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Are you considering starting your own general contracting business in California? While there are many steps involved in setting up your company the right way, doing so will keep you organized, compliant and ensure your credibility to future clients.
There are five key steps to consider when starting a general contracting business in California, which I will cover in today’s video. These steps include:
- licensing and compliance
- contracts and subcontract agreements
- accounting practices
- lead gen / marketing
- Insurance and bonding
Licensing and Compliance
First, it is important to identify the type of classification you need. You will either need a Class A General Engineering Contractor License, Class B General Building Contractor License or Class C Specialty Contractor License. Then, you will need to complete the education and credit requirements, fill out a licensing application, complete a background check, and of course, pass the state licensing exam. Phew! The state of California will also need to make sure you carry the right insurance and bonds – and proof of compliance – but we’ll get to this a bit later.
Forms and applications for the licensing process can be found on the California Contractors State License Board website, here.
Contracts and Subcontractor Agreements
It is critical that you set up sound contracts and subcontractor agreements from Day 1. We advise that you seek legal counsel to finalize these documents. You can also obtain draft contracts from places like LevelSet, which is a great resource. Contracts detail the rights, roles and responsibilities of all involved parties. They also entail the scope of work, general business information, your licensing and insurance coverage, change orders, payment information, how to resolve a dispute, flow-down provisions and termination information. Be sure to have your attorney review the clauses of each contract, especially around payment terms, which are trickier for subcontractors, since the money typically flows through many parties before the subcontractor is paid.
Like sound contracts, it is important to have sound accounting practices in place when you start your general contracting company. We recognize that numbers aren’t fun for everyone, which is why finding online bookkeeping software can be extremely helpful. We recognize that your finances are complex because you are balancing many different factors, from changing operating costs to fluctuating costs of goods sold to long-term projects that will be billed over time. To get yourself started, find online bookkeeping software; set up a business banking account that is separate from your personal account (for this, you will need an employer identification number or EIN); determine how you are going to track transactions for each job (AKA job costing); record all of your daily transactions and business expenses; create an invoice template like this; determine your revenue recognition model (completed contract method or percentage of completion method); and pay estimated taxes by signing up for a Electronic Federal Tax Payment System (EFTPS) account. If this sounds like a lot, it’s because … it is! But with the help of an accountant, who you can consider hiring as an independent contractor, you will be in good hands. And let me tell you, as someone who works with hundreds of contractors, those with accountants or bookkeepers are always more organized and prepared.
Lead Generation and Marketing
Now that you’ve organized your business properly (seriously, you rock for not skipping steps 1-3), it’s time to look at lead generation and marketing. As shared by Hubspot, a great source for marketing ideas, the “Four L’s” of lead generation include: lead capture, lead magnets, landing page and lead scoring. Lead capture or “opt-in” is the process of offering something (via your website) in exchange for capturing someone’s email address. That “something” is your lead magnet, which can be any of the following: a free webinar, a white paper or PDF of important FAQs or bonus tips, a free mini training series, etc. By offering one of these free resources in exchange for an email, you are more likely to get someone to sign up. Give before you take. Next up, your landing page. A landing page is separate from your website home page; it is used as a tool, typically for one marketing campaign. For example, if you want people to watch a free video series called “how to work with a general contractor on your restaurant’s tenant improvement project,” then you can create a page on your website that is focused on just this! The prospect can input their email address to gain access to the training video. Finally, you can score your prospective clients based on the actions they take. For example, if they join your email list and watch your video series, they would “score” higher than if they just visited your website and provided an email, but did not watch the video. There is so much to marketing and lead generation, so check out Hubspot for continued support. In the meantime, make sure you know what you want out of your marketing efforts and how you are going to define success. Continue to check your progress over time and let go of what doesn’t work.
Insurance and Bonding
At Fusco Orsini & Associates, we know that you want to be a successful general contractor in California. But first, you need business insurance that addresses the factors of your high-risk industry, including potential lawsuits, mishaps and losses. At our agency, we’ve worked with hundreds of general contractors in California and nationwide to help them find the best-fit coverage such as:
- General liability
- Workers compensation
- Builders risk insurance
- Pollution liability insurance
- Commercial auto insurance
- Contractors license bond
- And more
Here, we break down the 4 best workers compensation programs that every California general contractor should know. Our team stays abreast of everchanging California laws affecting general contractors and we’ve helped hundreds of folks stay ahead of rate changes, policy changes, and market changes. Please reach out anytime via call or text at (858) 384-1506. Talk to you soon.