How To Become A Contractor (Becoming Your Own Boss)

I've put together a ton of information on this website to try to help the average guy (or gal) get his (or her) own contracting or service business going and thriving, but occasionally I'm asked basic questions that demonstrate to me that I need to go over more of the basics.  One question I get over and over again: "What exact steps do I have to take to actually become a contractor?"  These questions come from folks who usually already have a skill but have never owned a business before and are afraid that starting one would be too complicated or too risky.  It doesn't have to be either.  Learning how to become a contractor is actually a rather straight-forward process.  Here's a basic list for turning that dream into a reality (note that this list could be slightly different for your state):

1. Have the guts to go for it.  Either you can make excuses all day long not to start your own business or you can grow a pair and take the leap.  As for me, I worked at a job that I hated for years, putting up with crappy bosses and average pay just because it was a predictable paycheck and because it offered the illusion of security.  I reached a point however, around my 30th birthday, when I realized that life was passing me by and I wanted something more.  I wanted to take a risk.  I wanted to be in a leadership role.  I wanted to experience the ups and downs of the American entrepreneurial experience by becoming a professional contractor.  Above all, I wanted to build something that was tangible and that I could be proud of.  So I went for it, and I've never once regretted the decision.  There have been highs and lows, good days and bad, but overall it's been a terrific experience, and my only real regret is that I didn't have the stomach to strike out on my own sooner in life.  Caveat: if you're starting a business that is a relatively new, unproven idea, keep the day job and work your biz on the side until things start rolling.
2. Decide what kind of service to offer.  I think the most important part of this decision is making sure it's something that you have at least some level of interest in.  Don't become a contractor in a trade that you hate just because you "heard" that there's good money in it, because you'll burn out before the big money even starts to roll in.  You don't have to love it, either, but it should be something you can tolerate long enough to hire on laborers.  Ideally, your business should also involve something that you're already skilled in.  Learning the ins and outs of a new trade is extremely time consuming, and time is money (you'll have your hands full with administrative tasks, anyway).  If you still don't know what to do, ask your family and friends for advice.  Often times those closest to us know our talents better than we do.  If you're more of an organizer and a leader then you might want to focus your efforts on learning how to become a general contractor.
   
