How to start a general contractor business

Choose your lane early. Residential and commercial work need different relationships, insurance and paperwork.

General contractor licensing swings from a full state exam to a city permit desk, depending on the state, and many states set the line by the dollar value of the job. Some require a surety bond, proof of insurance or a business and law exam. Our general contractor licensing guide covers each state.

OSHA says fall protection is required at six feet in construction. Its silica standard covers cutting, grinding and drilling concrete, stone and masonry, and requires covered employers to keep a written exposure control plan. The EPA's lead rule covers paid work that disturbs paint in pre-1978 homes and names general contractors among the firms that must be certified. As the GC, you set the site rules every trade works under.

The SBA lists the launch steps in this order: pick a location, choose a structure, choose a name, register, get federal and state tax ID numbers, apply for licenses and permits, open a business bank account, and get insurance. For a general contracting business working out of a truck, the location is usually your home address and the area you will serve.

• Structure. A sole proprietorship is the simplest. An LLC keeps the business separate on paper. Ask an accountant which fits your state and your plans.
• Tax ID. The IRS gives out an employer identification number (EIN) online, and says you never have to pay a fee for one. Websites that charge for an EIN are not the IRS.
• Self-employment tax. The IRS lists the self-employment tax rate as 15.3%: 12.4% for Social Security and 2.9% for Medicare. Income tax comes on top, so set money aside from every job.
• Bank account. Open it before the first payment lands, so every dollar in and out is easy to find at tax time.

Your name goes on the truck, the invoices, the Google profile and the yard signs, so pick it once. The free general contractor name generator gives 36 ideas for your town and style, each with a domain idea, and lists the checks to run before you commit: your state's business name search, a federal trademark search and the domain itself.

The SBA describes general liability insurance as cover for financial loss from bodily injury, property damage, medical expenses and defending lawsuits. It says businesses with employees are required to carry workers' compensation, unemployment and disability insurance, and some states ask for more.

Ask your agent about general liability including completed work, builder's risk for projects under construction, commercial auto, and workers' compensation. Get a certificate of insurance from every subcontractor before they start, and keep it on file; an uninsured sub's claim can land on your policy.

No total here on purpose. What you spend depends on what you already own, new or used, and how much work you plan to take on. Price your own list with a local supplier, then put the numbers in the startup cost table of the free business plan template, which adds them up for you.

• A truck and a way to carry tools and material
• Core tools for the work you do yourself
• Site gear: temporary fencing, signs, dumpster account, portable toilet service
• Safety gear for your crew: fall protection, eye and hearing protection, first aid
• A phone or tablet for photos, plans and signed paperwork

For a GC, cash flow and bonding are bigger startup needs than tools. Know how you will cover material and subs before the first payment arrives.

Build each bid from your subs' written prices, your own labor and material with markup, permits, site costs, and overhead and profit. Keep markup and margin straight with the free markup calculator and profit margin calculator, and see how many jobs a year cover your overhead with the break-even calculator. Put allowances in writing for anything the homeowner has not picked yet.

• Your trade network. Subs who send you work get work back.
• Architects and designers. They need builders for the plans they draw.
• Realtors and investors. Fix-ups before and after sales.
• Referrals. Koira asks happy customers to pass your name on.

Write a payment schedule into every contract, tied to milestones the customer can see. Take a deposit at signing (check your state's limits on home improvement deposits), bill each stage with an invoice, and offer financing on larger projects. Collect lien waivers from subs as you pay them, where your state uses them.

Hire a project manager or lead carpenter so you can estimate and sell. Keep your sub list current: license, insurance, and how they did on the last job. Koira shows who is on which site.