How to start an engineering business: A founder's roadmap

Starting an engineering business is a rewarding venture that blends technical expertise with sharp business acumen. The engineering services market is a multi-billion dollar industry, fueled by consistent demand from sectors like manufacturing, public infrastructure, and technology development.

This guide will take you through the practical steps of validating your business concept, securing funding, obtaining necessary licenses, and building your team to help you launch a successful engineering business in the U.S.

Step 1: Validate your business concept

Market and competitor research

First, define your niche. You can analyze industry reports from IBISWorld or use Bureau of Labor Statistics data to find underserved markets. Focus on a specific discipline like civil, mechanical, or a sub-specialty like sustainable design to stand out.

With a niche in mind, look at your competition. Use databases like Thomasnet to find other firms. A frequent misstep is to only track large companies. You should also pay attention to smaller, specialized consultancies in your area as they are your direct rivals.

Estimate your startup costs

A clear financial picture is necessary. Initial costs can range from $10,000 to over $50,000, depending on your specialty. A detailed budget helps manage expectations and secure adequate funding from the start. It shows you have a solid plan.

Here is a typical breakdown of first-year expenses:

• Professional Liability Insurance: $1,500 to $10,000
• State Licensing & PE Registration: $500 to $2,000
• CAD & Analysis Software: $3,000 to $7,000 per license
• Office & Equipment: $5,000+

Here are 4 immediate steps to take:

• Research three potential engineering niches using government industry data.
• Identify five local competitors through Thomasnet or a chamber of commerce directory.
• Contact an insurance broker to get a quote for professional liability coverage.
• Draft a preliminary budget with estimated costs for insurance, software, and licensing.

Step 2: Set up your legal structure and licensing

Choose your business structure

An LLC is a common starting point. It separates your personal assets from business debts, and its pass-through taxation simplifies your filings. This structure offers liability protection without the heavy formalities of a corporation, making it a practical choice for new engineering firms.

You might also consider an S Corporation. This structure can provide savings on self-employment taxes, but it requires more formal compliance, such as running payroll and holding board meetings. It is a good idea to consult a CPA to determine which structure offers you the most benefit.

A frequent mistake is mixing personal and business finances. Open a dedicated business bank account immediately after forming your entity. This action is fundamental to maintaining the liability shield your LLC or corporation provides.

Secure your engineering licenses

Your state's board of professional engineers is the main regulatory body you'll work with. In addition to your personal Professional Engineer (PE) license, your business entity will likely need a Certificate of Authorization (COA) to legally offer engineering services to the public.

The COA application fee typically runs from $100 to $500, with a processing time of four to eight weeks. You will also need a general business license from your city or county. This usually involves an annual fee of $50 to $150.

Finally, get an Employer Identification Number (EIN) from the IRS. You can apply for it online for free. The EIN functions as your business's federal tax ID number, and you will need it to open a bank account and hire employees.

Here are 4 immediate steps to take:

• Decide between an LLC and an S Corp and file the paperwork with your Secretary of State.
• Apply for a free Employer Identification Number (EIN) on the IRS website.
• Review your state engineering board’s requirements for a Certificate of Authorization (COA).
• Contact your city or county clerk’s office to apply for a local business license.

Step 3: Secure your insurance and manage risk

Understand your coverage needs

You will need several types of insurance. Your main focus should be Professional Liability, also known as Errors & Omissions (E&O). This covers claims of negligence or design flaws. A $1 million policy is a standard minimum, with annual premiums from $1,500 to $10,000.

You also need General Liability insurance, which covers property damage or bodily injury at your office or a client site. Premiums typically range from $400 to $1,500 annually. If you hire employees, Workers' Compensation is legally required to cover on-the-job injuries.

A frequent oversight is underestimating liability. A design error in a structural calculation could lead to catastrophic failure and lawsuits far exceeding a basic policy. For high-risk disciplines, you might consider coverage of $2 million or more. Always read the policy exclusions carefully.

Find the right insurance provider

You should work with a broker who specializes in engineering firms. General agents often miss the specific risks involved. Look into providers like Fenner & Esler, a/e ProNet, or The Hartford, as they have deep experience with the architecture and engineering industry.

Here are 4 immediate steps to take:

• Contact a specialized insurance broker for quotes on Professional and General Liability policies.
• Request sample policies to review common exclusions related to design services.
• Research your state’s Workers' Compensation requirements if you plan to hire.
• Assess if you need Commercial Auto insurance based on your business vehicle usage.

