How to start a service business from the ground up

Starting a service business is an exciting venture that combines your unique skills with business savvy. Many service markets have a low barrier to entry, which makes them attractive, but this also means competition can be stiff.

This guide will take you through the practical steps to validate your business concept, secure funding, obtain necessary licenses, and acquire equipment to help you launch a successful service business in the U.S.

Step 1: Create a business plan and validate your idea

First, gauge local demand for your service. You can use online communities like Nextdoor or local Facebook groups to run informal polls. Also, check Google Trends to see how often people in your city search for the services you plan to offer.

Analyze your competition

Look up potential rivals on platforms like Yelp, Thumbtack, and Angi. Note their pricing, services, and customer reviews. Many new owners only focus on direct competitors, but you should also identify businesses that solve the same customer problem in a different way.

Estimate your startup costs

Your initial investment will vary, but you can create a basic budget. For many service businesses, startup costs range from $1,000 to $5,000. This accounts for business registration, insurance, initial equipment, and basic marketing materials. A detailed spreadsheet will help you track every dollar.

Here is a sample cost breakdown:

• Business registration and licensing: $150 - $500
• General liability insurance (first payment): $100 - $400
• Initial equipment and supplies: $500 - $3,000
• Basic website and marketing materials: $200 - $800

Here are 3 immediate steps to take:

• List five direct and indirect competitors you find on Yelp or Google Maps.
• Create a detailed spreadsheet to budget for your specific startup costs.
• Post a poll in a local online community to get feedback on your service idea.

Step 2: Set up your legal structure and get licensed

For most service businesses, you might consider forming a Limited Liability Company (LLC). It protects your personal assets from business debts and lawsuits. Filing for an LLC with your Secretary of State typically costs between $50 and $500, depending on your state.

Once your LLC is approved, open a separate business bank account immediately. A common mistake is to mix personal and business funds, which can erase the legal protection your LLC provides. This is a simple step that many new owners overlook.

Secure the right permits

You will need an Employer Identification Number (EIN) from the IRS if you plan to hire employees; you can apply for one online for free. Also, check with your city or county clerk for a general business license, which can cost $50 to $200 and take a few weeks to process.

Some services require special state-level certification. For example, an electrician needs a state license, but a freelance writer does not. Search for "[Your Service] + [Your State] + licensing board" to find the specific rules that apply to you.

Here are 3 immediate steps to take:

• Decide on a business structure and file the paperwork with your Secretary of State.
• Apply for a free Employer Identification Number (EIN) on the IRS website.
• Research your city and state websites for specific license and permit requirements.

Step 3: Secure your business insurance

General liability insurance is your first line of defense. It covers incidents like property damage at a client’s site or customer injuries. A standard $1 million policy typically has an annual premium between $400 and $900.

Additional policies to consider

Your service type determines if you need more coverage. Professional liability insurance protects you if a client claims your advice caused a financial loss. If you use a vehicle for work, you will need a commercial auto policy.

Once you hire your first employee, workers’ compensation is legally required in most states. This policy covers medical costs and lost wages if an employee gets hurt on the job. A common mistake is to delay this and face heavy fines.

Speaking of costs, it's tempting to just pick the cheapest option. Instead, get quotes from providers that specialize in small businesses, like Hiscox, The Hartford, or Next Insurance. A specialist broker understands your unique risks better than a general agent.

Here are 3 immediate steps to take:

• Request a quote for a $1 million general liability policy.
• Assess if your service requires professional liability or commercial auto insurance.
• Compare rates from at least three providers that focus on service businesses.

Step 4: Find a location and buy equipment

Many service businesses can start from a home office, which avoids commercial rent. If you need a physical space, check your city’s zoning map for areas marked for "commercial" or "mixed-use" activities. A small 200-500 square foot space is often enough for a small team.

Purchase your core equipment

You can save 30-50% with quality used equipment instead of buying new. For example, a used commercial lawn mower might cost $1,500 instead of $3,000. For a cleaning business, a durable commercial vacuum runs between $200 and $500. Check Facebook Marketplace or industry forums first.

If you decide on a physical location, try to negotiate a shorter lease term, like one or two years, to maintain flexibility. For supplies, you can start with local options like Home Depot Pro or Lowe's for Pros, which do not require the large minimum orders of some national suppliers.

Here are 3 immediate steps to take:

• Check your city’s zoning laws for home-based business restrictions.
• Price one key piece of used equipment on Facebook Marketplace.
• Open a pro account at a local supplier like Home Depot or Lowe's.

Step 5: Set up your payment processing

Choose your payment terms and solution

For most jobs, you can ask for payment upon completion. If a project requires a big material purchase upfront, consider asking for a 50% deposit. Just be sure to state your payment terms clearly in the initial quote.

When you choose a payment solution, watch the transaction fees. Many new owners overlook these small percentages, but they can eat into your profit. Typical rates from other providers run between 2.5% and 3.5%.

If you take payments on-site, JIM offers a simple way to get paid. You can accept debit, credit, and digital wallets right from your smartphone. Your customer just taps their card or device on your phone.

The fee is just 1.99% per transaction with no hidden costs or extra hardware. This makes it a good fit for mobile services like a handyman or a landscaper. Getting started is also quick:

• Get Started: Download the 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 on your JIM card as soon as the sale is done, no waiting for bank transfers.

