Next Insurance
How to start a general contracting business

How to start a general contracting business

By Wil Chan
Oct 22, 2022
12 min read

Thinking of starting a general contractor business? Not only will you need a broad knowledge of the construction industry and years of experience working in the field, but you’ll also need strong business skills.

There’s no single way to break into this rewarding profession — but it helps to have the guidance of someone who’s done it before. 

General contractor Michael McSweeney knows what it’s like to start from scratch. Growing up in Cleveland, he became fascinated with construction and started learning electrical and plumbing skills by reading books as a teenager. 

But his building career took off in his twenties when he started working for a general contractor, studied construction at a community college and opened his own contracting business. 

Now a four-decade construction industry veteran, McSweeney has mentored many new generations of builders. As a coordinator at the non-profit California Homebuilding Foundation (CHF), he provides resources to high schools to help train students for rewarding construction careers. And if these students can do it, he says, you can too.

“What I want to do is expose people to the possibilities that if you want to be the master of your own universe, this is a perfect industry to do that in,” he says. 

We spoke to McSweeney about how to build a career as a general contractor. Here are seven of his top tips. 

1. Learn a bit of everything

Working as a general contractor is “like being an orchestra conductor,” McSweeney says. “You have to not only understand the music, but be able to play it. You have to know a little bit about a lot of stuff.”

When you take your exam for a general contractor’s license, you’ll need to demonstrate your knowledge of every single trade. “They can ask you about an elevator. They can ask you about painting. They can ask you about roofing, electrical, whatever,” he says.

That’s something you should keep in mind as you’re learning new skills. McSweeney suggests looking for work that lets you see how all the trades come together in construction — like his first job as a laborer for a San Diego general contractor. 

“I was kind of like the utility baseball player, which gave me the opportunity to meet all the subcontractors on the job,” he says. “I could talk to the plumber, the electrician, the heating guy, all the different subs. And basically that was my college education.”

McSweeney recommends working for a home remodeling company, where contractors do a bit of every trade. 

Just by being on the jobsite, “You can learn from other trades because you'll be there doing cleanup or prepping for the next phase, when the electrician is there, the plumber is there, the heating guy is there, and when the insulation guys come in.” 

2. Structured training is valuable

While you can learn a lot as a construction helper, there are big benefits to enrolling in a structured training program like a vocational course or an apprenticeship. 

These programs can help you build valuable professional skills that you’ll need as a general contractor while expanding your industry network.

McSweeney says school helped jumpstart his career. Most community colleges offer affordable courses on trades like electrical or plumbing that include hands-on learning. 

You can also do an apprenticeship, which McSweeney says is like a “university of construction,” with an important bonus: You get paid to learn. Typically, “you get hired by a contractor, you go to work during the day, and a couple of nights a week, you have a two-hour class.”

Depending on the program and the trade, an apprenticeship could take as many as four years to complete. But by the end, you’ll be well-prepared to start working on your own; many organizations offering apprenticeships will help you get a job.

3. Want to learn a trade? Try carpentry

Many general contractors start out specializing in a trade. If you’re going to pick one, you might want to pick carpentry, McSweeney suggests.

“You're there at the beginning of the project,” he says. “You'll set the forms for the slab to be poured. You'll have to coordinate with the plumber and the electricians who are there because they've got to put in their pipes before your forms go in, and then you'll frame the building and then you'll also come back and put in the doors and windows after it's framed.”

Of course, carpentry isn’t the only way in. McSweeney began as an electrician and painter

“As the electrician, I was there putting in temporary power from the beginning of the project, and the painter is the absolute last guy on the job.” That helped him gain an understanding of construction from start to finish. 

Remember, as a general contractor, your job isn’t to do everything — it’s to manage the crew.

“You don't need to be a master carpenter to hire a master carpenter. You have to be knowledgeable enough to be able to communicate with the master carpenter, to let them know what you want and what your client expects.”

4. Learn accounting and estimating

Succeeding as a general contractor isn’t just about your building skills. You also need business smarts, starting with a basic knowledge of accounting

“If you want to go borrow money from a bank, you’ve got to be able to show them a profit-loss statement,” McSweeney says. “You’ve got to understand a chart of accounts. You've got to understand how to segregate expenses the proper way.” 

He learned this the hard way working as a young painter and getting hired by local contractors: “I didn't understand what my costs were. I didn't understand what my overhead was. I was getting 90% of the jobs I bid, and I thought I was just the world's greatest businessman. The reality was I was undercharging for really good quality work.” 

Getting accurate information on your costs is especially important today, as supply chain disruptions mean the prices of common materials could vary significantly over short periods. 

“If you're thinking, ‘I’m going to need 10 spools of wire and they’re $60 a piece,’ but then you go to buy it and they're actually $125, that's going to hurt,” McSweeney says. 

Also, you have to keep in mind that your costs go beyond materials and wages. 

“If you're paying a guy $30 an hour, then there's taxes, overhead, workers’ comp — all those things add up along the way,” he says. “So what does it actually cost you per hour to have that guy in the job? The $30 an hour you're paying him could be more like $50.”

5. People skills are crucial

Relationships are the key to success in the construction business, according to McSweeney. 

McSweeney says he always makes sure clients feel comfortable with him: “You have to know how to listen. You have to know how to communicate. You have to know how to build trust with people.”

