contact information. There is no fee. Issuance is immediate after submitting the form and saves the hassle of mailing applications.
The EIN links to your income, deductions, asset values, tax payments owed to the IRS and is crucial for:
- Opening business bank accounts
- Applying for financing and credit
- Managing payroll
- Filing yearly tax returns
- Interacting with benefit programs
At the state level, register for a sales tax permit which authorizes collecting sales tax from customers and outlines requirements for remitting those funds to the state. Many states provide online registration though some still require submitting physical applications with the revenue or taxation department.
Fees range from $10-$500 depending on your state. The sales tax permit must be displayed in your office location. Collecting sales tax also necessitates modifying invoicing systems to automatically calculate state and local taxes on top of job quotes.
Neglecting to formally register your electrical business exposes you to penalties of up to thousands of dollars for non-compliance. Remaining in good standing also requires submitting yearly tax returns and payments on time at both state and federal levels.
6. Setup Your Accounting
Proper financial management underpins the entire operation of your electrical company. Accurate bookkeeping provides clarity into revenue, expenses, profit margins, tax liabilities, and cash flow to strategically guide decisions. Yet sorting through receipts and invoices takes extensive effort.
Small business accounting software like QuickBooks automates recording income and expenses when synced to business bank accounts and credit cards. The system categorizes spending, tracks billing and payments, manages payroll, creates financial statements, calculates tax obligations, and more in one integrated platform.
Hire an Accountant
Hiring an accountant supplements DIY finance tracking, especially as you scale up. A bookkeeper handles accounts receivable/payable, bank reconciliations, and financial reporting every month. Expect costs around $200+ per month depending on workload complexity.
Open a Business Bank Account
Open a dedicated business checking account to run all income and costs separately from personal bank accounts. Doing so gives you and any accountants clean visibility and makes yearly filings smoother.
Apply for a Business Credit Card
Likewise, using business credit cards earns rewards on purchases while segregating electrical company spending from daily life expenditures. Providers determine credit limits based on your LLC’s financials instead of personal credit scores. Building business credit establishes helpful lines of credit for larger equipment purchases later on.
7. Obtain Licenses and Permits
Before marketing services, bidding on contracts, or accepting payments, properly license your electrical company through federal, state, county, and city agencies. Find federal license information through the U.S. Small Business Administration. The SBA also offers a local search tool for state and city requirements.
Federal Licenses The EPA requires certification under its Lead Renovation, Repair, and Painting (RRP) Program if handling projects disturbing painted surfaces in homes built before 1978. Lead exposure poses serious health dangers.
The 8-hour training course teaches working safely to minimize hazards and limit liability. Testing kits must be used to identify lead paint before sanding, welding, or disturbing such surfaces. Expect $300 per person for courses.
State Licenses Electrical Contractor License – Most states mandate holding a state-issued electrical contractor license qualifying your expertise and liability coverage to perform residential and commercial installations. Utah, South Dakota, and Wyoming currently have no statewide license mandate.
License approval depends on meeting experience thresholds detailed through:
- Minimum years employed under a master electrician
- Number of hours worked on past projects Some states require passing an exam as well. Costs range from $100 to $1000 every 1-3 years.
Business License – Your LLC or corporation must also hold a valid state business license verifying formal registration as an operating company. Fees typically run from $50 to $500 per year.
Municipal Permits Finally, many cities and counties require additional permissions and protections specific to construction sites and projects:
- Building Permits – Verify electrical plans meet state and local codes
- Right-of-way Permits – Allow short-term equipment placement on public property
- Safety Licenses – Mandate carrying workers’ compensation for teams
Doublecheck the precise requirements based on where your electrical warehouse resides along with areas you service across the state to remain fully compliant from day one. Any violations or fines quickly eat into profits while damaging your reputation and ability to renew licenses down the road.
8. Get Business Insurance
Adequate insurance protects your electrical business from unexpected disasters, lawsuits, employee incidents, and other exposures threatening financial stability. Without policies covering losses, a single catastrophe could bankrupt your company.
Common risks like on-the-job injuries, natural disasters damaging worksites, auto collisions involving company vehicles, and clients alleging shoddy work all trigger expensive claims and legal fees to resolve. Top concerns include:
- Property Damage & Liability: An electrical fire sparked by faulty wiring or equipment failures could destroy a client’s building and possessions. Lawsuits stemming from such destruction, especially causing injury or death, create massive liability exposure.