3. Name your business.  Keep it short and memorable, but not hokey.  People shouldn't laugh when you tell them the name of your business, nor should it be so convoluted that you have to repeat it five times before they get it.  Remember, your business is a brand, and you'll be identified with it for the foreseeable future.  Make it a name to be proud of, and include the type of service you offer in the name if possible.  Check the website of your state's Secretary of State to make sure the name is still available, then register it as a sole proprietorship, LLC, or corporation (among others).  My business is set up as an LLC but check with a lawyer to decide what's best for your situation. 
4. Apply for an EIN (Employer Identification Number).  You need to do this even if you have no employees, and you can apply online here.  You'll need this for things like opening a bank account, applying for a license, and filing a tax return.
5. Apply for a service vendor's license from your state.  This one came as a surprise to me back in the day when I was in the process of learning how to become a contractor, but it's one of those red-tape steps that shouldn't be overlooked.  Depending on your business and state this may or may not be necessary but it was for me.  Again, a simple google search should point you in the right direction on this one.  Most states now have a business gateway website that will walk you through a lot of this kind of stuff.
6. Open a business bank account.  This is easy.  I walked into my local bank, met with someone for about 15 minutes and it was done.  I walked out with a booklet of checks and received a debit card in the mail a week or two later.
7. Get insured.  Nothing says "amateur" like an uninsured contractor.  This will be a significant expense for you but well worth the cost when you consider how many potential customers will turn you away if you don't have it.  Talk with a local agent to go over your particular situation and to make sure you're fully covered for your services, vehicles, and equipment.  If you plan on hiring employees right off the bat, you'll also need workers compensation coverage and probably an unemployment compensation tax account with your state's department of job & family services(check with your state for more information).
8. Register with your state's department of taxation if you'll be collecting sales tax.  This is usually a pretty straight-forward process, and I pay collected sales taxes to my state on the internet once a month.
9. Make sure you take the necessary steps to become a licensed contractor, if the law requires it. My business did not require any sort of trade license, but obviously for people like electricians and plumbers this is a must-have.  In some states you'll need a license even if you're trying to learn how to become a general contractor.  Starting a legitimate contracting business means playing by the rules, and avoiding them will burn you eventually so take this one seriously.  It's hard for me to be more specific about getting a license because every state handles it differently, but just Google it and you should have your answer.
10. Find a location.  Obviously it would be wise to start your business from home and then if growth justifies it look for an industrial space to rent or buy.  Many states also offer a department of development website with an online database of available commercial space.
11. Set up a business phone number.  Setting up a dedicated line for your business not only comes across as more professional but also usually gets you a complimentary listing in the phone book.  Try also to get a number which translates into an easy-to-remember "vanity" number.  For example, if you're starting a roofing business see if they'll find a number for you that ends in 7663 (which coordinates with the letters R-O-O-F).  It's easier for a potential customer to remember 999-ROOF than 999-1928.  When I set ours up the rep at the phone company was very helpful with this and it was done in a matter of minutes.
12. Prepare for the accounting.  You can either hire this out or use software like Quickbooks.  I use Quickbooks and it's a huge timesaver once you get the hang of it.  I know, I know, you want to become a contractor, not an accountant, but sometimes in the early stages you have to wear several hats.  It comes with the territory.
13. Get the word out.  Time to tell every person you know and meet about your cool new contracting business.  Have professionally designed construction business cards on you at all times.  Order postcards and have them direct mailed to wealthy suburbs in your city.  Most importantly, get a website and hire someone to market it for you online.  Our web efforts have been, by far, the single biggest factor in providing us with free construction leads and growing our business.  Web marketing is far more cost-effective than TV, radio, or print ads.  It's still shocking to me just how few contractors bother to utilize the internet, but that's a good thing for you because if you go that route you'll have very little competition.

Now sit back and watch the money roll in.  Yeah, right!  Now the real work begins, but if you've made it this far you're already ahead of the 99% of people out there who talk a good game but will never do what it really takes to get a business off the ground and running.  Please keep in mind that this is a generic list and that there could be additional steps and procedures in becoming a contractor that you'll need to take depending on what state you live in, what your legal structure is, and how many other owners are involved.  Though I set up my business without the help of a lawyer, you'd be wise to consult one just to make sure all your bases are covered.

So now you know how to become a truly self-employed contractor.  It's not hard.  You just need to do it.  Do you have it in you?  How much longer will you tolerate a job you hate and a boss you despise before you take the plunge?

Comments

[Ed]

As a handyman I often get asked by my customers if I could "coordinate" getting a roofer, electrician, plumber, etc for them and making sure the job is done right. The customer pays me the full amount and I pay the licensed roofer, electrician, plumber, etc. Do I need a special contractor's license to act as a "coordinator".

Thanks,
Ed

[scott]

Ed-
It sounds like you're basically acting as a general contractor in that situation, and in some states this will require a special license. Check with your state's license board. Thanks for the comment.

[PAT MAN]

Hey Man,
Thanks for the helpfull hints of wisdom. I am only 22 and I hope to have a biz up and running real soon. With your detailed description on what to do I feel as if I have a leg up on the comp. I and im sure everyone who reads this and myself really thank you for posting it. Its sounds like a long road to get there but I'm sure it will be well worth the effort. Thanks again and keep doing what your doing.

[Scott]

No problem, Pat Man. It can seem like a long road sometimes but the fact that you're starting so young is a big plus. You've got plenty of time to work out the kinks and shape a business that gives you pride and puts plenty of cash in your pocket. If only I had started my business at 22...