People skills also include treating your employees and subcontractors fairly. “You can't screw people over and not pay them and then expect them to work well for you,” he says.

“The thing with being in business for yourself is you're the master of your own universe, but you are responsible for everything. And if the people that depend on you can’t survive, you're not going to survive.”

As a contractor, strong people skills help you grow your industry network. In particular, trade associations can be a great source of important connections and advice. 

As a young builder, McSweeney recalls going to a cocktail party and meeting a local construction industry veteran who told him he should be charging more. 

“I raised my prices after going to that trade show by 10%, and I didn't have a single client blink,” he says.

6. Always protect yourself

Every construction worker deals with unexpected issues, but “people can sue each other for the smallest of infractions,” McSweeney says. That’s why insurance is critical. 

Many states require general contractors to carry contractor insurance, and most clients will ask for a certificate of insurance before you take on a job. 

“You've got to make sure that you've got enough insurance to adequately protect you,” McSweeney says. “You better have enough liability coverage if something goes sideways. You don't want to have to lose everything.”

If you have employees, you might need workers’ compensation insurance. Many contractors also carry professional liability insurance, which can protect you if you make a business-related mistake. 

Commercial property insurance and tools and equipment insurance can protect the materials and gear your business relies on. 

7. Don’t give up

The road to becoming a general contractor can be long and humbling, and you shouldn’t expect to figure it all out overnight. 

McSweeney battled doubts when he first started construction work. But construction is a career that offers many “pivot points,” he says. Even if you set out to be a general contractor, you’re building skills that can come in handy for many other jobs, including building inspector roles or jobs working with suppliers.

For McSweeney, a construction career is a bit like driving on the freeway. 

“You pick your on-ramp, and then as you're driving down the road, there's just all these exits that you can take,” he says. “And so maybe you take an exit, and you work in that exit for a few years, then you get back on the freeway.”

The rewards for sticking it out are greater now more than ever. 

“Here's one fact that it's going to blow your mind: By 2036, 53% of the people working in construction today will have retired,” McSweeney says. “For every five people my age that retire, there's only one coming into the industry. So if you want to go into something that is going to continue to rise because there's demand but not enough supply, this is the perfect industry to be in.”

Besides McSweeney’s seven tips for starting a general contracting business, NEXT has a few more tips to put you on the path to entrepreneurship.

8. Get licensed

As a general contractor, you’ll be in charge of managing construction projects. For that, you’ll need a license — whether you’re working on a home addition or a brand-new commercial tower. The specific requirements to get a general contractor license may vary by state

In general, you’ll need to demonstrate several years of professional construction experience, or a combination of work experience and education. You’ll also have to pass a state exam, post a contractor bond and show proof of general contractor insurance.

9. Choose a business structure

Once you have your general contractor’s license, you can register your business. 

Your business structure is one of the most important decisions when starting a general contracting company. Some of the most common business structures for general contractors include sole proprietorship and limited liability company, or LLC. 

Each structure has its own pros and cons and can have significant tax implications. Consider meeting with a tax professional or attorney before making your final selection. 

All business structures have specific documentation requirements. You will typically need to get a business license and fill out additional forms with your state — check with your local agencies for more details.

10. Get insured

When you’re launching a general contracting business, getting the right contractor insurance is a must. Not only is insurance required for general contractors by most states and clients, having proper coverage could protect you from financial ruin when something unexpectedly goes wrong. 

At NEXT, we’re proud to offer customized insurance for general contractors. All our plans include general liability insurance, and you can add on coverage like workers’ compensation, professional liability and commercial property depending on your needs.

How NEXT helps general contractors succeed

At NEXT, we know launching your own business takes work. That’s why we’ve made it as simple as possible to protect your business with general contractor insurance

You can complete an application, view policy options, get a quote and purchase coverage — all in less than 10 minutes. When you make a payment, you’ll get immediate access to your certificate of insurance.

Get started with your free online quote today.

How to start a general contracting business

END

About the author
Wil Chan is a content writer at NEXT and has been a professional writer for more than ten years. His work has been featured in publications including Forbes and Greatist. He has run a freelance business since 2016 and feels passionate about helping self-employed people in all industries succeed.
General contractor license requirements by state: NEXT Insurance guide
Grow

General contractor license requirements by state: NEXT Insurance guide

Effective subcontractor management: How to hire and manage construction trades
Grow

Effective subcontractor management: How to hire and manage construction trades

8 steps to build a successful home renovation business
Start

8 steps to build a successful home renovation business

What we cover
Chat with Us

Mon – Fri | 8 a.m. – 5 p.m. CT

FacebookYoutubeLinkedinTwitter
© 2023 Next Insurance, Inc. 975 California Ave, Palo Alto, CA 94304, United States
Better Business Bureau
Issuance of coverage is subject to underwriting. Not available in all states. Please see the policy for full terms, conditions and exclusions. Coverage examples are for illustrative purposes only. Your policy documents govern, terms and exclusions apply. Coverage is dependent on actual facts and circumstances giving rise to a claim. Next Insurance, Inc. and/or its affiliates is an insurance agency licensed to sell certain insurance products and may receive compensation from insurance companies for such sales. Policy obligations are the sole responsibility of the issuing insurance company. Refer to Legal Notices section for additional information.