According to the most recent industry report, there are over 220,000 electrical businesses in the U.S. employing more than 1 million people. It is not uncommon for employees in construction and trades to branch off and build their own companies.
If you’re an electrician hoping to do this, this article explains how to start an electrical business in 10 steps.
How to Start an Electrical Contracting Business
- 1. Develop a Business Plan
- 2. Become a Master Electrician
- 3. Obtain the Necessary Licenses
- 4. Get Your Electrical Business Legit
- 5. Secure Funding
- 6. Get an Electrician Business Insurance
- 7. Open a Business Bank Account & Credit Card
- 8. Invest in the Right Tools & Equipment
- 9. Attract Your First Customers
- 10. Build Your Team
Are Electrical Businesses Profitable?
As with any business, profitability has many variables. Location, experience, effort, industry, and more will play a role. If you’re currently an electrician, you likely already know the tricks of the trade and can perform all the necessary jobs up to code, but do you know how to bid on electrical jobs? How are your people skills? Will you be able to manage the business side of things while also working in the field?
The average annual salary for an electrician ranges from $37,020 to $99,800 with a median salary of $60,040, depending on industry and location. If you wish to start a profitable electrical company that provides at least the median income for you to start, you’ll have to plan and take the right steps.
Checklist for Starting an Electrical Contracting Business
Starting a business is an exciting prospect. Being your own boss is a rewarding experience but it must be done with the right planning, thought, and execution. Before you start, here are the first steps to take.
1. Develop a Business Plan
All businesses start with a business plan. Creating a business plan for your electrical business is possibly one of the most important things to do before you start. Your business plan will serve as a North Star for your company’s future, and you’ll need a solid business plan to obtain funding.
Understand the Market and Conduct Research
A market analysis is an important tool to help determine the viability of your idea and any challenges or opportunities within your industry. To perform a market analysis, it’s important to avoid going by your own experiences and opinions but to take the time to research. It will include:
- Research your industry - Get a clear understanding of your industry and what it would take for you to be able to sustain your business within it.
- Investigate competitors - Understanding your competitors will help you determine the things you can do to stand apart from them.
- Identify market gaps - Are there areas in your industry that could give you a competitive edge?
- Define your target market - Establish who your ideal customers will be, what their needs are, and how you can help them.
- Identify future challenges - Everything doesn’t always run smoothly so it’s helpful to determine what challenges you’ll face moving forward so you can be prepared to meet them.
Decide on Your Business Structure
When choosing your business structure take tax and financial issues into consideration. Common options for small businesses include sole proprietorship, limited liability company (LLC), partnership, and corporation. Each has unique benefits so make sure to research which is best for your business.
Decide Your Specialty
Determine what type of electrical services you will specialize in. This can include outside linemen, inside wiremen, installer technicians, residential wiremen, or a combination of these specialties. By focusing on a particular area, you can establish yourself as an expert and be more competitive.
Name the Business
Choosing a name for your electrical business is an important step in establishing your brand identity. It's important to choose a name that is memorable, unique, and aligns with your company’s brand, values, and mission.
Developing financial projections is an essential component of any business plan. This involves estimating the costs associated with starting and operating the business for the first year, as well as projecting revenue and profits over time. Be sure to include things you will need to get the business started such as tools, materials, advertising, marketing, etc.
Set prices for your electrical services. Keep in mind factors such as labor costs, materials, overhead, and competition when determining your service rates.
Create a Service Agreement
Develop a service agreement for your company that will protect you when you begin work. Your service agreement will provide information such as the scope of work you’ll do on a job, payment terms, length of the contract, and other essential components you’ll apply to each job you do.
2. Become a Master Electrician
If you’ve already been working as an electrician and become an electrical journeyperson, getting your master electrician certification is just a matter of qualifying for the certificate by passing an exam in the state you’ll be operating your electrical services.
Alternatively, you could start by joining a union such as the International Brotherhood of Electrical Workers. Political Coordinator at the Washington D.C. branch (IBEW Local #26) Donald Slaiman says there’s even more to getting your master electrician license and certification when you join the IBEW’s apprenticeship program.
“A third of our contractors start their own business,” he says, adding the union helps electricians start their own business, with everything.
“The union model gives you the flexibility to grow without taking on as much risk. You don't have to hire people that you have to be responsible for. You can send people back. Do you want to bid on a big project? You can bid on a project and…get the manpower over here.”
If you wish to go the non-union route, Slaiman suggests you can use organizations like the American Building Contractors (ABC) and Associated General Contractors of America (AGC).
3. Obtain the Necessary Licenses
Licensing requirements for electrical businesses vary by state. Some states have statewide licensing requirements, while others leave licensing to local jurisdictions.
States may adopt the National Electrical Code and any applicable local requirements for electrical safety, and some states may also reference the National Electrical Safety Code. Additionally, certain types of electrical work or installations may be exempt from licensing requirements.
As the business owner, it is your responsibility to research licensing and safety requirements where you’re performing electrical work to ensure you’re compliant.