Step 4: Set up your office and equipment

Find your physical space

You can start with a small office of 300-500 square feet, which accommodates one or two engineers. Check your city’s zoning map for areas marked for professional services, often C-1 or C-2. A home office is also a viable option to minimize initial overhead.

Some new firm owners sign long-term leases for large spaces too soon. It is better to stay lean. A shorter lease of one to three years gives you flexibility. You might also negotiate a Tenant Improvement (TI) allowance to help cover build-out costs like wiring or new walls.

Acquire your equipment

With your space secured, you need to equip it. Your primary expenses will be computer hardware and specialized peripherals. The cost of equipment can be a large initial outlay, so you might explore leasing options from companies like CIT Bank to preserve cash flow.

• High-Performance Workstations: Expect to pay $2,000 to $4,000 per machine for computers that can handle CAD and analysis software.
• Large-Format Plotter: A plotter for printing schematics and plans runs from $2,500 to $8,000. Brands like HP and Canon are industry standards.
• Field Equipment: If your work involves site visits, you may need items like a total station, which can cost over $15,000.

Here are 4 immediate steps to take:

• Review your city’s zoning ordinances for professional office requirements.
• Request lease proposals for two potential office spaces with 1-3 year terms.
• Get quotes for workstations and a large-format plotter from two different vendors.
• Ask potential landlords about Tenant Improvement (TI) allowance options.

Step 5: Set up your payment processing

Payment processing

Establish your payment terms from day one. Net 30 is standard for engineering invoices. You should also require a deposit, typically 25-50% of the project fee, upon signing the contract. This helps manage your cash flow and secures client commitment before you begin work.

For large invoices, clients will often pay via ACH transfer or check. However, you need a way to handle smaller, immediate payments. Many new firms overlook this and create friction for clients who want to pay a deposit on the spot.

For engineering businesses that 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. Other providers often charge 2.5% to 3.5% plus other fees.

At just 1.99% per transaction with no hidden costs or extra hardware needed, it's particularly useful for collecting deposits during client meetings or processing payments for small-scale consultations. Getting started is straightforward:

• 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 right on your JIM card as soon as the sale is done - no waiting for bank transfers.

Here are 3 immediate steps to take:

• Define your standard payment terms (e.g., Net 30) and deposit requirements for your client agreement.
• Compare payment processing fees for both online invoicing and in-person transactions.
• Download the JIM app to see how it works for on-the-go payments.

Step 6: Secure funding and manage your finances

Find the right funding source

The SBA 7(a) loan is a popular choice. While it goes up to $5 million, new firms often seek $50,000 to $250,000. Expect interest rates around Prime + 3-5%. You will need a solid business plan and a personal credit score over 700 to qualify.

For your high-cost equipment, you might consider equipment financing. Lenders are often more willing to approve these loans since the hardware itself serves as collateral. This can be a smart way to acquire workstations or a plotter without draining your cash reserves.

If your firm has an innovative angle, look into Small Business Innovation Research (SBIR) grants. These are competitive and the application process is lengthy, but they provide non-dilutive funding for research and development.

Plan for your first six months

You should have enough working capital to cover at least six months of operating expenses. For a small firm, this often falls between $30,000 and $75,000. This buffer covers salaries, software licenses, and insurance before revenue becomes consistent.

A frequent misstep is to underestimate the sales cycle. It can take three to six months to win your first significant project, and another 30 days to get paid. Your initial capital is what keeps the lights on during this ramp-up period.

Here are 4 immediate steps to take:

• Review the SBA 7(a) loan checklist on the SBA website.
• Get a quote for equipment financing for your primary software or plotter.
• Calculate your estimated operating costs for a six-month period.
• Check SBIR.gov to see if your niche qualifies for research grants.

Step 7: Build your team and operations

Hiring your first employees

Your first hires will likely be a Project Engineer and a CAD Technician. The engineer manages projects and client communication, while the technician handles drafting. You might look for an engineer with an Engineer in Training (EIT) certification, as they are on the path to their PE license.

Salaries are a large part of your budget. A Project Engineer typically earns $75,000 to $100,000, while a skilled CAD Technician will command $50,000 to $70,000. Many new owners hire too quickly. You could consider using freelance drafters until your project workload becomes consistent.

Setting up your operations

With a team in place, you need operational systems. For project management, you can start with Asana or Trello. As you grow, look at industry-specific platforms like BQE Core, which integrate time tracking, billing, and project accounting into one system.

