TABLE OF CONTENTS
- What to Know Before Starting an Electrical Company
- Step 1: Determine Your Goals and Set Your Expectations
- Step 2: Choose a Business Structure for Setting Up an Electrical Business
- Step 3: Budget Your Finances for Your Electrical Contractor Business
- Step 4: Write Your Electrician Business Plan
- Step 5: Register Your Business and Obtain a License
If you’re passionate about helping individuals and/or businesses with their hard-to-fix electrical issues, starting an electrical business might be the perfect career choice for you. Of course, many qualified electricians choose to work for other electrical companies, but this can limit their income potential. By starting an electrical business of your own, you unlock unlimited earning potential.
You might be wondering exactly how to start an electrical business, especially if you’ve never started a business of your own. This step-by-step guide is the perfect starting place if you want to build a new electrical enterprise without shocking yourself.
What to Know Before Starting an Electrical Company
Electricians are in high demand around the world, especially in the United States.The U.S. Bureau of Labor Statistics. “Electricians“. Accessed April 16, 2022. Most areas of the nation are experiencing shortages of qualified tradespeople. This means that starting an electrical company in the right location could produce huge returns.
Still, it’s hard to become an electrician. You cannot sell your services unless you’re properly qualified. You either need to be qualified yourself or hire qualified electricians. Additionally, you need to ensure that basic qualifications are up to date for all your employees. There’s no one-size-fits-all solution to this, as requirements vary from state to state. This means that you need to check local regulations regarding qualification requirements for you and your staff before starting an electrical company.
Once you understand your area’s qualification requirements, you can officially begin planning how to start an electrical business of your own.
Step 1: Determine Your Goals and Set Your Expectations
Start by setting goals and expectations for your new company. If you have limited resources, begin with smaller, more attainable goals.
For example, it might be your goal to provide residential electrical services to clients in a specific area. Or perhaps you want to offer commercial services to commercial properties in your city. Either way, define a near-term, realistic goal that you can work toward. As you expand, you can set your sights on bigger milestones.
It’s also important to set your initial salary expectations. If you have a mortgage, car loan, and other living expenses, it’s especially essential to know how much you need to earn to cover your basic monthly expenses.
Why do you want to start an electrical business?
Ask yourself this question: Why is an electrician business the perfect business for me to start? In most cases, this answer will be because you’re an electrician or you have a large network of electricians to hire.
If you neither have any background in electrical work nor friends or business associates with any electricians, you might want to reconsider your plans. This is a highly technical field that can be dangerous if proper safety measures are not followed.
What electrical services will you be offering?
As previously mentioned, it’s best to determine which types of services you want to offer to your clients. There are many niches in the electrical industry. For example, you may want to offer electrical installation work or electrical repair work. As these services are very different from one another, it’s best to focus on providing the best services in one niche, rather than a handful of mediocre services across many niches.
Additionally, you need to decide if you have the capacity to offer residential and commercial services or if you want to focus on only one. The point is to not stretch yourself too thin. Choose a core group of services and stick to them when you first start your electrician business.
It may also be worth conducting some market research to see what types of electrician businesses are already operating in your area. If there’s a saturation of a specific type of electrician business, search for a niche with less competition.
What is an electrician business owner’s salary?
There’s no set answer to this question, which is one of the many reasons that people consider starting an electrical business. If you’re willing to hire other electricians and increase your service area, you can generate serious revenue for yourself and your business. The sky is the limit!
While the initial stages of starting an electrical business may see your income drop as you pay startup costs, your future earning potential will likely be significantly higher.
What do I need to start my own electrical business?
