How to start a contractor business

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.

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.

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.

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:

1. Tell everyone you know. Former coworkers, neighbors, friends. Ask for referrals explicitly.
2. Subcontract under established GCs. Fastest path to consistent work while building your own reputation.
3. Google Business Profile. Free, essential. Shows up in "[trade] near me" searches. Fill it out completely, get reviews on every job.
4. Nextdoor and local Facebook groups. High homeowner density, easy to target your service area.
5. 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

Disclaimer: This guide is for informational purposes only and is not legal, tax, or insurance advice. Coverage availability and pricing vary by state and applicant. Always verify requirements with your state licensing board and confirm policy terms directly with your carrier before relying on this information.