A good financial metric to watch is revenue per employee. Aim for $150,000 to $250,000 per person. This figure helps you decide when it is financially sound to bring on another team member. It keeps your growth sustainable and prevents overstaffing.

Here are 4 immediate steps to take:

• Draft a job description for a Project Engineer with an EIT certification.
• Research two project management platforms, such as Asana and BQE Core.
• Create a document outlining your firm’s file naming and drawing standards.
• Calculate the target revenue needed to support your first full-time hire.

Step 8: Market your firm and find clients

Start with your professional network

Your first project will likely come from someone you already know. Make a list of former colleagues, managers, and industry contacts. Send a brief, personal email announcing your new firm. This direct approach is often the fastest path to your first contract.

A frequent misstep is overthinking the initial marketing. You do not need a big budget or a complex campaign at the start. Your reputation and relationships are your most valuable assets, so leverage them first.

Establish your digital footprint

Next, build a simple, professional website. It only needs to cover your services, your niche, and how to contact you. You can use a service like Squarespace to get a site up and running quickly.

Your LinkedIn profile also needs to reflect your new venture. Update your title and summary to position yourself as a firm owner. It acts as your digital business card and a platform to share your expertise.

Engage in targeted outreach

With your online presence set, you can pursue clients directly. Identify local architects, developers, and contractors. You can find them in directories from the AIA (American Institute of Architects) or AGC (Associated General Contractors).

Attend their local chapter meetings. A single handshake at an industry event can be more effective than a hundred cold emails. Aim to land one or two small projects in your first six months to build momentum.

Here are 4 immediate steps to take:

• Create a list of 20 professional contacts to notify about your new firm.
• Build a basic website that outlines your engineering services.
• Update your LinkedIn profile to highlight your new role as a business owner.
• Identify a local AIA or AGC chapter and plan to attend their next event.

Step 9: Develop your pricing strategy

Choose your pricing model

You have three main options. Lump sum (fixed fee) is best for projects with a well-defined scope. Hourly rates, or time and materials, offer flexibility when the project scope is uncertain. This model protects you from unpaid work due to scope creep.

A third option is cost-plus, where the client pays for all project costs plus a fixed percentage or fee. This is common for large public works or research projects where total costs are difficult to predict upfront.

Calculate your rates and margins

To set your hourly rate, use a billing multiplier. A standard approach is to multiply your direct labor cost (employee salary/2080 hours) by 2.5 to 3.5. This covers overhead, which is typically 150-175% of direct labor, and includes a profit margin.

Aim for a net profit margin of 10-20% on your projects. Many new owners underbid to win their first jobs. This is a trap that can devalue your services and make it impossible to cover your actual costs, so hold firm on your calculated rates.

Here are 4 immediate steps to take:

• Calculate the hourly billing rate for a hypothetical Project Engineer using a 3.0 multiplier.
• Draft a sample proposal for a small project using a lump sum fee structure.
• Research public bid tabulations from your city or county to see competitor pricing.
• Define your policy for handling scope creep in your standard client agreement.

Step 10: Implement quality control and scale your operations

Establish your quality standards

Your reputation depends on the quality of your work. Create a simple Quality Assurance/Quality Control (QA/QC) plan. This can be a one-page checklist that requires a second set of eyes to review all calculations and drawings before they are issued to a client.

A mistake many new firms make is skipping this review on small jobs. This is where errors often slip through. To measure quality, you can track the number of Requests for Information (RFIs) per project that result from drawing ambiguities. Fewer RFIs suggest higher quality documents.

Scale with intention

Growth should be deliberate. Use the revenue per employee metric, which should be between $150,000 and $250,000, as your guide. When you consistently operate above the high end of this range, it is a strong signal that you have enough work to support a new hire.

As you grow, manage your projects with a dedicated platform. Software like Deltek Ajera or BQE Core helps you track project profitability and staff utilization. This data allows you to make informed decisions about when to expand your team or invest in more resources.

Here are 4 immediate steps to take:

• Draft a one-page QA/QC checklist for internal drawing reviews.
• Set up a simple spreadsheet to track client feedback and RFIs on each project.
• Calculate your current revenue per employee to establish your hiring benchmark.
• Schedule a demo for a platform like Deltek Ajera to understand its features.

Your technical expertise is the foundation of your new firm, but strong business systems will define your long-term success. Remember that every great structure starts with a solid plan. You have the steps, now go build your legacy.

To help with cash flow, make payments easy for your clients. JIM lets you accept cards right on your smartphone for a flat 1.99% fee, with no extra hardware. This way, you can secure deposits on the spot. Download JIM to get set up.