Now that you have defined goals and expectations for your electrician business, it’s time to find out what you need to start your new business. Below we take a closer look at the basics you absolutely need when starting an electrical company:
Electrical tools and equipment
There’s no doubt you’ll need tools and equipment, but the types of tools you need will vary depending on your niche. For example, if you’re making basic residential electrical repairs, your tool list will be much smaller than an electrician business that installs commercial electrical systems. Generally speaking, here are some common tools you’ll need when starting an electrical company:
- Crimping and cutting tools
- Various screwdrivers
- Various pliers
- Torpedo levels
- Wire strippers
- Safety equipment
- Utility knives
- Tape measures
- Equipment bags
Electrical training and experience
Next, you’ll need a background in electrical work. Most people that start electrical businesses are trained electricians. However, you may be able to start an electrician business without experience if you partner with an electrician. If you lack industry experience, another option is to begin training as an electrician and launch your business after you’re certified.
Electrician business license
If you want to operate an electrician business, you need a license in your state. Each state has its own licensing requirement, with many requiring thousands of hours of experience before you can obtain a license. This is yet another reason why industry experience is so vital to successfully start an electrical company.
Make sure to familiarize yourself with your state’s requirements. Failing to obtain the correct licenses can leave you in serious trouble. Additionally, states may have subcategories for different licenses, as it’s often not a single license for all types of electricians. It’s best to ensure that you’re operating within the framework of your obtained license.
Other certifications and education
Depending on your niche, you may need additional certifications and qualifications. Make sure to meet your state’s requirements for the types of jobs you offer your clients.
Also, if you plan on focusing on the clerical components of your business, other qualifications—such as accounting, finance, and management—may be useful.
Step 2: Choose a Business Structure for Setting Up an Electrical Business
Choosing the correct business structure is essential. While you can often change your business’s structure at a later date, doing so can be stressful and costly, so it’s best to start on the right foot. Below, let’s take a look at the three most frequent utilized formation options for electrician businesses:
Limited Liability Company (LLC)
If you’re worried about liability, an LLC is likely the most advantageous business structure for you. This type of business provides limited personal liability protection. This is business structure is fairly easy to set up, regardless of whether you’re a one-man team or a multi-employee company.
In comparison to an LLC, a sole proprietorship is a more basic business structure, but it’s only suitable if you’re a one-person team. If you want to conduct business without a formal structure, you can operate under your name while using a sole proprietorship.
It’s worth noting that this type of business structure doesn’t afford the same liability protections as an LLC, which can be risky if you’re running an electrical business.
If you want to start a business with two or more owners, you can form a partnership. While many partnerships are informal, drafting a partnership agreement can clarify each partner’s responsibilities, avoiding future confusion or disagreement.
Step 3: Budget Your Finances for Your Electrical Contractor Business
While operating your own electrical business unlocks unlimited earning potential, starting said business costs money. And if you’re not working at least part-time, you’ll be doing the legwork to start your business without an income. Thus, it’s extremely important to have realistic expectations for what it’ll cost to start the electrical business of your dreams.
How much does it cost to start an electrical business?
While the exact answer to this question varies based on the specificities of your electrician business, we’ve outlined the general costs associated with starting an electrical business:
1. Business insurance
You shouldn’t start an electrical business without business insurance. You need it to protect you from a range of unexpected costs. If you don’t have a robust business insurance policy, a lawsuit, natural disaster, or another unforeseen event can quickly put you out of business.
There’s a range of different business insurance policies available. Many cover costs related to lawsuits, libel, slander, property damage, bodily injury, and a host of other costs.Small Business Administration. “Get business insurance“. Accessed April 16, 2022.
2. Electrical contractor insurance
There are many industry-specific risks to consider starting an electrical company. Electrical contractor insurance is designed to protect against specific risks associated with the industry.
These policies can provide workers’ compensation protection, protection from specific risks in the industry (such as live wires), general liability insurance, commercial property insurance, and more. Make sure to browse multiple policies before you make a decision. You can often request a free quote to compare policies’ coverages and rates.
3. Incorporation & licensure fees
Depending on the business structure you choose and the necessary licenses to start providing services, there will be upfront filing and licensure fees. This varies on a state-by-state basis. Also, the cost will be heavily dependent on the specifics of your business.
4. Technology costs
Gone are the days of accepting cash payments and issuing paper receipts. Most modern electrical businesses utilize technology to improve operations and customer service. Whether it’s a payment processing system, online booking system, accounting software, or any other form of technology, it’s important to incorporate these costs into your estimates.
