In the building industry, general contracting has proven to be a profitable career for many with construction work and team management experience. Not only is it easy to make a living in this field, but you are still hands-on, helping bring clients' visions into reality. 

If you're considering branching out and starting up your own firm, there are many moving pieces in creating your new general contracting business. First, you need to think about both construction and business side planning, which includes everything from purchasing equipment and tools to hiring, marketing, and bookkeeping. It's a lot to take on, but you'll be successful with the right considerations and planning. 

Let's dive into the basics of starting a general contracting business:

Step 1: Obtaining Your Licensing and Permits

As a general contractor, you have a long list of responsibilities throughout every construction phase. It doesn't matter if you're building a barn or constructing a state-of-the-art medical building. Projects must stay on budget, be on time, be up to code, and meet your client's expectations. Because of this need for expertise, every state has some form of licensing requirement for contractors.

Typically, you will need to have higher education or several years of experience in your trade at a journeyman level. In addition, you may need a contractor bond or take a state-issued exam to obtain the certifications necessary to operate your business. All this is in addition to any other business licensing your local municipality or state requires, so do your research before taking jobs! Failing to comply could cost you thousands in fines and potentially shut your venture down.

Step 2: Planning Your General Contracting Business

Regardless of your industry, you need a plan if you're opening a business. Mapping out how your company operates, detailing market expectations, and providing a financial analysis are just a few of many elements you can include in this document. In addition, planning for the here and now and the future ensures you have a reference for how things should be running and where all of this effort will take you later on. 

At some point, you'll likely need to apply for a loan or get other investors on board. But, again, a business plan helps make your case and demonstrates why your general contracting business is worth financially backing. 

Step 3: Structuring Your Business

You've done your research, writing a plan, and know what certifications and licensing you need to operate legally. But what type of business structure will your company be? This is a significant decision that carries tax implications. 

Generally, you'll choose one of the following entity formations for your new construction firm: 

• Sole Proprietorship
• LLC
• S-Corporation
• General Partnership

While not an exhaustive list of all the available choices, these are the most common. Speak with a tax accountant or business attorney to discuss which is best for your new company. They can provide invaluable insights based on the industry as a whole and what long-term vision you have for your general contracting firm. You can also read up on the different business structures available on the IRS website here. 

Step 4: Purchase Business Insurance

Insurance for general contractors is an essential ingredient when starting up a new company in this field. As someone already familiar with the many pitfalls that can plague a construction project, protecting your new business against these liabilities from day one is crucial. Procrastinating or skipping on this step is a mistake you won't be able to afford when things go wrong.

Below are some popular coverages that general contractors rely on to protect their business interests, employees, and clients. 

General Liability

This coverage is probably one of your most important because it protects your business against third-party claims involving bodily injury, property damage, libel, slander, and defamation. These policy benefits won't apply to your employees, only to outside parties like a client or job site property. 

Workers' Compensation 

General contracting comes with a lot of physical demand and hard labor. Because you and your team will be working with dangerous tools at sites that come with hazards, injuries may be almost inevitable. From back strain to losing fingers, on-the-job injuries can be a devastating experience for your employees. 

Workers' comp insurance provides coverage for employee medical care and lost wages because of these workplace accidents. States typically require these policies, and there's a good chance you won't be able to land any contracts without one, either. 

Errors & Omissions (E&O) Insurance

Mistakes happen all the time, but in business insurance, there's a difference between accidentally scuffing up a new building's paint job and installing windows incorrectly. Also known as professional liability insurance, E&O coverage deals with mistakes that affect the construction project. 

For example, if you opt to use steel support beams not graded for the weight-bearing load of the building sitting on them. This lapse in professional judgment isn't something a general liability policy would cover. If a client sues you over this, your E&O coverage would also help pay the cost of your legal expenses and any related damages.

Commercial Vehicle Coverage 

It doesn't matter if you're a contracting startup with a single truck or an entire fleet; vehicles are essential assets to your business and deserve adequate protection. But, unfortunately, personal car insurance policies don't cover business-related driving activities-- that's why it's personal. 

Commercial coverage provides the level of liability protection needed should an employee cause an accident with a company car or a dump truck backs into one of your work vehicles at a job site. 

Inland Marine Policy

You don't own boats, so why insurance coverage for watercraft? Funnily enough, the phrase "inland marine" isn't referring to transportation on just water. When this coverage first came about, ships were the primary mode of transportation of goods. However, insurers extended coverage to inland transportation (on land) once motor vehicles hit the streets. 

These policies cover everything from building materials to equipment and tools in transport or being held temporarily on a job site. Perils your assets are protected against include situations of theft, vandalism, and even total losses.

General Contracting Business Recap

Running a successful general contracting business will probably be one of the most rewarding career decisions you've ever made. But, you need a foundation that supports your company's short and long-term goals. This means thoughtful business planning, getting sound financial advice, and implementing a comprehensive risk management strategy that uses commercial insurance to prevent liabilities from threatening your sustainability.