- Employee Injuries: Workers falling off ladders, getting burned, shocked, or hit by debris at worksites prompt hefty medical bills and time off. State laws stipulate providing workers’ compensation insurance with cash benefits and care coverage after incidents.
- Auto Collisions: Company trucks sustaining damage in at-fault collisions or causing injuries to others lead to expensive claims payments flowing from commercial auto policies. Expenses stack higher if electrical gear gets damaged too.
Safeguard against financial impacts if sued, disasters strike properties where you operate, employees have accidents, or electricians get injured through comprehensive business insurance policies.
9. Create an Office Space
An office space serves multiple purposes for managing your electrical company’s sales, hiring, payroll, record storage, equipment inventory, and service dispatch needs. Options balancing affordability, location relevance, and space vary in cost and functionality:
Leveraging a spare bedroom or basement keeps overhead low during bootstrap stages. Expect costs around $100 monthly including utility usage and tax write-off-eligible renovation investments like adding desks and wifi. Storing materials here can be inconvenient, however, parking fleet vehicles is easier.
Shared workspaces like WeWork provide amenities like conference rooms, printing, front desk staff, and networking opportunities with other entrepreneurs. Gain a professional business address and avoid long leases too. Open desk memberships start around $300 monthly with private offices from $600+ monthly.
Main Street’s visibility in retail space conveys legitimacy to customers but ranks as the priciest option when including rent and renovations. Expect $1,000-$1,500+ monthly for 1,500 sq ft and ample parking. The use of signage and foot traffic fuels branding efforts.
Plain warehouses or small industrial buildings offer affordable square footage benefiting equipment staging and parking multiple vans out of public view. Pay approximately $0.50-$2 per square foot depending on warehouse condition, location, dock access, and zoning laws. Lack of visibility can hamper sales, however.
10. Source Your Equipment
Successfully bidding and managing installation projects requires stocking your operation with reliable tools, hardware inventory, safety gear, testing equipment, and fleet vehicles with capability-matching work scopes.
Purchasing shiny new drills, conduit benders, cable pullers, trenchers, scaffolding, and more from big box stores provide warranty protection should issues emerge early on. Home Depot and Lowe’s offer special bulk pricing but purchases carry major upfront costs even on basic setups exceeding $10,000. Financing options help offset lump sums.
Major savings arise when sourcing secondhand from auction sites like GovDeals, industry dealers, or directly from other contractors. Meet to inspect condition and maintenance records first when buying locally via Craigslist and Facebook Marketplace.
Need niche tools like jackhammers, backhoes or scissor lifts only periodically? Rent specialized equipment as needed from national chains or local contractors instead of buying gear rarely deployed. Some may even offer preferred customer discounts if establishing a frequent standing order. Pay by hourly, daily, or weekly terms according to projected timelines.
Entering a long-term lease gets vehicles, warehouse equipment, and costlier assets requiring routine turnover into your electrical business affordably. Making lower monthly payments eases cash flow until revenue stabilizes. Carefully review terms on maintenance responsibilities, mileage limits, buyout clauses, and more when comparing business lease providers to avoid surprises.
11. Establish Your Brand Assets
Crafting a distinctive brand identity enables attracting ideal customers who resonate with your electrical company’s specialties, values, and approach to projects. Invest time upfront in determining logos, color schemes, website layouts, document templates, and other visual touchpoints.
Getting a Business Phone Number
Installing a dedicated business phone line dials up credibility so that customers can reliably contact your electricians without getting lost in personal inboxes and voicemails. Cloud-based systems like RingCentral provide toll-free numbers, call routing, voicemail transcriptions, and smartphone syncing starting at around $30 monthly per user.
Creating a Logo and Brand Assets
Logos symbolizing your brand stick in customers’ minds and convey professionalism when placed across bids, signage, equipment, and promotional materials using consistent fonts, icons, and colors. Services like Looka swiftly generate electrical-related logo options from $20. Iterating on favorites with an online designer ensures you secure full rights.
Cards and Signage Handing professional business cards to prospective hires and clients enables convenient follow-ups. Include logos, taglines explaining your specialties, phone/emails, license info, social media, and other details. Order economical cards, letterhead, door signs, and vehicle decals from Vistaprint.
