So, you’ve put in the years—started as a laborer, worked your way up to operator, then foreman, maybe even superintendent. Now, you’re ready to call the shots and start your own construction company. Smart move—but let’s be real, the work you’ve been doing is nothing like the work you’re about to do.
Running a business is a whole different skill set. You might be a master at running a crew or moving dirt, but now you have to deal with licenses, legal paperwork, insurance, and figuring out how to get paid before you go broke.
This guide is here to walk you through the real steps of launching a construction company—without the sugarcoating.
Step 1: Choose Your Business Structure
Before you can even think about pulling permits or hiring workers, you need to set up a legal structure for your business.
- Your Options:
Sole Proprietorship – The simplest setup, but also the riskiest. If something goes wrong, you are personally liable. - LLC (Limited Liability Company) – The best option for most small construction businesses. It gives you legal protection (your personal assets are separate from your business assets) and is easy to set up.
- S-Corp or C-Corp – More complex business structures that offer different tax benefits but require more paperwork and compliance. Good for bigger companies but probably overkill when you’re starting out.
Best Choice for Most Contractors?
Go with an LLC. It keeps your personal assets safe and is simple to set up. If you plan to grow big, you can convert to an S-Corp later.
How to Register Your Business:
- Visit your state’s Secretary of State website (Google: “Register an LLC in [your state]”)
- File Articles of Organization (usually costs $50–$500)
- Get an EIN (Employer Identification Number) from the IRS for free at irs.gov
- Open a business bank account (do not mix business and personal money—EVER)
Step 2: Get the Right Licenses and Permits
This is where things start to vary by state and even by county/city.
What You’ll Likely Need:
- General Contractor’s License – Some states require it, others don’t. If your state does, it often depends on the job size (e.g., in Tennessee, anything over $25,000 requires a license).
- Specialty Licenses – If you’re doing electrical, plumbing, or HVAC, you’ll likely need a separate trade license.
- Local Business License – Some cities and counties require you to register your business locally.
- Home Improvement Contractor License – Some states require this for residential remodeling.
How to Find Your State’s Requirements:
Visit the National Association of State Contractors Licensing Agencies (NASCLA) website at nascla.org or check your state’s contractor licensing board.
Don’t assume you don’t need a license—check first, or you could be fined or shut down before you even get started.
Step 3: Get the Right Insurance
Skipping insurance is like driving a skid steer blindfolded—it’s going to end badly.
- Must-Have Insurance Policies:
- General Liability Insurance – Covers injuries, property damage, and legal fees if something goes wrong on the job.
- Workers’ Compensation Insurance – Required if you have employees. Covers injuries to your workers.
- Commercial Auto Insurance – Your work trucks are not covered under your personal policy.
- Builders Risk Insurance – Covers materials and unfinished work in case of theft, fire, or vandalism.
- Umbrella Insurance – Extra coverage in case something major goes wrong.
Where to Get It:
Check out insurance providers that specialize in construction (Nationwide, The Hartford, NEXT Insurance). Prices vary based on your location, number of employees, and the type of work you do.
Step 4: Figure Out Your Finances
This is where most contractors screw up. It’s not enough to just get paid—you need to know how to manage your money.
Key Financial Steps:
- Open a business bank account (do NOT mix personal and business money).
- Get accounting software (QuickBooks, Jobber, or even a basic Excel sheet).
- Set up invoicing and payment terms (never work without a written agreement).
- Plan for taxes (the IRS will come for you—set aside 25-30% of your income for taxes).
Pricing Jobs Correctly:
- Calculate all costs: materials, labor, permits, overhead, insurance, profit.
- Add at least a 10-20% markup so you actually make money.
- Never underbid just to get the job—you’ll regret it.
Track Your Costs to Improve Profitability
If you don’t track your costs, you won’t know where you’re making or losing money. The best contractors track every expense at the line-item level, especially on bids.
Why Cost Tracking Matters:
- Helps you refine your job estimates over time so you bid more accurately.
- Identifies problem areas where you’re bleeding money.
- Improves profitability by showing exactly where your money is going.
- Makes tax time easier and prevents surprises.
Using a real-time tracking system like ProfitDig can make this process effortless. ProfitDig allows you to track costs as they happen, even from the jobsite, so you always have an up-to-date view of your project’s financials. The more you track, the better you’ll get at pricing jobs for maximum profit.
Step 5: Get Clients
No clients = no business.
- How to Land Your First Jobs:
- Word of Mouth – Let everyone know you’re in business (friends, family, old coworkers).
- Network with General Contractors – Offer to subcontract on jobs to build experience.
- Online Presence – At a minimum, have a Google Business Profile and a Facebook page.
- Local Listings – Get listed on Angi, HomeAdvisor, and Houzz (but don’t rely on them too much).
- Cold Outreach – Knock on doors, visit construction supply stores, and introduce yourself.
Step 6: Build a Team (Or Stay Solo?)
At first, you might be wearing all the hats—estimator, project manager, laborer, accountant. Eventually, you’ll need help.
Hiring Options:
- Employees – More control, but more overhead (payroll taxes, insurance, etc.).
- Subcontractors – Less hassle, but you have to manage them closely.
Tip: Start with subs, then hire full-time employees once you have steady work.
Step 7: Stay Legal and Protect Yourself
- Always use written contracts (even for small jobs).
- Get everything in writing (change orders, payment terms, warranties).
- Keep records of receipts, invoices, and job costs (in case the IRS comes knocking).
- Follow OSHA safety standards (fines for violations are brutal).
Final Thoughts: The Reality of Running a Construction Business
Starting your own company is tough—most fail within the first 5 years. But if you take the time to set it up right, price jobs properly, and keep a close eye on your money, you can make it work.
The hardest part isn’t the construction—it’s the business side. But once you get the hang of it, running your own show can be the best decision you ever make.
Check out our book, Digging for Profit: Secrets to Success in the Construction Industry!
