Starting a Contracting Business: Complete Checklist

Starting a Contracting Business (Exciting but Overwhelming)

You're skilled at your trade. You know how to do the work. But starting a business? That's a whole different challenge—licenses, insurance, accounting, marketing, pricing, legal stuff. It's overwhelming.

This guide walks you through every step, in order, so you can launch your contracting business properly without missing critical pieces. Follow this checklist, and you'll be legitimate, protected, and ready to land customers.

💡 Before You Start:

Make sure you have enough savings to cover 3-6 months of living expenses. Most contractors don't make money in year one. Plan accordingly.

Business Structure Decision

First decision: How will you legally structure your business? This affects taxes, liability, and paperwork.

Structure	Pros	Cons	Best For
Sole Proprietorship	• Simplest setup • No registration needed • Low cost	• Zero liability protection • Personal assets at risk • Less professional	Side work, testing the waters (not recommended long-term)
LLC	• Liability protection • Pass-through taxes • Professional image • Flexible management	• Filing fees ($100-500) • Annual reports/fees • More paperwork	Most contractors (best balance of protection + simplicity)
S-Corp	• Tax savings (self-employment) • Liability protection • Professional structure	• Complex paperwork • Payroll requirements • Higher accounting costs • More regulations	Established contractors making $70K+ profit (tax savings justify complexity)

✅ Recommendation:

Start as an LLC. It provides liability protection, is easy to set up, and gives you a professional structure. You can always elect S-Corp status later if it makes sense tax-wise (consult a CPA when you're profitable).

How to form an LLC: File Articles of Organization with your state (usually online). Costs $100-500 depending on state. Takes 1-2 weeks. You can do it yourself or use LegalZoom/ZenBusiness for $300-500.

Licensing and Permits

Critical: Operating without proper licenses can result in fines, inability to enforce contracts, and even criminal penalties in some states.

State Contractor License

What You Need to Know:

• Requirements vary by state: Some states require passing an exam + experience. Others just require registration.
• License types: General contractor, specialty contractor (electrical, plumbing, HVAC, roofing, etc.)
• Cost: $50-500 for application/exam fees, plus study materials
• Timeline: 2-12 weeks depending on exam scheduling and processing

Find requirements: Google "[your state] contractor license requirements" or visit your state contractor board website.

Local Business License

Most cities/counties require a general business license to operate. This is separate from your contractor license.

• Where to get it: City or county clerk's office
• Cost: $50-300/year typically
• Renewal: Annual in most places

Trade-Specific Licenses

Electricians, plumbers, HVAC techs typically need additional specialized licenses beyond general contractor license.

Insurance Requirements

Don't skip this. One accident or lawsuit without insurance can bankrupt you and put your personal assets at risk.

1. General Liability Insurance (Required for Most Jobs)

What it covers: Property damage, bodily injury, completed operations. Example: You accidentally damage a customer's hardwood floors while moving equipment.

Coverage amount: $1M/$2M minimum (common requirement)

Cost: $500-$2,000/year for most contractors (varies by trade and revenue)

2. Workers Compensation (Required if You Have Employees)

What it covers: Medical bills and lost wages if an employee gets injured on the job.

Required: In most states if you have any W-2 employees (not 1099 subcontractors)

Cost: Varies wildly by trade (roofing is expensive, admin work is cheap). Typically 1-10% of payroll.

3. Commercial Auto Insurance (If Using Vehicle for Business)

What it covers: Accidents while using your vehicle for business purposes. Personal auto insurance doesn't cover business use.

Cost: $1,200-$3,000/year for work truck

4. Bonds (Required in Some States)

What it is: Guarantees you'll fulfill contracts. If you don't, customer can claim against the bond.

Cost: $100-500/year for small contractors (premium is typically 1-3% of bond amount)

Where to Get Insurance:

• Local insurance broker: Can shop multiple carriers, provide guidance
• Online: Next Insurance, Hiscox, The Hartford, Progressive Commercial
• Trade associations: Often have group rates

Pro tip: Get quotes from 3-5 sources. Prices vary significantly.

