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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Long Term Forecast of the CSLB

What is the long term forecast of the CSLB?

I’ve been hearing from many people that their license application is in a backlog that was self-created by the CSLB.

With the implementation of their back room decision to require critical classification applicants to provide every scrap of paper they can find to prove their experience, the CSLB now has a backlog of up to two months before they can review what they’ve required the applicant to provide.

Now don’t get me wrong, I’m not anti-government. I’m for government that works. Unfortunately, government is only as good as the people in charge. In the case of the CSLB, the people in charge seem increasingly less qualified to do the job.

long term forecast of the cslb

They now have eight classifications on the “critical” list. That means, every applicant who applies for one of these eight classifications will have to provide additional experience verification. When the CSLB receives all of this paperwork, somebody has to review it. What is the CSLB process? Assign one person to review the mounds of paper flowing into their office! Now how does that make sense?

Having spent 5 wonderful years working at the CSLB, I can tell you that they promote the less qualified, and chase out the more qualified. Why is this? You could be a fair to midland employee, but if you’re a Yes man or woman, they’ll put you in charge. If you’re in the “in” crowd, they’ll put you in charge. If you’re good buddies with someone in charge, they’ll put you in charge.

Another issue that is brought up by this new application process is money. The CSLB is self-funded. How long can a self-funded agency last if they deny a vast majority of applicants from getting licensed? Sure, they’ll make $300 on every app submitted. But, they’ll lose all the money they’d receive on renewal fees, adding classification fees, etc. If the CSLB was a private business, it wouldn’t be long before they were out of business.

What is the long term forecast for the CSLB? Who knows, but from where we all stand now, it doesn’t look very good.

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CSLB Qualifying Experience Part 2

To continue in this series of posts, I will be discussing the CSLB Qualifying Experience outline and process. Part 2

Below are a set of powerpoint slides that were shown at the recent Contractors State License Board Licensing Committee Meeting held at the CSLB office in Sacramento on October 21, 2013.

Along the way, I’ll add my advice and opinion where necessary. Click on the images to enlarge.

CSLB Qualifying Experience Part 2 Slides #9-10

#9 is the basic app review process. Nothing has really changed here.

#10 states they will determine if critical class or any other experience issue exists. There are 8 classifcations that are currently on the critical class list. If you are applying for one of these classifications, it should/could/would trigger the verifiable experience documentation letter.

The critical classes are: A-Gen Engineering, B-Gen Building, C-10 Electrical, C-16 Fire Supression, C-20 HVAC, C-36 Plumbing, C-38 Refrigeration, and C-57 Water Well Drilling.

 CSLB Qualifying Experience Part 2 Slides #11-12

#11 The 90-day rule is unchanged. You’ll have three months to prepare and submit your qualifying experience. But, if you’ve read my blog ahead of time, you should have already prepared your qualifying experience documents.

#12 If the newly submitted documentation (I think they are assuming that no one will submit their documentation when they first submit their license application? This may be because they aren’t telling anyone in the industry that they’ve been changing the rules) it is reviewed to determine if it is sufficient. As before, what is the CSLB’s definition of “sufficient”?

CSLB Qualifying Experience Part 2  Slides #13-14

#13 is suggesting that certifiers of applicants for critical classes are being treated differently. The law only requires that the certifier have first hand knowledge of the experience. The application allows for certifiers to be journeyman, fellow employee, and supervisor. So why does a critical class change that? This confuses me as the law is clear and the choices on the application are simple.

#14 is a big one for me, and should be for you too if you have an employer who doesn’t want you to get your own license. This happens quite often, and the CSLB is putting many applicants employment status at risk. As I stated with #13, the law is clear and the choices on the app are simple. You should be able to use your experience as an employee of a licensee, have your sup/foreman/co worker certify your experience, without putting your job at risk. I think this could border on employee rights violations or civil rights violations.

