Starting a contracting business is a rewarding venture, blending hands-on skills like craftsmanship and project management with sharp business savvy. With the construction market valued in the trillions, there is consistent demand for skilled contractors across residential, commercial, and government projects.
This guide will take you through the practical steps of validating your business concept, securing funding, obtaining the right licenses, and acquiring equipment to help you launch a successful contracting business in the U.S.
Step 1: Plan your business and validate your idea
Define your niche and research the market
Many new contractors try to do everything. A better approach is to specialize. Focus on a niche like kitchen remodels, deck construction, or commercial tenant improvements. This helps you target customers and build a reputation faster.
To gauge demand, talk to local real estate agents and property managers about what services they need. You can also visit your city’s planning department to review recently approved building permits. This shows you what projects are happening now.
Analyze competitors and estimate startup costs
Use Google Maps and the Better Business Bureau to find local competitors. Note their services, read customer reviews, and see how they present themselves online. This gives you a baseline for your own business.
Your initial investment will vary, so a thoughtful budget is a must. Some contractors stumble when they underestimate initial expenses, which leads to underbidding their first jobs. Plan for these typical startup costs:
- General Liability Insurance: $1,000 - $3,000 per year
- Licenses and Permits: $500 - $2,000
- Tools and Equipment: $5,000 - $25,000+
- Work Vehicle (used truck or van): $10,000 - $40,000
Here are 3 immediate steps to take:
- List three potential service niches you could specialize in.
- Research five local competitors and document their main services and online ratings.
- Draft a startup budget that includes estimates for insurance, tools, and a vehicle.
Step 2: Set up your legal structure and get licensed
Choose your business structure
You might want to form a Limited Liability Company (LLC). It separates your business and personal finances, which protects your home and savings if something goes wrong on a job. Many new contractors skip this and operate as a sole proprietor, but that choice offers zero liability protection.
For taxes, an LLC is a "pass-through" entity, so profits pass to your personal tax return. If you plan to hire anyone, you also need an Employer Identification Number (EIN) from the IRS. You can apply for one online for free in minutes.
Secure your licenses and permits
Contractor licensing happens at the state level. Your state’s contractor licensing board is the main regulatory body to know. For example, California has the CSLB and Florida has the DBPR. Check their websites for exam and application details and associated fees, which can be a few hundred dollars.
Project-specific permits are different. These come from your local city or county building department for each job. Common ones include building, electrical, and plumbing permits. Costs range from $100 to over $2,000, and approval can take from a few days to several weeks.
Here are 3 immediate steps to take:
- File for an LLC with your state's Secretary of State office.
- Apply for a free Employer Identification Number (EIN) on the IRS website.
- Find your state contractor board’s website and review its license requirements.
Step 3: Secure insurance and manage risk
Get your core policies in place
You'll want to start with General Liability insurance. It covers property damage and injuries to third parties on your job site. A $1 million policy is standard, and you can expect to pay between $1,000 and $3,000 annually.
Where some new contractors get tripped up is by choosing a policy with low limits to save money. This can be a major financial blow if a claim exceeds your coverage amount. Make sure your policy meets project requirements before you sign.
If you plan to hire anyone, most states require Workers' Compensation insurance. You will also need a Commercial Auto policy for your work vehicle, as a personal policy will not cover business-related accidents.
Add specialized coverage and find a provider
You might also consider Inland Marine insurance to protect your tools and equipment while in transit or at a job site. Professional Liability insurance, also called E&O, covers financial losses from mistakes in your work, like a design flaw.
When you look for providers, focus on those who understand construction. You might want to get quotes from companies like Hiscox, Next Insurance, or The Hartford to compare your options. A specialized broker can be a great asset here.
Here are 3 immediate steps to take:
- Request a quote for a $1 million general liability policy.
- Confirm your state’s workers' compensation insurance laws.
- Speak with an insurance broker who specializes in construction.
Step 4: Secure your space and buy equipment
Find a home base
Many contractors start from a home garage to keep overhead low. If you need a separate shop, look for a 500 to 1,500-square-foot space in an area zoned for light industrial or commercial use. Check your city’s zoning map online to find suitable locations.
