From Craft to Company: Starting Your Own Business
If you're looking to start your own business, there are key considerations to address, including defining your services, setting up your books, and building your team.
If you’re a designer, carpenter, or other trade professional and are feeling the itch to start your own business, you’re not alone. It’s a fairly common path in the building trades. After a few years of developing our craft, we start to feel like we have learned enough to find and manage our own jobs.
There are many scenarios that propel us in this direction: We want to be our own boss, we are dissatisfied in our current job, we see a market opportunity, or we think we can make more money running our own business. Some construction-business owners are serial entrepreneurs who love starting and running businesses.
But, in my experience as a business coach to construction professionals, most are accidental business owners who fell into working for themselves without putting together a comprehensive business plan. In many of these cases, the business struggles, not because the owner isn’t a great plumber or roofer, but because they haven’t put the same amount of time into learning the business as they have the trade skill.
Ask Yourself These Questions
So if you’re thinking about starting your own business, here are a few questions that you should be able to answer before you make the big move:
- What services or products will this business offer?
- Who is my ideal client or project?
- Is there much competition for those customers? How will I differentiate my business?
- What skills do I bring to the business and what do I need to learn? What knowledge gaps would I need to fill by bringing in others?
- Do I have enough financial resources to quit my current work to focus solely on starting a new business, or do I need to start this as a side hustle?
- Assuming that you may bring on employees or collaborate with trade partners at some point, what does it mean to you to be a great employer?
- How much start-up capital is required to get up and running?
If you can answer these questions well, you are headed in the right direction to become a business owner, but there are a few logistics you’ll need to take care of to make sure you’re operating legally. The details may vary from state to state, but here are ten steps that any new business will likely need to follow.
Pick a Name
This will be required to register the business and can be a stumbling block for some people. You can change it later, but it’s a pain, so try to find something you like and stick with it. Once you’ve got a few options, check with the United States Patent and Trademark Office to see if the name is trademarked, check with your secretary of state to see if it’s already registered in your state, and check if a domain name is available so you can use the URL for your website. And here’s an often-overlooked tip: If you think there’s a possibility that you might want to sell the business down the road, don’t name it after yourself.
Register Your Business
You’ll need to decide what kind of legal entity this business will have. “Sole proprietor” is the default if you don’t actively register some other way and have only one owner. However, creating an LLC (limited liability corporation) will give you additional protection that prevents you from being on the hook for the business’s liabilities.
Other options include registering as a C corporation (good for larger businesses that plan to go public at some point and sell shares), a benefit corporation (good for mission-driven businesses), or a cooperative corporation (the business is owned and managed by the workers).
Once you’ve decided on the legal entity, you can register with the IRS to receive an EIN (employer identification number), which you’ll need to set up everything else. The next step is to register your business in the state where you plan to operate, usually through the secretary of state’s office. From there, the state can point you to other registrations or licenses required for your trade or profession.
Set Up Accounts
With your new EIN in hand, you’ll be able to set up accounts with the various state-level agencies or departments to whom you’ll need to pay taxes. This varies from state to state, but most likely you’ll need an account with the state’s department of revenue or taxes for business taxes, and if you have employees, you’ll need an account with the state’s department of labor for unemployment.
The secretary of state’s office or city’s website has a page with resources for new businesses that can point you to the local requirements. You’ll also want to open a new bank account and credit card for your business to ensure that you’re not co-mingling personal and business funds.
Get Insurance
This is not the most fun part of starting a business, but an important one: You’ll need to make sure you’re protected with a variety of insurance policies. The most basic include general liability, and if you have employees, worker’s compensation. Depending on your business type and assets, you may also need property insurance to cover your business location, professional liability (sometimes referred to as errors and omissions, or E&O), auto insurance to cover company vehicles, or builder’s risk insurance to cover projects while they are under construction.
Get Licensed
Depending on your trade and the state where you’re located, different types of licenses may be required to operate your business, including everything from a construction supervisor license to a refrigeration license for installing heat pumps. Requirements vary from state to state and change frequently. Your local secretary of state’s office is a good resource for figuring out what licenses you’ll need. Many licenses also come with annual continuing education requirements.
Set Up Your Books
Putting together an annual operating budget with projected revenue and expenses can help you anticipate what it will cost to run the business, and figure out what you need to charge to be profitable. You’ll need a system for tracking revenue and expenses—ideally something more than a shoebox full of receipts that you bring to your tax preparer at the end of the year.
Most small businesses use accounting software like QuickBooks, Sage, or Xero. Depending on your familiarity with bookkeeping, you may want to hire a bookkeeper to set up these systems for you. It’s worth spending the time and money to get it set up right at the beginning, versus having to go back later and clean things up.
Build Your Team
You’ll likely be working with other people in your business, whether they are employees on payroll or trade partners with whom you subcontract. It’s important to understand the legal distinctions between the two as it affects the types of insurance coverage and documentation you’ll need (W-4s and I-9s for employees, W-9s and COIs for trade partners). To pay your employees, you’ll need a payroll service to track all the required taxes and withholdings.
Find Professional Expertise
Whether you’re a sole proprietor or anticipate hiring a large crew, as a business owner you’ll want a variety of experts on your team early on to advise you as you’re getting started. The most common would be a lawyer (for help with business setup and drafting contracts) and an accountant (to set up your books, prepare your taxes, and provide financial advice).
If you’re new to the business side of things, you may want to bring on a bookkeeper, as mentioned above—either freelance or on staff—to make sure you have a strong grasp of your company’s financials. Not sure where to find these folks? Ask your friends, neighbors, and colleagues if they have professionals they can recommend.
Get Your Name Out There
Once you’re officially in business, the next step is to find business. There are many potential strategies for mar-keting your business, but some of the basics I’d do right away include launching a website for your business, setting up a business email account separate from your personal email, and creating a Google Business listing (which is free and allows people to find your business through a Google search or Google Maps). Most early business comes from word of mouth, including neighbors, friends, and family, so make sure to let folks know about your new venture and the services you’re offering.
Slow Down to Go Fast
Running a small business is a lot of work, hands down. It’s easy to get caught up in the hamster wheel, especially when you’re scrambling to line up work to keep your crew busy. As you launch into this new business, set one or two realistic and manageable goals for your first year, and block time in your calendar to pause and prioritize, reflecting on where best to invest your time and money in order to reach those goals.
Taking the leap to go out on your own and start a new business can be exciting and completely terrifying at the same time. There will be highs and there will be lows, but if you’ve got a solid plan and the entrepreneurial drive, being your own boss can be freeing and rewarding.
— Kate Stephenson is co-founder of HELM Construction Solutions, a planet- and people-forward firm with expertise in construction, management, leadership, and training.
From Fine Homebuilding #329
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