Business Bank Account

Why you need one: Separates business from personal finances (legally required for LLCs), makes accounting easier, looks professional, protects your LLC liability shield.

How to Open:

1. Get your EIN (see section below)
2. Bring LLC formation documents (Articles of Organization)
3. Visit bank with: EIN, LLC docs, driver's license, initial deposit ($25-100)
4. Most business checking accounts are free (or $10-15/month)

Best Banks for Small Contractors:

• Local credit unions: Lower fees, personalized service
• Chase Business: Good mobile app, widespread ATMs
• Bank of America Business: Solid features, integration with accounting software
• Bluevine or Novo: Online banks, no fees, easy setup

Accounting System Setup

You need a system to track income, expenses, invoices, and payments. Don't use spreadsheets—you'll mess it up.

Software	Cost	Best For
QuickBooks Online	$30-200/mo	Full-featured accounting, industry standard, CPA-friendly
FreshBooks	$17-55/mo	User-friendly, great invoicing, time tracking
Wave	Free	Starting out, very small business, basic needs
Quote Anvil	$29-99/mo	Contractor-specific, quoting + invoicing + payment tracking

What to Track:

✅ Income (every payment received)
✅ Expenses (every business purchase—materials, tools, gas, insurance, etc.)
✅ Mileage (for tax deductions)
✅ Invoices sent and paid
✅ Estimates/quotes

Hire a Bookkeeper?

If doing under $100K/year: You can probably handle it yourself with software.
If doing $100K-$500K+/year: Hire a bookkeeper (part-time, $200-500/month). Worth it to ensure accuracy and free up your time.

EIN (Employer Identification Number)

Think of an EIN as a Social Security Number for your business. You need it to open a business bank account, hire employees, and file taxes.

How to Get One (Free, Takes 5 Minutes):

1. Go to IRS.gov/EIN
2. Click "Apply Online Now"
3. Answer questions about your business
4. Get your EIN immediately (it's a 9-digit number)
5. Print/save your EIN confirmation letter

🎯 Do this BEFORE going to the bank to open your business account.

When do you need an EIN?

• You formed an LLC or corporation
• You have employees (or plan to hire)
• You want a business bank account

Marketing Basics

You can be the best contractor in town, but if nobody knows you exist, your phone won't ring.

1. Business Name and Logo

Pick something professional and memorable. "[Your Name] Construction" works. So does "[City] Remodeling" or "[Trade] Pros."

• Logo: Hire someone on Fiverr ($25-100) or use Canva (free templates)
• Keep it simple and readable on a truck

2. Website (Even a Simple One)

You need an online presence. Even a basic one-page site is better than nothing.

• DIY options: Wix, Squarespace, GoDaddy ($15-30/month)
• What to include: Services, service area, contact info, photos of work, testimonials

3. Google My Business (Free, Essential!)

This is how people find local contractors. Claim your listing at google.com/business, verify it, fill it out completely, and get reviews.

4. Business Cards & Truck Lettering

• Business cards: $20 for 500 (Vistaprint, Moo)
• Truck lettering: $200-1,000 (magnetic signs or vinyl)

More marketing strategies in our Contractor Marketing on a Budget guide.

Pricing Your Services

Don't guess. Underprice and you'll work hard for nothing. Overprice and you won't get work. Research and calculate.

Research Competitor Rates

Call 5-10 local contractors, pretend to be a customer, get quotes. This tells you the going rate in your area.

Calculate Your Costs

Your Hourly Rate Must Cover:

• Your desired wage
• Taxes (self-employment tax is 15.3%)
• Insurance
• Tools and equipment (depreciation/replacement)
• Vehicle expenses
• Marketing
• Overhead (phone, website, software, etc.)
• Profit margin (15-25%)

Set Hourly Rate or Flat Rates

Most contractors use flat rates based on job type (better for customers). Calculate your hourly cost, then estimate hours per job type.

See our detailed Hourly Rate Calculator guide.