5. Equipment costs
There’s no doubt that electrical work is equipment-intensive. You need to calculate how much you will need for tools, machinery, and other equipment.
If you’re planning on using independent contractors, this cost might be lower. In some instances, independent contractors are expected to bring their own tools.
6. Other costs
As with starting any business, you will likely encounter unexpected costs. Whether it’s building a new website, hiring a branding company to design a logo, or accessing any other service essential to business success, you should make allowances for these types of costs that will almost certainly arise.
Ongoing operating costs
Now that you understand how much it will cost to get your business off the ground, it’s time to determine how much you need to keep it running. You must keep your revenue above your operating expenses, otherwise, you’ll be running at a loss and it won’t take long until you can no longer fund your enterprise.
Let’s take a look at some standard operating costs:
Insurance, taxes, and other expenses
Throughout the lifespan of your business, you will need to continue paying for insurance policies. Letting your insurance policies lapse can have severe consequences, including driving you out of business.
Taxes are also critical to consider. Consult with an accountant about the best tax strategies to avoid overspending on taxes.
Lastly, don’t forget to pay your staff members! If you plan to hire electricians and administrative staff, this will be one of your largest operating expenses.
Electrical equipment and vehicle insurance
You should consider the cost of fuel for trucks, machine maintenance, and other expenditures associated with electrical businesses. Additionally, you need to have money to repair or replace faulty equipment if it’s not covered by your insurance policy.
Step 4: Write Your Electrician Business Plan
A proper business plan is an essential foundational element of any successful enterprise. Not only does a business plan help you clarify your goals and operations, but it’s also a document you can show investors, lenders, and other third parties that will want more information on your business before they engage with you.
You can find some excellent business plan templates online. Also, if you’re planning on applying for commercial loans or any other type of funding, it might be worth it to hire a professional to write your business plan.
Below are some basic details to include in your business plan:
- Executive summary
- Core company details
- Business structure details
- Target markets and current competition
- Marketing plans
- Potential sources of income or funding
- Information on the owner(s)
Pricing: What will you charge for service calls?
Your pricing strategy can be difficult to determine. If you don’t have experience providing electrical services or as a business owner, it can be especially hard to know what to charge. To start, explore other competitors in your area and consider offering comparable prices.
After a few weeks of offering services, you should have a better understanding of what prices will afford you a fair profit margin. A fair price will depend on labor costs, licensing costs, fuel costs, and a host of other factors. Also, keep in mind that electrical service prices vary significantly throughout the country.
Choose a business name
Choosing a business name can be tough. In fact, it can be so difficult that some business owners hire a branding agency to provide branding ideas, including a business name. However, this can cost money. Also, you might be more inclined to choose your own name. After all, it’s your electrical business.
If you’re building a local business, using a geographic signifier may help you attract nearby clients. Using a location in your name can also help your business website perform better in search engine results.
Once you choose a name, you need to make sure it’s available in your state. You can normally find this information from your state’s Secretary of State.
In today’s age. it’s also important to choose a name that has an available domain name. This will make it much easier to set up an easy-to-find website for your customers.
Step 5: Register Your Business and Obtain a License
The next step in our guide on how to start an electrical business is registering your enterprise for tax purposes. If you’ve established an LLC, you will need an employer identification number (EIN) from the IRS. You can obtain an EIN on the IRS website.
Sole proprietors can opt to use their SSNs. However, they may also register for EINs if they’re uncomfortable disclosing their SSNs in the course of doing business.
Once you receive your EIN, check whether your state has any further registration requirements.
At this stage of the process, you should already have all relevant electrician licenses for your state. If you’ve failed to obtain any necessary electrician license at this stage, do not pass go, do not collect $200, and go straight to get these licenses.
Step 6: Open a Business Account
To keep your finances organized, it’s best to immediately open a new business bank account. This will ensure there’s no overlap between your personal and business assets.