Best of luck and let me know if you need any more tips on your journey to becoming a contractor.

[Tony]

So I'm 44 with 4yr BS degree. In sales most of my life, married,family, own house etc. I have mostly been told that you need to have $$ to start this business. How much money would I realistically need? My construction experience is hiring a GC to do te exterior of my 2 car garage and greatroom. I GC'd the interior. Have done 20/6 pool deck,labored 2-3 small jobs, masonry jobs pads, 3 bathrooms, 1 hardwood floor, painting. Basically jack of many, master of none. I even have my state GC supervisor licence. With your information I think I am ready to start this on the side. How do I price a potential job or do I bring in the "professional that I would pay to do the job for the quote and then mark it up?"Thanks Again for your direction!

[Scott]

Hi Tony-

Yes you'll need some money to get going, but not necessarily a ton. If you're planning on acting as a general contractor and subcontracting out the work to specialists then you will save a lot of money on tools, materials, and employee expenses. Your costs will come down mostly to administrative expenses. It's hard for me to throw a number out there because every situation is different but I'd say try to have at least a few grand set aside up front for everything from marketing to software to permits. The nice thing about starting it on the side is that you'll still have the cash flow from your day job to keep the family bills paid until the contracting business really takes off and starts spitting off cash. As for pricing your jobs, well that's a huge topic unto itself. Basically you'll need to understand how you subcontractors price their work first. Tell them what you're doing, ask what their rates are, and then you can build your price quotes from there. Once you've worked with them a few times you'll have a good feel for what they'll need to get paid and you can come up with quicker and more accurate prices for your clients. Of course you'll need to leave some padding in there for your GC services or else you won't make money! Hope that helps. Good luck.

[ROFFY]

I am a salesman becoming a General Contractor, starting a subcontract with a roofing company owned by a friend of mine who lacks sales skills. I've got all the numbers figured out as far as materials costs, Labor costs and even been profitable. The problem is what are the requierements to start: Licenses, Permits..etc and how to get those...any ideas?

Roofy

[Scott]

Roofy-

That sounds like a good partnership you've got worked out with your friend. Becoming a GC is often a great fit for someone with sales skills. As for the specific requirements, it really all depends on your state and local laws and regulations. Many states will require you to obtain a General Contractor's License before beginning work. Likewise, most cities and towns will require you to get a permit for major work like roofing. You can try to go without it but I don't recommend it and why risk it when the possible penalty fees can be sizable? It's best to do things the right way. You really just need to contact your state and local agencies to learn what is required. Every place is different. A simple google search should take you in the right direction as far as getting a GC license in your state. Good luck.

[julie]

Hello there, I'm a 34 year old female going in GC business. My problem is estimating everything, how much it is to do this and that when You are new to this field. And how does GC usualy works they take like 30% down or??????
What can You recomend to a lady in this field?

[Robert Mitchell]

How would I go about applying for any necessary paperwork and becoming a contractor to deliver pizzas. I was thinking I could contract out to Pizza Hut, Papa Johns or Godfathers and they would not have the salary requirement or the insurance liability. I would charge like $5 per hour, $2 per delivery and then I keep any tips.

[Scott]

Julie - Read the comments I made to Tony above for information about pricing your work. Usually how it works is the homeowner pays you for everything and then you compensate the subcontractors with that money. The amount that you build into the quote for yourself is up to you. It really comes down to figuring out how much you want to make per hour, how many hours of work you think you'll have to put into a job, and then coming up with a multiple. Then add that number to whatever the subs need and you have your final quote. 30% down sounds a little high to me but it's up to you. If it's a long project you might also ask the customer for partial payments as stages are completed.

Robert - That's an interesting idea but I honestly wouldn't know how to begin something like that. You might make a few calls to your state's small business office and ask them.

