How to start a contractor business

Updated 2026-05-01

Going out on your own as a contractor is one of the most direct paths to higher income in the trades — but the business side trips up a lot of skilled tradespeople who are great at the work itself. Here's how to get the legal, financial, and marketing foundation right from day one.

Short version: Register your business, get licensed and bonded in your state, carry GL insurance, set up a professional quote process, and get your first jobs through your existing network. The business side is simpler than most people think — it just needs to be done in the right order.

Step 1: Register your business

Before anything else, decide on your business structure and register it. Most contractors should form an LLC:

Separates your personal assets from business liability
Looks more professional on bids, contracts, and insurance certificates
Costs $50–$500 depending on state (one-time, plus ~$50–$100/year to maintain)
Required by some GCs before they'll subcontract to you

You'll also need a federal EIN (free from the IRS website, takes 5 minutes), a separate business bank account, and a business license from your city or county.

Step 2: Get your contractor's license

Licensing requirements vary significantly by state and trade. Electricians, plumbers, HVAC techs, and general contractors face the most rigorous requirements — typically a combination of:

Documented field experience (2–5 years depending on state)
Passing a trade exam (journeyman or master level)
Proof of liability insurance
Surety bond on file with the licensing board
Application fee ($100–$500)

Handymen, painters, landscapers, and some other trades have lighter requirements — often just a business license and insurance. Check your state's contractor licensing board website for your specific trade.

Step 3: Get bonded and insured

You need both a surety bond and general liability insurance — they do different things.

Surety bond: Required by most states for licensing. It's a financial guarantee that you'll follow the law, complete contracted work, and pay subcontractors. Most license bonds cost $100–$400/year. Get bonded before you apply for your license.

Surety bond required?

Most state contractor licenses require a surety bond before you can pull permits. Get bonded online — certificates issued same day.

Get bonded at SuretyBondly →

General liability insurance: Covers property damage and bodily injury from your work. Required by most GCs and commercial clients. Costs $600–$2,500/year depending on trade. Roofers pay more; painters and handymen pay less. You can bind online and get a COI the same day.

Thimble

A-rated GL, BOP, professional liability, and equipment coverage. Bind online in minutes — download your COI the same day.

Get a contractor GL quote → →

Step 4: Set up your pricing and estimating

New contractors almost always underprice their work. Here's the formula to avoid that:

Labor cost: Your target hourly rate for yourself and any crew
Materials: Actual cost, marked up 10–20%
Overhead: Insurance, fuel, tools, licensing — divide annual costs by estimated hours worked
Profit margin: 15–25% on top of total cost

Always give written estimates. Break down labor and materials separately. Include a scope of work so there's no argument about what's included. And always collect a deposit — typically 25–50% upfront on larger jobs.

Step 5: Land your first jobs

Your first 10 clients come from your personal network. Your next 100 come from referrals. Start there:

Tell everyone you know. Former coworkers, neighbors, friends. Ask for referrals explicitly.
Subcontract under established GCs. Fastest path to consistent work while building your own reputation.
Google Business Profile. Free, essential. Shows up in "[trade] near me" searches. Fill it out completely, get reviews on every job.
Nextdoor and local Facebook groups. High homeowner density, easy to target your service area.
Thumbtack and Angi. Pay-per-lead but generates early jobs and reviews.

Step 6: Build systems so you can grow

The contractors who stay solo struggle. The ones who scale do it by building repeatable systems:

Estimating template: So every quote is professional and consistent
Contract template: Scope of work, payment terms, change order process
Job management: Jobber, BuilderTrend, or even a simple Google Sheets tracker
Invoicing: Get paid quickly — net-30 will kill your cash flow
Referral system: Ask every satisfied client, every time. Most won't refer unless you ask

The most common mistakes new contractors make

Underpricing (the #1 mistake — most don't account for overhead and non-billable time)
Not getting paid upfront deposits — especially from new clients
Working without a signed contract
Waiting too long to get licensed and insured
Taking on too much work before building a reliable crew

Frequently asked questions

What licenses do I need to start a contractor business?

It depends on your trade and state. Most states require a contractor's license for electrical, plumbing, HVAC, and general contracting work above a certain dollar threshold. Licensing typically requires passing a trade exam, proving work experience, carrying liability insurance, and posting a surety bond. Handymen and painters often have lighter requirements. Check your state licensing board's website for specifics.

Do I need a surety bond to work as a contractor?

In most states, yes — a surety bond is required to get your contractor's license. Even where it's not legally required, many GCs and property managers require proof of bonding before hiring a sub. It's a financial guarantee that you'll follow the law and complete your work. Most license bonds cost $100–$400/year.

How much money do I need to start a contracting business?

It varies by trade, but most independent contractors start with $5,000–$20,000. Major costs: business registration ($100–$500), contractor's license exam and fees ($200–$1,000), liability insurance ($600–$2,000/yr), surety bond ($100–$500/yr), basic tools and equipment (varies widely by trade), a van or truck if you don't already have one, and working capital for materials before clients pay.

Should I be an LLC or sole proprietor?

LLC for most contractors. It separates your personal assets from business liability, looks more professional on bids and contracts, and has minimal ongoing maintenance. The cost is $50–$500 to form depending on state. If you're doing significant work — anything over $10K/year — the asset protection alone is worth it.

How do I get my first contracting jobs?

Your network first: former employers, coworkers, neighbors, friends. Then subcontracting under established GCs — a great way to build experience and reputation. Craigslist and Facebook Marketplace still generate handyman and smaller job leads. Thumbtack and HomeAdvisor/Angi for service trades. Google Business Profile for local search. The first 10 jobs come from personal connections; the next 100 come from referrals.

How do I price contracting jobs?

The standard formula: (Labor hours × hourly rate) + Materials cost + Overhead + Profit margin. Most contractors target 15–25% profit margin on top of all costs. Hourly rates for labor range from $45–$120/hr depending on trade and market. Always provide written estimates, and build in a contingency (10–15%) for unexpected issues — especially on remodel work.

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