Purchasing a Domain Name
Secure matching business website domain names ending in .com or .biz from registrars like Namecheap for $8-$15 yearly. Keep naming short, memorable and directly mentioning electrical services for ideal SEO and customer retention.
Building a Website
An informational website with photo galleries of finished installations, specifics on services, owner bios, reviews, and contact forms establishes legitimacy and discoverability. Utilize templates from Wix to easily construct pages yourself or hire web developers affordably on Fiverr starting around $500.
12. Join Associations and Groups
Joining regional industry associations, attending trade events, and participating in online communities create indispensable networking opportunities for electrical contractors. Surround yourself with fellow specialists to exchange insights on mastering complex installations, vet subcontractors, and keep licensing current.
Area construction and trade organizations like the National Electrical Contractor’s Association offer apprenticeships along with advocacy for improved local building codes and limited licensing barriers hindering business owners. Membership fees run a few hundred dollars yearly.
Attend conventions to discover emerging technologies and connect with product company reps for volume discounts unavailable to solitary entrepreneurs. Use Meetup to find free monthly trade meetups too. Listen to speaker wisdom and swap business cards with attendees to foster partnerships.
Thousands of electricians hang out and lend advice within niche social media groups like the Electrical Tricks, Tips & Discussion, and Electrical Works USA. Search for more hyper-targeted women electricians, military veterans in the field, solar installations, and additional specialties supplementing formal training with crowdsourced expertise.
13. How to Market an Electrical Business
Satisfied clients directly referring friends, family, and colleagues to employ your services remains the most valuable and cost-effective customer acquisition approach over the long run. Maintain quality by properly scoping work, meeting timelines, limiting change orders, and leaving spaces cleaner than found.
Follow up a week after completion to ensure absolute delight. Offer 10% off their next job or service call for any referral leads. Provide prompt quotes to referee prospects and make their endorsement pay off.
- Google Ads – Pay only when customers in surrounding regions click your search ads for relevant phrases like “residential electrician” and “circuit breaker installation”
- Facebook Ads – Target homeowners and property managers via precise demographics and income levels
- YouTube Channel – Create a video series following service calls and installations to demonstrate expertise
- Write Articles – Publish pieces discussing electrical codes, DIY tips, and safety on industry sites
- Optimized Website – Refresh pages with location pages and service specifics to improve SEO
- Vehicle Wraps – Install phone numbers and taglines on fleet sides and backs to essentially roam as mobile billboards
- Letterbox Flyers – Mail attention-grabbing details on move-in specials and financing options for expensive upgrades
- Radio Spots – Produce brief segments focusing on electrical safety running during drive times
- Charity Sponsorships – Provide free services for community center events and fundraisers
- Referral Rewards – Send thank you cards and gifts to loyal customers providing introductions
Experiment with marketing channels determining the strongest leads-to-sales conversion rates and ROIs. Experiment with a variety of marketing styles to draw in potential customers for electrical jobs.
14. Focus on the Customer
Delivering incredible service ensures homeowners and building owners become raging fans eager to recommend your electricians again and again. Being your own boss means developing your own code of conduct and company culture as a new electrical business.
Some ways to focus on customers in an electrical contractor business include:
- Schedule site walkthroughs to set clear expectations on scoping and timetables from the start.
- Electrician teams should protect surrounding areas from dust and debris before cutting into walls to run new wiring.
- Discuss potential change order charges if discovering unforeseen electrical complexities requiring more labor or materials to remedy.
- Update clients regularly on installation progress and timeline adjustments if permits or part shipments lag.
- Make each touchpoint courteous even when news proves disappointing.
- Review, outcomes together testing all lighting functionality, outlet charges, and smart home elements before demobilizing.
- Provide written guarantees on workmanship if anything fails shortly after signing off.
- Email customized follow-up surveys to measure quality and identify where crews can improve before reviews get posted publicly.
- Quickly resolve any lingering concerns revealed or offer statement credits for major defects.
Standing reliably behind electrical work and minimizing disruption during projects earns referrals as happy customers tell neighbors and coworkers about your services. Word of mouth drives more qualified leads than any advertisement designed by electrical business owners.