United States
Hong KongStarting a commercial contracting business
Beyond the license you need an entity, insurance, a bonding relationship, working capital sufficient for the gap between doing work and being paid, and a route to a first commercial job.
The license is the permission. The business is a separate problem and it is the one that fails more often.
The sequence
- Choose and form the entity, with liability in mind
- Obtain the license, with the exam and the state requirements
- Put insurance in place - liability and workers compensation
- Build a bonding relationship before you need one
- Establish working capital for the payment gap
- Win a first job you can actually deliver
Working capital is the constraint
You buy materials and pay labor before anybody pays you, and then retainage holds back part of what they do pay.
A profitable contract can consume more cash than the business has. That is why growth kills contractors more often than a lack of work does.
A new contractor winning a project twice the size of anything they have done is at their most vulnerable exactly when they feel most successful. The bonding company applying that logic is protecting you as well as the owner.
Insurance before the first job
General liability and workers compensation, and builders risk where the contract requires it. Owners will ask for certificates, and subcontractors' certificates should be verified rather than assumed.
The bonding relationship
Sureties look at capital, capacity and character. Build the relationship with clean financials and completed jobs before you need a bond for a specific project.
Overhead from day one
Price it into every job. A markup that covers direct cost and profit but not overhead loses money on every project, and the loss compounds with volume.
Common questions
What do I need beyond a contractor license?
An entity, insurance, a bonding relationship, working capital and a route to a first job.
What is the biggest constraint?
Working capital. You pay for materials and labor before anybody pays you, and retainage holds back part of what they do pay.
Why does growth kill contractors?
Each new job consumes cash before producing any, so doubling volume needs roughly double the working capital.
When should I build a bonding relationship?
Before you need a bond, with clean financials and completed jobs behind you.
What is the commonest pricing mistake?
A markup that covers direct cost and profit but not overhead, which loses money on every job.