 CSLB Qualifying Experience Part 2  Slides #15-16

#15 so if the employer does not confirm your experience, and has subesquently fired you for applying for your own license (it happens!), they’ll allow you to submit additional documentation. I have talked to many who have sent them everything they had when first asked for it, so I’m confused as to why the CSLB thinks the applicant will all of a sudden come up with more.

#16 is pretty straight forward, but I do know that they have been accepting, or have accepted in the past, “testimonials” from people who know the applicants experience.

So there is part 2 of the CSLB Qualifying Experience Series. There will be at least one more, if not two, in the series. Stay tuned.Click on the following link to download a PDF of the acceptable CSLB Qualifying Experience list.Acceptable CSLB Qualifying Experience

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CSLB Qualifying Experience

In the next series of posts, I will be discussing the CSLB Qualifying Experience outline and process.

Below are a set of powerpoint slides that were shown at the recent Contractors State License Board Licensing Committee Meeting held at the CSLB office in Sacramento on October 21, 2013.

Along the way, I’ll add my advice and opinion where necessary. Click on the images to enlarge.

 

CSLB Qualifying Experience

Slides #1-2

How does the CSLB determine which trade classifications are directly affecting consumer’s health and safety?

CSLB Qualifying Experience Slides #3-4A month or two ago, there were only four CSLB trade classifications that they had labeled “critical classes.” Now there are 8.I would think the C-39 classification would have an affect on consumer health and safety if the work wasn’t done correctly.
CSLB Qualifying Experience Slides #5-6″Questionable Experience” What is the definition of “Questionable”? Who at the CSLB has determined this?

Also, no where in California Law is the term “Critical Classifications” mentioned. Is this a made up term?

 CSLB Qualifying Experience  Slides #7-8These explanations are much better at defining what steps the CSLB will take. They won’t provide this information in any shape or form, unless you were to go looking for it deep within the CSLB website.

Slide #8 doesn’t state that you have appeal rights after the formal investigation has generated a denial.

That’s all for now. Many more slides to cover in future posts. Thanks for reading!Click on the link below if you’d like to see the current letter being sent to applicants who are having to prove their CSLB Qualifying Experience.Acceptable CSLB Qualifying Experience

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CSLB Application Processing Procedures & Stats

CSLB Application Processing Procedures were discussed at a recent meeting.

Below is part of a powerpoint presentation given at the 10/21/13 Licensing Committee Meeting where they discuss their “new” cslb application processing procedures. It seems to me that the more they try to explain away their decision to profile certain applicants and trades, the more it seems like they are failing at covering their backsides.

There are now 8 classifications that they have determined to be “critical.” Thus, triggering their new application processing procedures. They are: A-Gen Eng, B-Gen Building, C-10 Electrical, C-16 Fire Protection, C-20 HVAC, C-36 Plumbing, C-38 Refrigeration, and C-57 Water Well Drilling.

cslb application processing procedures

But Wait, there’s more!

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Veterans Application Assistance Program

Veterans Application Assistance Program

I don’t think too many people are aware of this CSLB program for US Military Veterans. It hasn’t been publicized very much, but it is nice to see that they are giving those of us who are veterans a break. If you’re a vet applying for a license, I would highly recommend that you tell the CSLB you are a veteran and take advantage of this program.

 veterans application assistance program

CSLB offers a Veterans Application Assistance Program for those who are transitioning from military service to civilian employment. In many cases, veterans possess transferable skills to help meet minimum experience and training requirements for state contractor licensure. This program offers priority services to veteran applicants by evaluating transferable military experience and training, as well as education.CSLB assists veterans by providing:Program technicians specially trained to evaluate transferable military training and experience from all branches of the military that meet minimum licensure requirements;Automatic priority application processing;Evaluation of college transcripts to help verify acceptable educational credit in addition to military experience and training;Direct telephone and email contact with CSLB staff

via Veterans Application Program.

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CSLB Newsletter Fall 2013

cslb newsletterBelow is an article from the latest CSLB newsletter. It’s too bad the CSLB is doing everything it can to keep people from obtaining their license.