Unfortunately, this isn’t always an easy task if you’re a new business owner. Many banks are averse to opening new business accounts due to the risk of fraud. If encounter difficulty, speak to your personal bank about their business options. If you have a long track record of banking with them, they may be more open to issuing you a business bank account.
Once you have a business bank account, it will be much easier to obtain a business line of credit and other forms of lending.
Step 7: Hire and Train Your Team
It’s time to hire your team! Hiring a qualified electrician is preferable if you want to start operating quickly, but you can also offer to take on apprentices needing further training. The latter is cheaper in the near term but can be more costly in the long term due to errors made due to inexperience.
Employment law liability insurance
If you want to protect yourself from lawsuits from employees, an employment law liability policy is an excellent resource. It’s worth exploring this type of insurance even before you hire your first staff members.
Hiring employees vs independent contractors
Choosing between hiring employees or independent contractors can be tough. While independent contractors require less regulation, they come with their own risks.
Independent contractors might not feel like a permanent part of your team, but if they’re working for you, customers will associate their skills and behavior with your business. Employing full-time labor may be more expensive, but it allows you to invest in their skills and ensure the quality of customer service your clients receive.
Many electrical businesses opt for a combination of full-time staff and independent contractors. Assess which option is most suitable for your needs, budget, and goals.
Step 8: Get Set Up to Accept Mobile Payments
If you want to be successful, you need to accept credit cards, as that’s many people’s preferred payment method today. Fortunately, there are now many mobile credit card processing terminals, allowing you to process payments right there on the worksite. Whether you use a standalone mobile credit card processor or a card reader that works with your smartphone, it’s never been easier to accept payments on the go!
Utilize field service management software for easy invoicing
When operating an electrical business, you will likely spend a lot of time at clients’ homes and/or businesses. A field service management software allows you to operate your business from afar. You can assign jobs to staff members, issue bills to clients, and streamline various other business operations. This is a necessary tool if you want to improve customer service and make client visits easier for your employees.
Step 9: How to Market an Electrical Contracting Business
Starting an electrical company requires localized advertising strategies. If you’re planning on covering a specific area, you need to reach as many individuals or businesses in that area as possible. Let’s take a look at the various marketing channels you have at your disposal to build your brand:
Don’t make the mistake of thinking that social media is not good for local advertising campaigns. Facebook, Instagram, and other social media platforms allow you to target customers based on geographic areas. You can even generate ‘pay-per-click’ campaigns that only charge you when a social media user clicks on your advertisement.
You should also build a profile for your business on the leading social media platforms. Use this to host information, contact details, positive reviews, photos, and more. With this profile, you can post on local Facebook pages and community groups to inform individuals that you’re now offering services.
As with any local business, physical advertising is a surefire way to reach your local service area. Billboards, posters at local shops, and a host of other physical advertising options can quickly turn your name into a recognized brand in your community.
You might also consider sponsoring local sports leagues or community events. Many events and organizations will allow you to display your logo and contact details in exchange for sponsorship.
Tried and true, handing out flyers door-to-door is still an excellent way to increase your business’s exposure. If you want to modernize your flyers, consider including a printed QR code that directs customers to your website or payment portal.
Business cards might seem archaic, but they’re still very useful for local businesses. Whether you’re at a local event, dinner party, or any other function, having some branded business cards can help you quickly pass on your contact details if someone says they need electrical services.
If you want past customers to refer your services to friends and family, it’s sometimes best to offer an incentive for them to do so. Whether it’s a gift card per referral or a discount on future services, offering incentivized referral benefits can help you expand your customer base quickly.
Lastly, never underestimate what your connections can provide to your business. If you’re already an electrician, you likely have past experience with clients and other professionals. Consider reaching out to past connections to announce that you’ve started your own electrical business and inquire about their electrical needs.
Starting an Electrical Contracting Business: Final Thoughts
Now that you know how to start an electrical business, it’s time to flip the switch and launch your business. Soon enough, you’ll be able to reap the rewards of your foundational work and begin accepting payments from your clientele. And with the demand for electricians expected to increase over the coming decades, it’s hard to imagine a better time to start an electrician enterprise!