When you negotiate a lease, ask for a shorter term, like one or two years. This gives you flexibility. Some landlords offer a Tenant Improvement (TI) allowance to help you build out the space. A mistake some make is to sign a five-year lease too soon, which can strain cash flow.
Purchase your core equipment
Your equipment budget needs careful thought. You can save money with a mix of new and used gear. Focus on foundational items first. You can rent specialty equipment on a per-job basis until you have the cash to buy it.
Here are some typical price ranges for new, contractor-grade equipment:
- Miter Saw: $400 - $1,200
- Portable Table Saw: $500 - $1,500
- Ladders (various sizes): $300 - $800
- Cordless Drill and Impact Driver Kit: $250 - $600
For materials, you can open pro accounts at suppliers like Home Depot or local lumberyards. Most do not have minimum order quantities for general supplies, which helps you manage inventory and costs on a project-by-project basis.
Here are 3 immediate steps to take:
- Review your city’s online zoning map for light industrial areas.
- Create a list of core equipment and get prices from two suppliers.
- Ask a commercial real estate agent about typical lease terms for small workshops.
Step 5: Set up your payment system
Define your payment structure
For most projects, a standard payment schedule is 50% upfront, with the final 50% due upon completion. For larger jobs, you might break it into three parts: a deposit, a midway payment, and a final payment after the walkthrough.
Always outline these terms clearly in your contract. Some contractors get burned by starting work without a deposit. Securing funds upfront covers your initial material costs and commits the client to the project.
Choose how you will get paid
You need a reliable way to accept payments. Look for a solution with low transaction fees and fast access to your money. Many processors charge rates from 2.5% to 3.5% and may include monthly fees or require extra hardware.
For contractors who need to accept payments on-site or on-the-go, JIM offers a streamlined solution. With JIM, you can accept debit, credit, and digital wallets directly through your smartphone—just tap and done. At just 1.99% per transaction with no hidden costs or extra hardware needed, it's particularly useful for collecting a deposit right after a client signs a contract.
- Get Started: Download JIM app for iOS
- Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone
- Access Funds: Your money is available right on your JIM card as soon as the sale is done - no waiting for bank transfers
Here are 3 immediate steps to take:
- Draft standard payment terms to include in your client contracts.
- Compare the transaction fees of at least two payment processors.
- Download the JIM app to see how it works for on-site payments.
Step 6: Secure funding and manage your finances
Explore your funding options
The Small Business Administration (SBA) is a good place to start. An SBA 7(a) loan can provide $50,000 to $5 million, but requires a good credit score and a solid business plan. For smaller needs, an SBA Microloan offers up to $50,000 with more flexible requirements.
You might also consider equipment financing. Lenders are often more willing to approve these loans since the equipment itself serves as collateral. A business line of credit is another option for managing cash flow, letting you buy materials before a client’s deposit clears.
Calculate your working capital
You will want enough cash on hand to cover at least three to six months of operating costs. For a new contractor, this is typically between $15,000 and $50,000. This buffer pays for insurance, fuel, and initial material orders while you wait for client payments.
Some new business owners get into trouble by relying solely on deposits. A single delayed payment can halt operations. Having a separate cash reserve or an approved line of credit protects you from these common cash flow gaps and keeps your projects moving forward.
Here are 3 immediate steps to take:
- Review the SBA 7(a) loan checklist on the SBA website.
- Contact a lender about equipment financing for your top three tool purchases.
- Calculate your estimated operating expenses for the first six months.
Step 7: Hire your team and set up operations
Build your core crew
You might want to start with a Lead Carpenter at $25-$40 per hour and a General Laborer at $18-$25 per hour. The Lead Carpenter runs the job site, while the laborer handles prep and cleanup. A Project Manager, who handles clients and scheduling, can be hired later as you grow.
For safety, you should require your team to have OSHA 10 certification. If you work on homes built before 1978, you will also need an EPA Lead-Safe Renovator certification. A mistake some new owners make is misclassifying employees as 1099 contractors to save on taxes. This can lead to major IRS penalties.
Streamline your project management
Once you have a team, you need a system to manage projects. You can use software like Buildertrend or CoConstruct to handle schedules, share updates with clients, and track progress. This keeps everyone on the same page and avoids costly delays.
