How to Become a General Contractor: The Ultimate Guide

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  • 15 minutes
In this guide, we'll cover how to become a General Contractor and the key things you need to know to get started and be successful.
In this guide, we'll cover how to become a General Contractor and the key things you need to know to get started and be successful.

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    In this guide, we'll cover how to become a General Contractor and the key things you need to know to get started and be successful.

    Becoming a General Contractor gives you the freedom to be your own boss, but it also comes with a lot of responsibility and compliance obligations. Being a respected, trusted GC with a bubbling roster of bids has nothing to do with luck. You have to get your ducks in a row.

    It’s important to know that this is a state-specific topic. That means that every aspiring contractor needs to look into local laws and regulations before taking on clients. However, learning the universal rules for how to become a contractor is a great starting point for plotting the way forward. In this guide, we’ll cover what you need to know to begin a career as “the boss” by becoming a general contractor.

    What are the different types of contractors?

    Look no further than the word “contractor” to truly get an understanding of a General Contractors role. Contractor comes from the concept of a legal agreement called a contract being drawn up between the service provider and client. A contractor is legally responsible for delivering the work necessary to complete a project once a deal is signed. As a general contractor, you’re tasked with the “totality” of the project. This often includes bringing in subcontractors to complete specific construction, remediation, and design aspects. The common contractors used as subtractors by general contractors include:

    General contractors sometimes handle all aspects of design, demolition, and construction on their own for smaller projects. In some cases, you may work as a general contractor who is brought in as a subcontractor on other projects due to your particular expertise niche. General contractors can even take on some of these ultra-specific contracting roles:

    • Trade Contractor: Trade contractors focus on specific aspects of construction projects that can include repairs, renovations, and construction.
    • Approved Contractor: In order to go out for bids from some private and public entities, contractors need to be on a list of approved contractors who have demonstrated their competency for projects of certain standards and scopes. Approved contractors are commonly used by local, state, and federal agencies.
    • Design and Build Contractor: These general contractors handle all aspects of a project from initial design to final execution.

    Rules for what’s required to classify yourself as a specific type of general contractor vary by state. However, the overarching rule is that a general contractor is responsible for the design, planning, execution, monitoring, and inspection of every aspect of a project. In addition, the contractor is responsible for ensuring that all materials, machinery, permits, and workers needed to complete the tasks outlined in a contract are present. All of the work outlined in the contract must also be completed to the specifications included. Finally, the general contractor is responsible for the safety and security of the job site.

    Minimum requirements to become a general contractor

    The first rule of becoming a general contractor is that you need to meet the license requirements of any state you operate in. Some states don’t have a “general contractor” license. They instead require you to register as a specific type of contractor based on the projects you’re working on. This could include registering as a construction contractor, new home contractor, or specialty trade contractor. Here’s a look at the minimum requirements typically needed to become a general contractor anywhere in the country:

    • A high school diploma or GED
    • The ability to work legally in the United States
    • A clean record
    • Two to four years at the journeyman level within the past 10 years
    • Passing score on any applicable state or local contractor licensing exams

    Diligence is everything when setting yourself up as a general contractor. If you’ll be crossing state lines to work on projects, it’s necessary to make sure your credentials are legally up to snuff. Your status is always based on the state where you’re doing work instead of the state you’re based in.

    The skills you need to be successful as a general contractor

    Organization, drive, and a passion for excellence all create exceptional general contractors. Organization is especially important because a big part of a project’s success comes down to a GC’s ability to manage workers and subcontractors to ensure work gets done on time and at quality.

    GCs need to be comfortable wearing multiple hats because they’re dealing with clients, workers, and vendors on a never-ending loop. They also have a talent for bringing together the right groups of people to create synergy on the job site. They use their own excellence to recognize excellence in other contractors.

    The support you need to be successful as a general contractor

    One of the big “early” mistakes of contractors is overestimating their ability to take care of the books and the finances on their own. Unfortunately, this is the opposite of a growth strategy. It’s easy to get sloppy with your bookkeeping when you’re trying to manage clients and job sites all day. In fact, many contractors get into trouble due to simple negligence. A good accounting system is key.

    GCs also need to assemble the best network of suppliers possible. This is how they get premium products that help them to land bids, keep projects moving along without disruptions, and deliver according to client specifications.

    Finally, the thing that keeps it all moving and one of the most critical is a network of trusted subcontractors. The people you choose to hire are holding your reputation in their hands. The way to ensure that you can land the best of the best in your market is to pay well, pay on time, schedule fairly, and offer a positive working environment.

    How to become a licensed contractor

    Every state has its own licensing requirement. It’s important to research the specifics in any area where you intend to do work because the contractor licensing process can vary by locality within each state.