[Maung]

Hi:
When I'm thinking to do my own business, contractor comes across in my mind. I have BE and ME degrees in electrical engineering field and some experiences in design of electronics and programming in university's research program. If I want to design and provide customized power efficient/saving lighting or security alarm devices to residents and government agencies, what steps I have to follow!

I live in NYC and I appreciate for your valuable advice.
Sincerely,
Maung

[Scott]

Maung-

The answer to your question falls outside the perameters of my knowledge and experience. Designing systems for home lighting and security is a whole different ballgame, but if you're just looking to install them then following the steps in this article will help. There is plenty of work to be had for contractors who handle security and lighting projects, both for residential and commercial customers. Best of luck.

Scott

[William G.]

First and foremost I would like to say, good blog. Secondly for all of you out there looking to do estimating it is something you have to take very seriously. It is the bid process that will win you the job. It is a talent that you get better at with practice. I suppose like anything else. In my estimating class we use RSMeans to price things out. It is kind of expensive for the book and or software but it is surprisingly accurate. If you can do QTO's of plans, then you can use RSMeans, make sure it is the construction one. It takes some time to figure out how to use the city guide and such. But until you have historical data I would suggest you go this route.

[Rodrigues]

Hello,

I have been looking for advice on how to become a sucessful contractor for a while now, and finally found something with great info, thanks!

Quick Background: I just graduated with a bachelors in Building Construction Management, 24 years old, in Florida, and I will be taking the GC Exam on February 16th, and have my General Contractors license in 3-4months. My education gave me basis on Estimating, Project Management, Scheduling, Green Building (LEED Accredited), and I speak English/Portuguese/Spanish.

I have interned for companies before, but I'm about to decide for what kind of GC should I work for now that I'm done with school and about to start working full time. Should I try to work for a small private contractor, or a big firm (International) with a career start program?

What could a young inexperienced contractor do to be able to grow and get business in such a recession? Any niches that still have growth potential?

My plan is to gain experience thru work and eventually become full time with my construction company.
Also, my father has a good size plywood distributor/factory. How could I use that to maybe pair up with my license? Maybe a certain kind of subcontrator (CSI "Division Wood, Plastic, and Composites"? Shoring? Wood Scaffolding?)

Thank You so much, it's great to see professionals helping young minds to achieve career success!

[Dawn]

I currently have my State GC License and have been asked by a local company to use it to permit a job because they don't have their license yet? I would act as a qualified agent. I trust the company will complete the job professionally. Do you happen to know the fee that is appropriate for this?

[Ronnie baker]

Rich Contractor,
As i read all you posts its seems like you are my alter ego. Ive been Heming and Hawing about starting my GC company for the last 9 months now. I cant stand my job, and hate my boss even more. The one good thing i can truly say is that he gave me FULL control in his company. (or should i say he got the most bang for the buck) With this i mean, he got a superintendent when he needed one, a project manager to write all his contracts, an estimator, a LEED AP and a General Contractor wrapped up in a package known as myself. I truly find your website comforting. I read the blogs anytime i start freaking out, knowing im going to walk away after this job. (as long as i dont say ONE MORE JOB). We have very similar ideas when it comes to social media and posting videos as well. I just started taking some video on my flip to post some "how to" videos on youtube. Anything to get the word out and the buzz started before I take the plunge. I do have one question, when you first started, how did you find that FIRST job? or the second. I have 0 clients (that i know of). Im hoping to use some Pay for leads sites and hit it hard so if you could go into more detail about the ones you like and opinions about them, privately if you have to, please let me know. Thanks

[Scott]

William G.: Thanks for the compliment. I totally agree with you that the estimating and sales aspect of a service business is crucial to success. You have to price fairly to the customer but also to yourself. There's nothing worse than underpricing and ultimately losing money on a massive project. The software you mentioned can be very helpful.