🚨 Don't Undercharge!

New contractors often undercharge to get work. This is a trap. You'll work yourself to death for no money, attract price-sensitive customers, and can't raise rates later without losing them. Price fairly from day one.

First Year Expectations (Be Realistic)

Reality Check:

• Most contractors lose money or break even year 1. This is normal! You're investing in tools, marketing, learning.
• Building reputation takes time. You won't be fully booked immediately. Expect slow months.
• Cash flow will be challenging. Waiting on payments while bills are due is stressful.
• Keep expenses low. Don't buy fancy equipment or rent an office. Work lean.
• Side jobs are OK during ramp-up. Many contractors keep a part-time job or side gig in year one.

Realistic Timeline:

• Months 1-3: Setup (licenses, insurance, marketing). First few customers (friends, family, referrals).
• Months 4-6: Building momentum. Getting reviews. Learning systems. Still inconsistent work.
• Months 7-12: Reputation growing. More referrals. Work getting more consistent. Still not "full" yet.
• Year 2: Most contractors hit profitability and consistency in year 2.

Common Mistakes to Avoid

1. Starting Without Proper Licenses/Insurance

"I'll get licensed after I get some work." No. One accident, one complaint, one job gone wrong—and you're facing fines, lawsuits, personal liability. Do it right from day one.

2. No Business Bank Account (Mixing Personal/Business)

Using personal account for business destroys your LLC liability protection, makes accounting a nightmare, and looks unprofessional. Get a business account.

3. Underpricing to Get Work (Race to the Bottom)

You attract cheap customers, work too hard for too little, and can't afford to run a real business. Price right. Compete on quality and service, not rock-bottom pricing.

4. No Contracts or Written Estimates

Handshake deals lead to "I thought that was included" disputes. Always use written contracts and detailed estimates. Protects both you and the customer.

5. Trying to Do Everything Yourself

You can't be estimator, marketer, bookkeeper, project manager, AND do all the work. Learn to delegate (subcontractors, bookkeeper, VA) as you grow.

6. Not Tracking Expenses

Every receipt is a tax deduction. Lose receipts = overpay taxes. Use accounting software or at minimum snap photos of every receipt.

Tools & Resources

Quote Anvil

Professional business management software built specifically for contractors. Get set up correctly from day one.

Professional quote and invoice templates
Expense tracking and categorization
Customer management and payment tracking
Mobile app for on-the-go access

Start Free Trial

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Frequently Asked Questions

How much money do I need to start a contracting business?

Minimum $5,000-$10,000 to cover: licenses ($500-2,000), insurance ($500-2,000), initial tools/equipment ($2,000-5,000), truck lettering ($500), website/marketing ($500-1,000), plus 3-6 months living expenses since you likely won't make money right away. Many contractors start with less by keeping their day job initially and building slowly.

Should I quit my job to start my contracting business?

Not immediately. Start part-time on weekends/evenings if possible. Build up 5-10 customers, test your systems, make sure you like running a business (it's different than doing the work). Once you have consistent work and can replace your income, transition to full-time. Having a financial runway reduces stress.

Do I really need an LLC? Can't I just be a sole proprietor?

You CAN be a sole proprietor, but it's risky. If something goes wrong (customer sues you, someone gets injured, contract dispute), they can go after your personal assets—house, car, savings. LLC creates legal separation. It's $100-500 to set up and worth it for peace of mind. Most contractors choose LLC for liability protection.

What if I can't afford insurance right away?

Don't start without insurance. Period. One accident without insurance can bankrupt you personally. If you truly can't afford it, keep your day job until you save enough. Or start very small with friends/family only and get insurance before taking "real" customers. General liability is $500-2,000/year—if you can't afford that, you can't afford to be in business yet.

How long until I can make a living from my contracting business?

Honest answer: 6-18 months for most contractors. First few months are setup and first customers. Months 3-6 you're building reputation. Months 6-12 work becomes more consistent. Year 2 is when most contractors hit stride and make good money. It's a marathon, not a sprint. Plan accordingly.

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