    Typically, aspiring contractors spend a few months preparing for a licensing exam administered by the state’s contractor licensing board. You’ll also need to complete any paperwork that’s required for the licensing process and be ready to pay the licensing fees.

    Here’s a state-by-state rundown of contractor requirements from each state’s contractor’s license board that can serve as a launching point:

    Keep in mind that licensing is just one aspect of getting into business as a GC. In addition to taking care of all licensing requirements, GCs typically need to register with their state business boards. GCs also need to register with the department of labor in their states if they’ll be hiring workers.

    Do I need to be licensed to be a general contractor in my state?

    There’s no federal licensing requirement for GCs. Generally, every GC is licensed at either the state or local level when performing any type of work. Failing to be properly licensed can result in fines, civil charges, and criminal charges. In addition, a GC can lose their ability to legally work in a state.

    Setting up your business so it can operate in your state

    Here’s where setting up a construction business looks a lot like setting up any kind of business. The first step is to simply establish a business entity. Choose a name that conveys your brand. Most general contractors register their companies as limited liability companies (LLCs) to reduce personal liability. In addition to shielding your personal assets from business liabilities, an LLC allows GCs to avoid the burden of double income taxation.

    Next, you’ll need to register as a business with your state. This is typically done through a state office, business bureau, or business agency. It’s also recommended that you set up a separate bank account just for business use at this point. This will really save the day once you’re juggling business expenses, payroll, and taxes. The banking aspect is something that an accountant should be helping you with.

    Yes, every GC should bring in an experienced accountant with prior experience in a construction company. A solid accountant won’t just ensure that you’re getting your business established on a steady footing. Accountants are also critical for ensuring that your books are being managed impeccably. That means that taxes, expenses, profit distribution, losses, and payroll are all being managed in real time to create neat books. In addition to helping you stay organized where it counts, accountants also help you to have a better understanding of your finances. This is crucial for making business decisions regarding the types of projects to take on, expanding equipment inventory, and hiring new people.

    Insurance every general contractor should have

    Insurance is never optional when you’re a GC. In fact, most states require proof of business insurance and contractor license bonds as a requirement for licensing. GCs should ideally carry these forms of insurance beyond any basic requirements:

    • Commercial general liability insurance
    • Contractor license bond
    • Worker’s compensation
    • Automobile liability insurance
    • Builder risk insurance

    Insurance provides coverage against injuries and accidents. You can find a great rundown of what should be included in a policy here. In addition to being insured, GCs should also be bonded. Bonding means that you’ve purchased something called a contractor license bond or surety bond that offers some limited guarantees to clients regarding your work. By contrast, insurance policies protect against liabilities and accidents. Here’s a good resource breaking down the difference between contractor license bonds and liability insurance.

    Key things contractors should consider when employing workers

    As a GC, you can only deliver what your crew can deliver. That’s why GCs need to hire great people. While some of your crew may be hired directly using a W-2 employment setup, you may also hire independent contractors called 1099 contractors. An independent contractor is a person who contracts to perform services for your company without having the legal status of an employee.

    Managing employees can get complicated and significantly increase your administration burden. The good news is that there are simple, affordable “hacks” that even the newest of GCs can utilize to operate like major construction corporations.

    This is where using quality construction time tracking software to keep track of hours and location becomes essential. In fact, this should be prioritized during the early days when you may be overstretched due to all of the tasks you’re taking on just to get projects rolling.

    Workyard: Time Tracking Software Designed For Contractors

    You can’t be a babysitter to crews all day. It’s very common for workers to spend most of the day unsupervised while you’re handling planning, negotiating, and materials sourcing from an office, especially in the early days. Unfortunately, this is where many GCs lose money due to inaccurate payroll records. You may also lose traction as you build up your business because you’re simply devoting too much time to chasing down time cards instead of spending time pleasing your customers.

    In addition to taking advantage of payroll software, GCs should also utilize job scheduling software that streamlines schedules, communication, and expectations among employees. Note, this doesn’t need to be a separate app to your time tracking software, many of the leading construction workforce management packages include time tracking and scheduling functionality all in one app.

    There’s no need to feel overwhelmed by the idea of implementing time tracking and scheduling software. In addition to being extremely easy to implement, systems like Workyard are incredibly affordable and designed to be easy to set up and easy to use for your whole crew. In fact, this type of software pays typically for itself in the first 60 days by saving you money on payroll and making your whole operation more efficient.

    Become the general contractor of your own ambitions when you step into the “boss” role. The importance of getting all licensing and insurance requirements for starting your own general contracting company squared away cannot be overstated. You’ll then be in the position to bring in the workers with the skills and expertise needed to help you become the most trusted contractor in town. Just make sure you have the tools to keep everything running smoothly!

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