Starting a construction company is an exciting business endeavor—but you need to be well-prepared to make it a successful one.
To become a contractor in the U.S., you’ll need to get an education and gain experience in the construction industry, as well as meet a number of licensing requirements. The process is rigorous, but once your through it, you’ll get to be in charge of your workload and the type of projects you take on. And your pay rate could easily reach up to $48 per hour.
Once in business, your responsibilities will include managing projects, handling client relations, and working with other contractors, subcontractors, and suppliers.
How do you become a contractor, then?
#1. Decide What Type of Contractor You Want to Become
Before you dive into getting your education and licensure(s) in the field, you have to decide what work you’ll take on as a contracting business owner.
There are three common choices for a career in construction. They usually correspond to your contractor’s licenses, and include:
- General contractors, often known as building contractors, manage residential and commercial construction projects, as well as remodeling and renovations in some cases. They can be involved in both the planning and overseeing of the work, and the actual construction.
- Specialty contractors are specialists in a certain trade, such as electrical work, carpentry, roofing, and concrete work. They can work directly with customers, or as a subcontractor for general contractors on larger projects.
- Mechanical contractors are mechanical specialists, such as plumbing, heating, and refrigeration contractors. These types of licenses allow you to perform mechanical work, but not electrical installations, for which you need an electrician’s license.
#2. Obtain the Necessary Education and Work Experience
Once you’ve decided the field you want to work in, it’s time to gain the right skills.
To become a licensed contractor, you need a high school diploma or an equivalent. That’s the minimum education requirement.
You also have to develop expertise in the following areas:
- Construction Practices
- Equipment and Gear Use
- Construction Regulations and Laws
- Building Permits
- Project Bidding
- Project Management
- Budgeting and Expense Management
- Analytical Skills
- Management Skills for Coordinating Teams
- Communication Skills for Working with Clients
There are two main options for acquiring this critical knowledge. The first way is to continue your formal education with a relevant college degree program. The second is to gain the required knowledge through hands-on experience in apprenticeships or construction jobs.
The typical degrees contractors pursue include:
- Civil Engineering
- Construction Management
- Project Management and Planning
Often a bachelor’s degree is enough to satisfy the licensing requirements. Some contractors decide to pursue a master’s degree, which solidifies their knowledge and helps advance their career.
Alternatively, you can choose to meet the practical experience requirements instead of pursuing a college degree. Usually, you need to complete at least three years at an apprenticeship or doing other hands-on work where you gain know-how from an experienced tradesman in your field.
Many contractors get both a formal education in the field and hands-on experience before launching their business. Yet others choose a contractor training program to complement their on-the-job experience.
#3. Determine What Licenses You Need
For most construction activities, you need the right license. In some places, there are state licenses for contractors. In other cases, you may need to get a license on the local level, or on both local and state levels. You can check out the National Association of State Contractors Licensing Agencies for information about the contractor license board in your state.
If you want to operate in a couple of specialty or mechanical fields, you’re likely to need separate licenses for each of them. In some states—if you have a general contracting license—you may be allowed to conduct other construction work too.
License types may also depend on the value of the projects you want to work on. For example, you may not need to get a certain type of license for completing projects below a certain dollar amount. Or, you may have to get a different license for a more expensive project. There may also be a limit on the number of projects that a license allows you to take on.
#4. Complete the Required Contractor Exams
Many types of contractor licenses on both local and state levels require that you pass a licensing exam to launch your business.
The content of the contractor exams can vary. Some of the common topics you can expect to be tested on include:
- Construction Topics, such as your specialty field (especially relevant for electricians, plumbers, HVAC, and similar specialists)
- Business Management
- Legal Frameworks and Building Codes
- Construction Risk Management
#5. Meet All the Contractor Licensing Requirements
The criteria you have to meet for a contractor license differ between cities, counties, and states.
The most typical licensure requirements are:
- Complete and sign a license application
- Provide personal information and ID
- Demonstrate your business registration in the state (including business structure and trade name, if applicable)
- Undergo fingerprinting and criminal background check
- Showcase your financial statements and/or credit reports
- Provide proof that you meet any minimum net worth requirements
- Obtain a surety bond (called contractor license bond)
- Get a general liability insurance policy and other insurance types
- Get workers’ compensation insurance for your employees
Each licensing authority can use a mix of these criteria, or set additional ones, as they see fit. In some places, you may need to have a physical office location to license your business, as well as a business phone number and sign. You will also typically need to pay an application fee for the authority to review your documents. Then, you have to pay a license fee annually or biannually. In addition to these licensing requirements, you may also need to obtain a state sales tax registration, a bank account, and an Employer Identification Number (EIN) for hiring employees.
#6. Create a Solid Business Plan
It’s a good idea to think about your business goals while you’re preparing for your licensing. The best approach is to put them in writing in the form of a business plan.
A business plan is a roadmap for your company from founding to success, and should include:
- Exact field of work that you want to focus on, like small residential projects or large commercial projects—you can get inspiration from our construction business ideas article
- Differentiating factors that make you stand out from other contractors, such as special skills and experience
- Financial plan, including available capital and projected expenses
- Budget projections for projects
You can consult the Small Business Administration’s guide on writing a business plan for useful tips.
#7. Build Up Your Contracting Career
Getting the required education and obtaining a contractor’s license are only the first steps to becoming a construction professional.
You will need to establish your position in the construction community, as well as on the market. You can do this by networking and partnering with contractors, subcontractors, and construction materials suppliers to form project teams. Attend industry events and use different communication platforms and forums to meet people in the field, such as Contractor Talk and Builder’s Talk Group.
When you start out, you’ll need to build up your customer base. Referrals are the number one proven way to get new clients. Other options include posting your services on job listing sites and advertising your business on social media. Keep in mind that happy customers are the best ways to market your contracting company.
For the management of your business, it’s also a good idea to choose suitable construction and project management software solutions. They can help you in your day-to-day operations, as well as in organizing complex tasks such as project budgeting and bidding.
Don’t forget that you need to renew your license regularly. You may be required to get continuous education as well, which is also a good way to keep up with industry developments.
Need Help With Time Tracking and Payroll For Your Construction Business?
Managing your contracting business means taking care of a ton of administrative tasks. Employee time tracking and payroll management are some of the most common ones, on top of classifying your staff and overseeing payroll deductions.
Hourly is here to help you with the basics of running your construction company. Besides keeping track of logged hours and handling your payroll, Hourly lets you link everything to your workers’ comp policy to pay your bill automatically. At the end of the day, you’re going to save money because your workers’ comp will be tied directly to your payroll.
Want to try it out? Just download our payroll app on your mobile device and get started today.