As you scale, watch your payroll costs. A good benchmark is to keep total payroll under 30-40% of your revenue. This helps protect your profit margins on each job and keeps the business financially healthy.
Here are 3 immediate steps to take:
- Draft job descriptions for a Lead Carpenter and a General Laborer.
- Research local OSHA 10 certification course providers.
- Request a demo from a project management software like Buildertrend or CoConstruct.
Step 8: Market your business and get clients
Build your digital foundation
Start with a free Google Business Profile. This is often the first place potential customers will find you. Add high-quality photos of your completed work and ask your first few clients to leave reviews. A profile with fresh photos and positive ratings builds immediate trust.
You should also have a simple website. You can use a platform like Squarespace to build a one-page site that showcases your best projects, lists your services, and includes a clear contact form. This acts as your digital business card and portfolio.
Focus on local lead generation
Referrals are your most powerful marketing tool. Introduce yourself to local real estate agents, property managers, and architects. A single strong relationship can lead to a steady stream of jobs over time. Offer a small referral fee for any closed project they send your way.
Some new contractors rely too heavily on paid lead services like Angi or Thumbtack. While they can provide work, leads can cost $50 to $150 each. Before you commit funds, track your conversion rate and return on investment to ensure it makes financial sense.
Here are 3 immediate steps to take:
- Set up your Google Business Profile and upload at least five project photos.
- Outline a one-page website listing your niche services and contact information.
- Identify three local real estate agents or property managers to contact this week.
Step 9: Price your services and create proposals
Select your pricing model
You have two main options for pricing jobs. A Fixed Price model works well for projects with a clear scope, like a standard deck build. The client agrees to one price upfront. For repairs or custom work with unknowns, a Time and Materials (T&M) model is safer.
Calculate your costs and profit
Your price must cover direct costs, overhead, and profit. First, calculate your total job cost, which includes labor, materials, and a portion for overhead (rent, insurance). Your overhead will likely be 10-20% of your total revenue. Then, add your profit margin.
A common strategy is to mark up materials by 25-50% and then add a 15-20% net profit margin to the total project cost. Where some contractors stumble is by only marking up materials. They forget to add a separate profit margin, which erodes their actual take-home pay.
Draft a clear proposal
Your proposal is a sales document and a contract preview. It should clearly outline the scope of work, a list of major materials, the payment schedule, and the total price. This prevents misunderstandings and protects you if a client tries to expand the project scope later.
Here are 3 immediate steps to take:
- Calculate your hourly labor rate, making sure to include overhead costs.
- Decide on a standard markup percentage for materials and subcontractors.
- Create a proposal template with sections for scope, materials, and payment terms.
Step 10: Maintain quality and scale your operations
Establish your quality standards
Your reputation depends on consistent quality. Create a final walkthrough checklist for every job. Use the International Residential Code (IRC) as your minimum standard, but add your own higher benchmarks for finish quality, cleanliness, and client communication.
To measure performance, track the number of punch list items on each project. A good goal is five or fewer. You should also monitor warranty callbacks. If you get more than one callback on a job in the first year, review what went wrong.
Know when to grow
Growth should be deliberate, not reactive. A good signal to hire another lead carpenter is when you are consistently booked three months out. Once you pass $300,000 in annual revenue, you might want to bring on a part-time project manager to handle scheduling and client updates.
Many new owners make the mistake of expanding too fast. They accept every job, which stretches the team thin and causes quality to drop. It is better to raise your prices and be more selective with projects than to risk your reputation.
Here are 3 immediate steps to take:
- Create a final walkthrough checklist based on IRC standards.
- Set a revenue goal that will trigger hiring a project manager.
- Review certifications from the National Association of the Remodeling Industry (NARI) for your niche.
Building a contracting business is about more than the work itself. Your reputation for quality and clear communication will be your most valuable asset. You have the roadmap, now go build something great.
And as you land those first clients, make sure getting paid is simple. JIM turns your phone into a card reader, so you can accept payments on the spot for a flat 1.99% fee with no extra hardware. Download JIM and get ready for your first sale.
