Starting a subcontracting business can be one of the most rewarding career moves for skilled tradespeople. You get to be your own boss, set your own rates, and build something that's truly yours. But making the leap from employee to business owner requires careful planning.
This guide walks you through everything you need to start a subcontracting business the right way.
Step 1: Choose Your Trade and Niche
Before anything else, define exactly what services you'll offer. The more specific, the better.
Generalist vs. Specialist
A "general electrical contractor" competes with everyone. A "commercial fire alarm system installer" has less competition and can charge premium rates. Consider specializing in a niche where you have deep expertise.
Market Demand
Research your local market. What trades are in demand? What services are underserved? Talk to general contractors about what they struggle to find reliable subs for.
Your Competitive Advantage
What makes you different? Faster turnaround? Higher quality? Better communication? Specialized certifications? Define your unique value proposition early.
Step 2: Create a Business Plan
A business plan doesn't need to be a 50-page document, but you need to think through the fundamentals.
Financial Projections
Estimate your startup costs including tools and equipment, vehicle, insurance, licensing fees, marketing, and working capital for the first 3-6 months.
Estimate your first-year revenue realistically. How many jobs can you complete per week? At what average price?
Target Market
Who are your ideal clients? General contractors, property managers, homeowners? What types of projects?
Pricing Strategy
How will you price your work? Hourly rate, per-unit pricing, or project-based? Research what competitors charge and where you want to position yourself.
Step 3: Handle Legal Requirements
Business Structure
Choose a legal structure for your business. Most subcontractors start as a sole proprietorship (simplest but no liability protection), LLC (liability protection with simple taxation), or S-Corp (tax advantages at higher income levels). Consult with an accountant and attorney to choose the right structure for your situation.
Contractor's License
Most states require contractors to be licensed. Requirements vary but typically include experience requirements (often 4+ years as a journeyman), passing an examination, posting a bond, and proving insurance coverage. Start the licensing process early — it can take months.
Business Registration
Register your business name with your state. Get an EIN (Employer Identification Number) from the IRS. Register for state and local taxes.
Insurance
At minimum, you'll need general liability insurance (typically $1-2M), workers compensation (required in most states if you have employees), and commercial auto insurance. Many GCs require certificates of insurance before you can bid on their projects.
Step 4: Set Up Financial Systems
Business Bank Account
Open a separate business bank account. Never mix personal and business finances.
Accounting System
Set up accounting software from day one. Track every expense, every invoice, every payment. You'll thank yourself at tax time.
Invoicing System
Professional invoicing isn't optional. Use software that creates detailed, professional invoices, tracks payment status, sends automated reminders, and integrates with your accounting.
SubPaid is designed specifically for subcontractors, with features like photo-to-invoice creation and AI-powered payment follow-up.
Step 5: Build Your Tool and Equipment Arsenal
Essential Tools
Make sure you have quality tools for your trade. Buy the best you can afford — cheap tools cost more in the long run through replacements and inefficiency.
Vehicle
A reliable work vehicle is essential. Consider a used truck or van that's professional enough to represent your business well.
Safety Equipment
Invest in proper PPE and safety equipment. Safety isn't just about compliance — it protects your ability to earn a living.
Step 6: Create Your Marketing Foundation
Business Cards and Branding
Create a simple, professional logo. Get business cards printed. Your brand doesn't need to be fancy, but it needs to look legitimate.
Online Presence
At minimum, create a Google Business Profile — it's free and helps you appear in local searches. Consider a simple website showcasing your services, credentials, and contact information.
Portfolio Documentation
Start documenting your work with before/after photos. A visual portfolio is powerful when pitching to new GCs.
Step 7: Land Your First Jobs
Network with GCs
The fastest path to work is building relationships with general contractors. Attend local construction association meetings. Reach out to GCs in your area and introduce yourself. Offer to bid on small projects to prove your reliability.
Start Small
Your first jobs might not be glamorous or highly profitable. That's okay. Focus on delivering excellent work and building your reputation. Every completed job is a reference for the next one.
Ask for Referrals
After completing a job successfully, ask for referrals. Ask if they know other GCs who need reliable subcontractors in your trade. Word of mouth is how most subcontractors build their businesses.
Step 8: Scale Strategically
Know Your Numbers
Track profitability on every job. Know your true costs including labor, materials, overhead, and your time. Price accordingly.
Hire Carefully
When you're ready to hire, do it carefully. One bad employee can damage your reputation and drain your finances. Start with part-time or project-based help before committing to full-time employees.
Systemize Everything
Create systems and checklists for everything: estimating, project management, invoicing, collections. Systems let you scale without everything depending on you personally.
Common Startup Mistakes to Avoid
Underpricing
New subcontractors often price too low to win jobs. This leads to unprofitable work and burnout. Price based on your true costs plus a reasonable profit margin.
Inadequate Insurance
Skimping on insurance is a recipe for disaster. One lawsuit or workplace injury can destroy an uninsured business.
Poor Cash Flow Planning
Construction payment cycles are long. Plan for 60-90 day gaps between completing work and receiving payment. Have enough working capital to survive the gap.
Taking Every Job
Not every job is worth taking. Learn to say no to red-flag clients, unprofitable projects, and work outside your expertise.
Your First Year Checklist
Use this checklist to make sure you've covered the essentials:
Frequently Asked Questions
How much money do I need to start a subcontracting business?
It varies by trade, but plan for $10,000-$50,000 in startup costs plus 3-6 months of living expenses as working capital. You can start leaner, but undercapitalization is a leading cause of business failure.
How long does it take to get profitable?
Most subcontractors take 6-12 months to reach consistent profitability. The first year is often about building relationships and reputation more than making money.
Should I quit my job before starting?
Consider starting part-time while employed if possible. Take on weekend or evening jobs to build experience and cash reserves before making the full leap.