What to know about starting a contractor business

For enterprising contractors keen to launch their businesses, there’s a lot to plan for and consider. Get an overview of everything you need to know to plant your stake in the ground firmly.

From choosing a business structure, registering a business name, getting licences and permits to buying equipment, marketing the business, and protecting your finances with insurance, here are 10 steps to take to set up a general contracting business:

1. Research the market

Planning is everything. Just as you need a blueprint to build a structure before starting, it’s vital to research the market you’re targeting. Consider who your ideal customers are, who the main competitors are, and what’s unique about the services you offer that define you from the competition while catering to customer demand. 

Draft a business plan outlining everything about your business. Include achievable goals along a practical timeline, your financial structure, the types of services you’ll provide, the pricing structure and your target customers’ wants and needs for the services you offer.

2. Pick a business structure

You’ll need to determine a legal structure for your business. For example, Ontario has four types of business structures: a sole proprietorship, partnership, corporation or co-operative.

When choosing the one that best suits your startup contracting business, consider various factors such as taxation, legal implications and liability protection. There are pros and cons to each option.  

For example, a sole proprietorship is the easiest and cheapest way to go. However, choosing this option means all the responsibility for your company’s success falls on you as the owner. That means you are personally liable for the business and your income is taxable at your personal rate.

On the other hand, opting to designate your company as a corporation helps limit your liability as you’re not liable for the company’s debt, makes it easier to access financing and business grants, and you might qualify for a lower tax rate. However, you will be required to pay more to set it up and report your financial results annually with audited financial statements showing what the company owns, what it owes and how much money you’ve made in a given period.

3. Select a business name

Your general contracting business will need a name that must be unique. Moreover, a business’s name should clearly articulate to its customers what you do and your services. While your business name should be distinctive, it should also be short and easy to remember.

You’ll need to search to ensure the business name you want isn’t already in use. Your company name can’t be the same as or too similar to an existing business name or trademark. There are two national business name databases you can search: 

• Nuans is a federal business name and trademark search tool. It provides a list of names and trademarks similar to your chosen one.
• Canada’s Business Registries provide information on companies listed in the official registries of Corporations Canada and Alberta, B.C., Manitoba, Nova Scotia, Ontario, Quebec, and Saskatchewan.

If you decide to use a name that’s not your legal name, it must be registered as a trade name. Trade names can only be registered in a province or territory.

You can also register a trademark for your business to distinguish it from others. You’ll need to do a trademark search through the Canadian Trademarks Database.

4. Register your company

Before offering your services to customers, you must register your business with the government. To do that, you must state where your main office or business is located, the regions or provinces where you operate, and your business’s name.

The federal government provides a list of services and information for each province and territory to access support, funding and training.

5. Get applicable licences and permits

A general contractor business legally requires licences and permits in its operating regions. You might require different licences and permits from the federal, provincial and municipal governments. You can search for licences and permits using BizPal to determine which ones you need.

Construction and skilled trades businesses are highly regulated. From certifications for specialized trades, homebuilders and electrical safety to complying with technical safety standards and acquiring federal, provincial or municipal permits if you work with hazardous materials or if your work affects the environment, operating without licences and permits can land you in hot water.

6. Establish a business bank account

Separate your personal finances from your business by opening a business bank account. You’ll also need to ensure you have accounting and bookkeeping systems to track your income, expenditures, and taxes and manage customer invoicing. Hiring a professional accountant or bookkeeper to manage your finances makes that easier and can help you avoid costly errors.

7. Get liability insurance

Protecting your business with customized general contractor liability insurance is critical. One incident that injures a customer or passerby, an unexpected incident (like a fire at a jobsite), or a lawsuit can cost hundreds of thousands of dollars and put you out of business.

A typical insurance policy for a general contractor includes general liability insurance, tools and equipment insurance, pollution liability insurance and builders’ risk insurance. Each coverage type addresses specific risks. For instance, general liability insurance covers third-party bodily injury and third-party property damage claims that may occur at a jobsite.

What coverages your business’s policy needs depends on several factors, including location, the services you provide, the equipment you own and the risks you potentially face.

8. Obtain funding

Setting up your business by leasing or buying an office, purchasing furniture, getting office supplies and equipment (like a photocopier), covering operating expenses and acquiring the tools and equipment you need to do your job requires funding. 

You can apply for a loan or business grant or seek investors. Loans are the most common for startups and small businesses, but you’ll need a sound business plan and a good credit rating to qualify for one from a financial institution.

9. Comply with regulations and laws

Know the local building codes, zoning regulations, safety standards and industry best practices for the construction or renovation projects you will do. Ensure your contracting business’s operations comply with all applicable laws, regulations and ethical standards.

Complying with laws and regulations also means collecting and remitting taxes, such as the harmonized sales tax (HST). Visit the Canada Revenue Agency (CRA) website or call the CRA at 1-800-959-5525 to learn more.

10. Develop and market your brand

You need to get the word out about your business to attract customers. That means marketing and promoting your general contracting business and services.

Establishing and defining your business’s brand helps to differentiate your company from competitors using specific colours, messaging and a logo. 

You’ll also need to develop a user-friendly website (which serves as a customer service tool 24/7), create a Google Business profile to make it easy for potential customers to find you online, and use social media networks your target customers use to drive traffic to your website as well as see what your competitors are doing. 

Other tactics worth exploring include email marketing to attract new customers and nurture existing relationships, and if you have the budget, investing in traditional advertising methods like direct mail, billboards and placing ads in community newspapers.

Here’s a bonus tip: Consult with an experienced business lawyer to ensure everything is set up correctly and nothing gets overlooked. A lawyer can assist you with choosing a business structure, leasing a business space, dealing with a range of legal contracts and agreements, and seeking equity financing.

Lastly, once you’re up and running, always provide exceptional quality and service on every project. After all, outstanding work and excellent customer service will help you gain new customers and grow your contracting business.

Finding the right liability insurance coverage is easier than you think

Partnering with an experienced, licensed construction and general contractor insurance broker makes getting affordable, customized protection and a certificate of insurance easy.

A business insurance broker works for you, not an insurance company. In addition to getting you a policy with the lowest premium available on the market by shopping for a rate from several insurers, a broker can advise you on the types of coverages you should have and coverage limits to adequately address your risks if you need to file a claim or a claim is filed against you.

Jon Hogg is a licenced broker and senior team lead, renewals at Zensurance, Canada’s leading source for small business insurance. Get a free quote for your insurance needs by visiting Zensurance.com/DCN.