How to Start a Construction Business

How to Start a Small Construction or General Contracting Business

by Caron_Beesley, Community  Updated: March 5, 2012

Below is an article I found about how to start a construction business. There are many great links to information on the Small Business Administration’s (SBA) website. I can also provide you with guidance, information, and tools to help you start your construction business. On my services offered page, we include corporation formation, bonding and insurance services, and of course, license application services.

Interested in getting into the construction business? Now might be the time, with market forecasts courtesy of IBISWorld predicting a steady rise in the value of the construction industry over the next five years – 12.5 percent annually for residential construction and 13 percent for private non-residential construction.

If you’re interested in starting a construction, home improvement, or contracting business, here are some business and regulatory basics you need to be aware of.

how to start a construction business10 Steps to Starting any Business

Start by familiarizing yourself with the basic steps involved in planning and forming any kind of business, including planning your business strategy, incorporating and registering with the right government agencies. Read these essential 10 Steps to Starting a Business from SBA.gov.

Get Licensed, Bonded, and Insured

Protect yourself, your business and your clients by ensuring you have the right licenses and permits, business insurance, and surety bonds. Here are three reasons why and information on how to obtain them:

1) Business Licenses and Permits – In addition to a general business license, most construction or contracting businesses need specific licenses to operate legally. For example, a tradesman license is required for electrical, plumbing, HVAC, gas fitting, and other construction trades.

Use this handy SBA.gov search tool – “Permit Me” – to identify the exact license and permits you’ll need. Just enter your zip code and business type. Local government websites also list this information and can guide you through what you’ll need.

2) Surety Bonds – A surety bond is not something many business owners think about, but in almost all cases, construction businesses need construction bonds in order to operate legally. You arrange for a surety bond from a third party who promises to pay your client if you do not fulfill your work obligations under a contract. Bond regulations vary by state, so research your state’s requirements or speak to a reputable surety bond agent. If you are unable to secure a bond through a commercial channel, SBA offers its own Surety Bond Guarantee program that can help.

3) Insurance – Depending on the nature of your work and whether you employ workers directly, you will need several types of business insurance. Consider getting general liability insurance as well as vehicle and property insurance. This will protect you against claims for personal injury and property damage, and cover the costs of legal proceedings. Individual states also require businesses to carry specific insurance, such as workers’ compensation insurance, unemployment and state disability insurance. Read this article for more information on business insurance: Business Liability Insurance – Tips for Protecting your Assets with the Right Coverage.

Remember: jobsites won’t do business with you unless you can prove you have the right coverage.

Familiarize Yourself with Construction Industry Regulations

From energy efficiency standards to workplace safety regulations, the construction industry is heavily regulated. Read SBA.gov’s Construction Industry Guide, which compiles everything you need to know in one place.

Develop an Occupational Health and Safety Plan

The Occupational Safety and Health Act (OSHA) requires that construction workers are provided a safe workplace free from recognized hazards. Fortunately, the OSHA.gov website offers a variety of tools and services that can help you comply and develop a safe workplace. These include on-site consultations, training, and more. Read more in SBA’s Workplace Safety and Health guide. Check out these quick reference resources, too:

Finding and Hiring Labor

The construction industry generally secures labor from four sources – subcontractors, hired employees, labor brokers, or independent contractors. Of course, the law differs in how you work with each of these. For example, when hiring employees, you’ll take on additional obligations such as withholding taxes, paying wages, benefits, complying with employment law, and so on. To get you started read, 10 Steps to Hiring your First Employee on SBA.gov.

While there are no specific laws governing how you work with subcontractors, you may wish to draw up a contractual agreement and ensure that they, too, are licensed, bonded, and insured.

If you engage a broker to find labor, you will pay the broker directly. If you hire independent contractors (self-employed individuals), you will pay them directly but, unlike employees, you are not responsible for paying benefits or withholding taxes. There are strict tax reporting requirements for working with independent contractors. Read about them here.

via How to Start a Small Construction or General Contracting Business | SBA.gov.

Here is an additional and updated article that you may find helpful: https://www.cleverism.com/employment-law-guide/

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Contractor Adversiting Rules 5/15/2013​

I was recently asked if a corporate license using a DBA can advertise with just the DBA. My answer was yes. As long as the public can find your license information on the CSLB website by searching the DBA, you are in compliance with the rule. Remember, your license number must be included in ALL advertising. Including on your vehicles. Every time I see a contractors rig, I ALWAYS look for their number. 98% of the time it’s listed. That means that 2% of you are not in compliance. And with the CSLB on an enforcement binge, you shouldn’t take the chance of receiving a citation.​

advertising sign

Here are the laws that pertain to advertising:​

7027. Advertising as contractor

Any person who advertises or puts out any sign or card or other device that would indicate to the public that he or she is a contractor, or who causes his or her name or business name to be included in a classified advertisement or directory under a classification for construction or work of improvement covered by this chapter is subject to the provisions of this chapter regardless of whether his or her operations as a builder are otherwise exempted.

7027.4. Advertising as insured or bonded; Requirements; Cause for discipline

(a) It is a cause for discipline for any contractor to advertise that he or she is “insured” or has insurance without identifying in the advertisement the type of insurance, including, for example, “commercial general liability insurance” or “workers’ compensation insurance” that is carried by the contractor. The contractor may abbreviate the title of the type of insurance.

(b) It is cause for discipline for a contractor to advertise that he or she is “bonded” if the reference is to a contractor’s license bond required pursuant to Section 7071.6 or to a disciplinary bond required pursuant to Section 7071.8.

(c) “Advertise,” as used in this section, includes, but is not limited to, the issuance of any card, sign, or device to any person, the causing, permitting, or allowing of any sign or marking on or in any building or structure or business vehicle or in any newspaper, magazine, or by airwave or any electronic transmission, or in any directory under a listing for construction or work of improvement covered by this chapter, for the direct or indirect purpose of performing or offering to perform services that require a contractor’s license.

7071.13. Reference to bond in advertising, soliciting, or other presentments as ground for suspension of license

Any reference by a contractor in his advertising, soliciting, or other presentments to the public to any bond required to be filed pursuant to this chapter is a ground for the suspension of the license of such contractor.

7029.5. Display of name, business address and business license number on commercial vehicles.

Every C-36 plumbing contractor, C-45 sign contractor, and C-57 well-drilling contractor licensed under this chapter shall have displayed on each side of each motor vehicle used in his or her business, for which a commercial vehicle registration fee has been paid pursuant to Article 3 (commencing with Section 9400) of Chapter 6 of Division 3 of the Vehicle Code, his or her name, permanent business address, and contractor’s license number, all in letters and numerals not less than 1½ inches high. The identification requirements of this section shall also apply to any drill rig used for the drilling of water wells. Failure to comply with this section constitutes a cause for disciplinary action.

7029.6. Display of business name and contractors’ license number

Except for contractors identified in Section 7029.5, every contractor licensed under this chapter shall have displayed, in or on each motor vehicle used in his or her construction business, for which a commercial vehicle registration fee has been paid pursuant to Article 3 (commencing with Section 9400) of Chapter 6 of Division 3 of the Vehicle Code, his or her business name and contractors’ license number in a clearly visible location in print type of at least 72-point font or three-quarters of an inch in height and width.

7030.5. Inclusion of license number in contracts, bids, and advertising

Every person licensed pursuant to this chapter shall include his license number in: (a) all construction contracts; (b) subcontracts and calls for bid; and (c) all forms of advertising, as prescribed by the registrar of contractors, used by such a person.

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