State’s Construction Industry, Contractors Coming Back to Life

“It’s a whole lot more fun to come to work these days,” says John Mullin, president of Pacific M Painting in Escondido and a board member with the California Professional Association of Specialty Contractors (CALPASC). “There is far less pessimism in the market.”

A sampling of contractors and trade associations from around the state indicates that the first rays of recovery from the economic downturn that shook California’s construction industry are finally beginning to shine. Statistics from CSLB and building sources confirm that sentiment, but no one is turning somersaults, at least not yet. It appears that the business comeback for contractors still varies according to region and trade type.

The uptick may be a long way from the peaks of the early 2000s, but few are complaining after having survived the latter part of that decade, which saw the worst economic collapse since the Great Depression—with the housing and real estate industries leading the plunge.

Read the full article: CLC Newsletter Fall 2013.

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Contractors License Application Waivers

The 4 Possible Contractors License Application Waivers Available in California

contractors license application waiversI wanted to take a moment to discuss the different types of contractors license application waivers. I’m often asked, “Do I get a waiver of the exam since I’ve been working my trade for the last decade?” No. The waiver requirements are very specific. I’ve included the law text below, but I will break it down for you here.

Listed on License Waiver:

With this waiver, you must have been listed on the license you intend to qualify for at least 5 out of the previous 7 years. Note, the license has to have been in good standing for those 5 yrs. If you apply on the 5th year anniversary, but the license was suspended for anything for any amount of time during that 5 year period, you will need to wait until the license has had a minimum of 5 good standing years. I mentioned a moment ago that this waiver is for someone who intends to qualify the license they are listed on. Hence the name of the waiver. You can only use this waiver if you will be replacing the existing qualifier on the license. Now, it is possible to replace the existing qualifier, and then be replaced by that qualifier allowing you to obtain your own license without taking the exams. This is because the law only requires that you hold the classification for at least one day within the last 5 years.

Family Waiver:

This waiver will allow you to become the qualifier and take over an existing sole owner license. The licensee must have retired or passed away and you must be an immediate family member. Immediate family is interpreted to be “a spouse, father, mother, brother, sister, son, daughter, stepson, stepdaughter, grandson, granddaughter, son-in-law, or daughter-in-law.” You’ll have to submit an Application for a new license, requesting the family waiver for the existing license. The business name will remain the same and can not be changed. If the licensee has passed away, you’ll need to provide a death certificate. If the licensee is retiring, he will need to submit a signed letter stating he/she is retiring and allowing the family member to take over the license/business.

Supervisory Waiver:

This is type of exam waiver is not very well known. The law requires that you be an employee of the company in a supervisory role. You’ll need to show experience as a supervisor and show verification of your employment. A letter from an officer of the company, on company letterhead, stating your role with the company should be submitted.

Previously Held the Classification Waiver:

This waiver is for someone who doesn’t currently hold the classification but did at least one day within the last 5 years.

Those are the waivers currently available. If you think you might fit into one of these, feel free to email me with your specific situation and I’ll determine if you qualify.

contractors license application waivers

7065.1. Notwithstanding Section 7065, the registrar may waive the examination for a contractor’s license under any of the following circumstances: (a) The qualifying individual has, for five of the seven years immediately preceding the application for licensure, been listed on the official records of the board as a member of the personnel of any licensee who held a license, which was active and in good standing, in the same classification being applied for, and who during the period listed on the license has been actively engaged in a licensee’ s construction activities in the same classification within which the applicant applies for a license. (b) The qualifying individual is an immediate member of the family of a licensee whose individual license was active and in good standing for five of the seven years immediately preceding the application for licensure, and the qualifying individual is able to show all of the following: (1) The qualifying individual has been actively engaged in the licensee’s business for five of the seven years immediately preceding the application for licensure. (2) The license is required to continue the existing family business in the event of the absence or death of the licensee. (3) An application is made for a new license in the same classifications in which the licensee is or was licensed. (c) The qualifying individual is an employee of a corporation or a limited liability company seeking to replace its former qualifying individual and has been employed by that corporation or limited liability company under the following conditions: (1) For five of the seven years immediately preceding the application for licensure, the qualifying individual has been continually employed by the corporation or limited liability company in a supervisory capacity in the same classifications being applied for. (2) For five of the seven years immediately preceding the application for licensure, the corporation or limited liability company has held an active license in good standing in the same classifications being applied for. (3) The corporation or limited liability company has not requested a waiver under this subdivision within the past five years. For purposes of this section, employees of a corporation or limited liability company shall include, but not be limited to, the officers of a corporation and the officers and managers of a limited liability company.