Here are 3 immediate steps to take:

• Decide on your payment terms, like payment on completion or a 50% deposit.
• Compare transaction fees from at least two payment solutions.
• Download the JIM app to explore its features.

Step 6: Fund your business and manage finances

The SBA Microloan program is a great fit for service businesses. You can borrow up to $50,000, and lenders often work with new owners who have less collateral. Interest rates typically range from 8% to 13%.

Another option is a business line of credit from your bank. This gives you flexible access to cash when you need it. Qualification often requires a good personal credit score, usually above 680, so it is a good idea to check your score first.

Plan your working capital

You should have enough cash to cover three to six months of expenses. Many new owners only budget for startup costs and run out of money before they build a steady client base. Calculate your rent, insurance, and marketing costs to find your number.

For grants, you can search on Grants.gov, but these are highly competitive. You might have better luck with local or private grants like the Amber Grant for women entrepreneurs. These often have simpler application processes and are worth a look.

Here are 3 immediate steps to take:

• Calculate your working capital needs for the first three months.
• Check your personal credit score to see if you qualify for a line of credit.
• Research one SBA Microloan lender in your state.

Step 7: Build your team and manage operations

Hire your first team members

Your first hire will likely be a Service Technician or Field Specialist. Expect to pay between $18 and $25 per hour, depending on their skill level. Their main job is to perform the service, but they also represent your brand to customers.

A frequent misstep is to hire friends without a formal process. You should draft a clear job description first. Also, check if your state requires certifications, like OSHA 10-hour safety training, for your field staff. This protects both you and your employee.

Streamline your daily operations

Once you have an employee, you need a system to manage jobs. Manual methods like texts and spreadsheets cause confusion. Look at scheduling software like Jobber or Housecall Pro to manage appointments, dispatch, and invoicing from one place.

With efficient systems, a healthy service business often generates $100,000 to $150,000 in annual revenue per field employee. This is a good benchmark to aim for as you grow your team and your operational efficiency.

Here are 3 immediate steps to take:

• Draft a job description for a Service Technician with clear responsibilities.
• Research OSHA 10-hour training requirements for your industry.
• Request a demo from a scheduling software like Jobber or Housecall Pro.

Step 8: Market your business and get customers

Your first customers will likely come from local efforts. Claim your free Google Business Profile immediately. This is the most effective way to appear in local map searches when people nearby need your service. Fill out every section with photos and service details.

Build your online presence

A simple one-page website that lists your services, service area, and contact information is enough to start. Once that is live, consider Google Local Services Ads. You pay per lead, not per click, with costs often between $20 and $50 per qualified lead.

Many new owners fail to ask for reviews. Make it a habit to request a review on Google or Yelp after every job. You can also create a simple referral program. For example, offer a 10% discount on a future service for any successful referral.

Here are 3 immediate steps to take:

• Claim and complete your free Google Business Profile.
• Research Google Local Services Ads for your industry and city.
• Outline a simple customer referral program with a specific discount.

Step 9: Set your pricing strategy

Choose your pricing model

Most service businesses use either hourly or flat-rate pricing. An hourly rate, like $75 per hour for a plumber, is simple. However, customers often prefer a flat-rate price, such as $300 to install a faucet, because it provides certainty and eliminates surprises.

A mistake many new owners make is to only offer one option. You might consider a hybrid approach. Use hourly rates for unpredictable repair jobs and flat-rate prices for standard installations. This gives customers flexibility while protecting your time.

Calculate your profit margin

To set your price, you must first know your costs, including labor, materials, and overhead. A healthy service business often aims for a net profit margin between 20% and 30%. For any materials you supply, a markup of 1.5x to 2x the cost is standard.

Simply matching a competitor's price without this calculation is a path to failure. You might end up busy but unprofitable. Use your expense spreadsheet from Step 1 to figure out your break-even point before you set any public-facing prices.

Here are 3 immediate steps to take:

• Calculate your hourly cost by adding up monthly expenses and dividing by your expected billable hours.
• Research the flat-rate prices of three local competitors for a standard service you offer.
• Decide on a target profit margin, such as 25%, to add to your service costs.

Step 10: Scale your business and maintain quality

Establish your quality standards

To keep service consistent, you need clear metrics. Aim for a customer satisfaction (CSAT) score above 90%, which you can track with simple surveys. Another good metric is a first-time fix rate of over 85% for any repair services you offer.

Many owners fail to create a formal quality checklist. This oversight leads to inconsistent work as your team grows. Create a simple checklist for each service type that your technicians can follow. This ensures every customer gets the same great experience.

Know when to grow

A clear signal to hire is when you turn down work for two to four consecutive weeks. Also, watch your lead technician’s utilization rate. Once they are booked 80% of the time, it is time to post a job opening to avoid burnout and missed opportunities.

Once you have three to five field employees, your next hire should be an operations manager. This move frees you from daily scheduling and dispatch. It allows you to focus on strategy instead of logistics. Software like ServiceTitan can help manage this larger scale.

Here are 3 immediate steps to take:

• Create a quality control checklist for your main service.
• Track your lead technician’s utilization rate for one month.
• Research advanced field service software like ServiceTitan.

You now have a clear path to launch your service business. Remember, your reputation is your most valuable asset, built one happy customer at a time. The steps are laid out, so take that first one with confidence.

And when you complete that first job, getting paid should be just as simple. JIM turns your phone into a card reader for a flat 1.99% fee, no hardware required. Download JIM to be ready for your first payment.