Life as a contractor comes with many benefits. Flexible hours. Having control of what you work on and who you work with. The chance to build the communities surrounding us from the ground up.
However, starting a contracting business from scratch doesn’t happen overnight. There are plenty of challenges – especially where your finances are concerned.
That’s why we’re here to help. Think of this article as the warning sign on the road. Pitfalls ahead! If you take caution, though, your new construction business can safely speed toward success.
Check out these five ways you can avoid financial mistakes as you’re starting a construction company:
1. Choose your business structure carefully
One of the biggest financial mistakes self-employed contractors make is choosing the wrong business structure. Making this decision correctly at the start of your entrepreneurial journey is important in how your business is perceived – both legally and from a tax perspective.
A sole proprietorship is suitable for those testing the waters of self-employment since there aren’t as many responsibilities, and you can set up and close a business far easier. However, sole traders aren’t seen as separate legal entities from the business venture, so any debts associated with the business are also linked to the individual.
As a limited liability company (LLC) director, you’ll have more legal responsibilities, but it could increase the profits you take home at the end of the financial year. It can also be more lucrative when it comes to working with clients since other businesses tend to prefer working with other companies rather than individuals.
2. Add to the pension pot
Part of being a responsible business owner is planning for the future. A pension is an important part of making sure you’re putting money aside for your retirement. When you’re your own boss, that means enrolling in your own pension scheme.
Keep in mind: Building the pot as soon as possible can help provide more financial security. The earlier you can set up your pension, the better, as compound interest is your friend when it comes to saving for the future.
3. Seek a specialist’s advice for financial products
Whether it’s a residential property purchase or a commercial property to expand your business, applying for a mortgage is harder when you don’t have a stable income.
Mortgage broker and M.D. Pete Mugleston from Online Mortgage Advisor explains the different factors that contractor-friendly mortgage lenders take into account when deciding whether you’re eligible:
- The type of contractor you are
- How long you’ve been contracting for
- How long you’ve worked in that industry
- If you’ve had contracts renewed before
- How long you have left on your contract
If you don’t seek a specialist’s advice at the beginning of your property buying journey, you could be adding unnecessary stress and time to the whole process.
4. Take up the right insurance
As a contractor, there are risks to the services you provide – you may have an accident onsite, a client might suffer an injury while visiting their build or you might have tools and equipment that break and need replacing. Insurance is essential for making sure these accidents and unforeseen situations don’t break your business.
In order to start a contracting business, you’ll need to have gained skills and experience, and you’ll know precisely how to deliver a great service. But accidents can happen no matter how careful you are, and professional insurance that’s designed for the contracting sector can provide protection so you can keep operating your business.
Buildertrend can help home builders and remodelers mitigate risks. Not only is this the leading construction software in the industry, but the company also offers additional services like insurance – exclusive to customers at an unbeatable rate.
- Builder’s Risk Insurance through SilverStone Group LLC: Protect against losses and damages with comprehensive coverage with savings up to 50% off.
- Next Insurance: Save 10% when you bundle two policies, including general liability, workers’ comp and commercial auto.
5. Diversify your clients
As a contractor, you need to be constantly promoting your services and brand in order to gain customers. But it can be easy to settle for the clients you’ve already secured. While doing so might be fine for the current moment, you run the risk of losing money if you put all your eggs in one basket. If a customer drops out or changes their mind, you’re out of pocket and it’s entirely out of your control if and when this happens.
Diversifying your customer list is all about generating more quality leads, so the next best job is always already lined up. Then, if a customer changes their mind or their project scope, you can still pay the bills. When you take on a customer, there are further ways to protect yourself, too. Have a contract drawn up, and you’ll never be left in a difficult situation if the relationship doesn’t work out.
To unlock sales success and keep your business growing, download Buildertrend’s free lead management guide.
A contracting business offers plenty of freedom, potential for growth and financial rewards. However, careful decision making is essential to avoid financial mistakes that could damage your business.
Once the business is off the ground, it can be hard to remain in control of all finances, too. That’s why Buildertrend’s project management software contains a full suite of money management tools.
Schedule a free demo today to learn how this platform improves profits for construction businesses of any and every age.