Rodrigues: Thank you and you're welcome. Glad I could help. In answer to your first question, I would choose neither, instead opting to start my own business right off the bat, but that's just me, and I understand that for some people that just isn't feasible. If I had to choose between a small private contractor and a large corporation I think I would choose the latter, all the while stashing away as much capital as you can so that you can comfortably launch your own service when you're ready, but again that's just me and I can't tell you what to do with your life.As for your second question, if you check out the "marketing" section or "leads" category in this site I think you will find lots of good info for drumming up lots of business in good times or bad. There aren't many niches that are growing right now but give it a few years and things will be rocking again. Get things lined up in the meantime.

Dawn - That's a tough question and I really think it just depends on how much value you place on your time and experience. I think I would estimate how much time you'll have to put into it, multiply that by how much you expect to earn per hour, and you'll have your answer.

Ronnie - Thanks for saying all that. As for getting those first few jobs, you'll need to approach family and friends. They'll trust you to do a good job (I hope) and then you can use them as your first referrals and for those first before and after photos for your portfolio. As long as you do good work word will spread from there. Like you said, the internet can offer you huge leverage so use it to the maximum....it can be especially helpful in the early stages of your business. Check out my post about "free leads" to get some ideas. Other than that I would recommend that you try service magic but track it closely. It works well for some people but not so well for others so you'll just have to give it a go. Good luck, man.

[Tommy Williams]

Awesome blog thanks for sharing. I am a senior in high school and know the career I want to pursue it general contracting.. my father has owned a grading and paving company for 30 years so I have been around construction my whole life. Working on site for the past 4 years has given me the knowledge I need. The dilemma that I have is that I don't know if I should try to get a degree in construction management? It seems like the criteria consists of job estimating,planning, and business aspects. I already have most of this knowledge and I think with my father as a mentor I can begin to run a successful business. What's your thoughts? thanks

[Scott]

Tommy-

That's a tough one. College is expensive but it usually pays off in the long run, and that piece of paper can open doors for you in the future. It's also an experience that I think, in general, is worth having. Is there a way to do both? Perhaps start your business and take some night classes? That would be a lot of work, but perhaps it would ultimately guide you and help you to decide which avenue to take. You might do one semester and decide that it's not for you, or it might convince you to keep going because you're learning a lot. Either way, I can't tell you what to do with your life, but I wish you success in whatever you decide to do. Thanks for the comment.

[Kev]

Hi, I'm looking forward to becoming a general contractor, and starting my own bussiness, I liv in Texas and wondering if I should get a degree and any other steps that would help me get out. Thanks for a awsome and usefull website, it has become one if my favorites.

[Mike Reho]

Hi,
I am 19 teen years old and have been working for my father doing remolding work since I was eight years old. I have a done all differnt ypes of work such as all types of flooring, tiling, framing, sheetrock, siding, basic eletrical and plumbing, and roofing. I have basic general knowledge on how to basically do everything. Recently there has been many people who saw me working and asked if I self contrated. I said yes and got a a few deck job, flooring job, and redoing a basement. I am tired of working for my father company and want to start my own company. I have all the tools, resources, work trucks in inorder to self contract. I was wonder if you had any adivice for me. Am I to young, would clients not want to hire me due to my age, should I continue to work for my fahter company and still do work on the side?

[Mike Reho]

Hi, I just recenlty posted a comment but would like to expand on my post. Not only do I have many years of on the job work experience but I also have many relatives who are older and retired and a few of them were builder. I am very close to them and with there fourty year experince I believe that I could get threw any job. Even when I am working for my father or doing another job and I have a question about what to do I always call my unlce. For example I was doing a tile job which was tile over tile and I needed to know which adhisive I needed and he told me which was the right one. I have many resources but I am very weary about my age. However, not only do I work full time but I also go to college full time were I am finishing my second year and I major in business managemnet. I am a A student a school but I really enjoy doing work in the building field and believe that it fit my personality. Is there any adivce that you could give a kid like me I would really appreciate it.