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New “Handyman License” issued by the Contractors State License Board!

That is what I would like to see on the CSLB’s web page. New Handyman License Issued!

Think about it, the current law permits “unlicensed contractors” the ability to perform jobs that are $500 or less for labor and materials.

By law, they have to advertise as “unlicensed contractors.” But, by law, they don’t have to have a written contract for the work they do.

Now the CSLB is asking these “unlicensed contractors” for copies of contracts when they apply for a contractor’s license, but the law does not require them to have contracts. That makes no sense, so let’s file this under “Things that make you go… Hmmmm.”

handyman license

 

My suggestion is that they institute a handyman license. This license will allow people the ability to do work at the current $500 limit (or, perhaps, they should increase it to $1000), and the experience will be more easily documented. The CSLB could require that they have a written contract, and when it comes time to apply for a full-fledged contractor’s license, they’ll have the documentation to prove their experience.

Here are the Pros:

  1. The CSLB could increase their revenues by collecting licensing fees, renewal fees, etc.
  2. The CSLB could possibly eliminate a lot of the unlicensed activity that they currently spend countless man hours and resources trying to eliminate.
  3. The CSLB would make it easier on the applicant to provide the necessary work experience when the handyman applies for a full license.
  4. The CSLB would make it easier on the application technicians who process these applications.
  5. The CSLB could require the handyman license to carry a, let’s say, $5,000 bond. This would protect consumers, which is the mandate of the CSLB after all.
  6. I’m sure there are more that I can’t think of at this moment.

Here are the Cons:

  1. I can’t think of a single con.

Who benefits?

  1. The CSLB
  2. The consumer
  3. The licensee
  4. The surety companies
  5. The CSLB Staff
  6. Those of us in the licensing industry!

handyman license

 

I realize this would take legislation to institute, and the CSLB would have to draft the legislation and get it sponsored by a legislator. So I have no delusions of this happening any time soon, especially when it makes a great deal of sense. But a handyman license would go a long way to fixing some of the issues that currently plague the construction industry.

 

Study Materials

Application Services

Online Study Materials

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Young Journeyman

Q. What’s a young journeyman?

A. An applicant who is usually less than 25 yrs of age. Being tagged as a young journeyman can be a huge hurdle to overcome. The Contractors State License Board will make the applicant jump thru many hoops to prove their experience.The problem in proving your experience lies in the requirements for licensure. You must have at least 4 yrs of experience at the Journeyman Level. So if you’re applying at the age of 23… that would imply that you’ve been a journeyman since the age of 19. That’s hard to do since most of us graduate from high school when we’re 18, and most apprenticeship training programs can take 2 yrs or more.

The Proof.

If you do get tagged as a young journeyman, you’ll need to show, or attempt to show, w-2’s, pay stubs, tax returns, etc. For most of my clients in this position… that can be very hard to do.

Long term.

Let’s say you do apply, get the young journeyman label and are denied. When you go to apply again in the future, you’ll have to jump thru all of those hoops again.

My advice.

Wait. Wait until you’re 25, 26… You will be less likely to be labeled a young journeyman and will most likely have more documented experience to back up your application.

young journeyman

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