4. Get Your Electrical Business Legit
Once you have your certification, you’ll need to register your business in the state your business will be based. Additionally, you must apply for your business’s Employer Identification Number (EIN) from the IRS. This can be done quickly and easily online.
You will also need to select what your business structure will be:
- Limited Liability Company (LLC) - limits the personal liability of its owners, but allows the profits to be taxed on either a member level or the corporate level.
- Sole Proprietorship - one person is responsible for all a company’s profits and debts.
- Partnership - owned by two or more individuals, allowing the partners to share profits and losses.
5. Secure Funding
Unless you’ve managed to save up a considerable amount of money, you’ll need to secure funding to get your electrical business started. It’s crucial to be extremely realistic about the amount of funding you will need to get started. Devote time to sit down and create an accurate list of the things you’ll need to get up and running and their associated costs. These may include:
- Licensing, permits, and taxes
- Company vehicle (usually a van, truck with enclosed storage for electrical tools/parts, or trailer)
- Vehicle branding (wrap, labels, colors, etc.) for use as a marketing tool
- Basic electrical tools
- Electrical job inventory tools/materials (tapes, wires, clamps, etc.)
- Basic business tools to run the business side (computer, printer, business cards, etc.)
- Technological basics: (website, invoicing, and accounting software for bookkeeping, etc.)
- Marketing and advertising (including online advertising, print ads, billboards, etc.)
Having a realistic and accurate number to ask for, aside from asking friends and family, you can apply for a small business loan from your bank, or appeal to potential investors. Online business loans are another option, different from brick-and-mortar banks.
6. Get an Electrician Business Insurance
Electrical work is notoriously dangerous within the construction industry. The insurance you need will depend on your business needs. General liability is usually required of all businesses, however, there are other options available:
- Worker’s Compensation - provides coverage for your employees who become ill or injured while on the job.
- General Liability - protects against lawsuits or other financial liabilities that result from a wide range of accidents, like a fire caused by faulty work.
- Commercial Property Insurance - helps protect your owned or rented building and the equipment you use as an electrician.
- Business Owners Policy - Extends general liability coverage to protect things like your commercial buildings and personal property.
7. Open a Business Bank Account & Credit Card
You’ll need a business account to help track expenses and ensure your personal and business account activities stay separate. A business credit card is an additional resource to use in times of slow cash flow, or when your projects are delayed.
8. Invest in the Right Tools
The right electrical tools and equipment will need to be stocked in your company van, and you’ll need to track that inventory. However, when you’re running a business, there are other important tools for electrical contractors that make it easier to do. For example, if you plan to hire electricians to work for your company, time tracking for electricians is a great tool to make job costing, payroll, and more much easier to manage.
Save Time and Money with ClockShark
9. Attract Your First Customers
You could be the best electrician in the state, but if nobody knows about your company, you’re not as likely to be called for services. Marketing involves getting your company name and brand in front of the right people, and sales involve getting them to buy your services. There are a few things you should do:
Build a Website
Your website should showcase your services, provide contact information, and feature testimonials from satisfied customers.
Invest in Social Media
Create social media accounts for your business and regularly post updates about your services, promotions, and industry news. Use social media to engage with your followers and respond to their questions and comments. Consider running social media ads to target potential customers in your area.
Invest in Paid Advertising
Paid advertising gets your electrical services in front of the right people. You can use platforms like Google Ads, Facebook Ads, or LinkedIn Ads to target specific demographics and locations.
Set Up a Free Google Business Listing
Google Business Listings are free and fairly simple to set up. It will help you increase your online presence and attract new customers because, when someone searches for electrical services in your area, your business will show up on Google Maps and in search results.
10. Build Your Team
When starting your electrical business, you may have only one or two employees at first but, as your company grows, and you gain traction, you’ll need to add more people. Watch out for becoming overwhelmed, which can lead to burnout. The more electricians you have, the more administrative work you’ll need to get done, and the more back-office workers you’ll need, and this is a sign your electrical business is heading toward success.
Starting your Electrical Contracting Business
Launching your electrical business is an exciting endeavor that can be achieved successfully if you follow the right steps. There are great rewards to be had when being your own boss and watching your company grow. However, you should follow these steps and take the time needed to get everything ready, before stepping out on your own.
What Kind of Insurance Do I Need for My Electrical Business?
As an electrical business owner, general liability insurance, and worker's compensation insurance are necessary. General liability insurance protects your business from claims related to property damage or bodily injury, while worker's compensation insurance covers medical expenses and lost wages for employees who are injured on the job. Professional liability insurance protects your business from claims of negligence or errors in your work.
What Are the Most Common Licenses and Permits Required for an Electrical Business?
The most common licenses and permits required for an electrical business vary by state and local regulations. Typically, you will need an electrical contractor's license, a business license, and a permit for each job you do. You may also need specialized permits for electrical installations in certain industries, such as healthcare or government facilities. It is important to research the requirements in each state and local area and ensure you comply with all regulations.
How Can I Secure Funding to Start My Electrical Contracting Business?
Starting any business requires an initial investment, so it’s helpful to plan and have at least some saving set aside to use for capital and to ask for help from family and friends. Other options include business loans from your bank, online business loans, and small business loans or grants from your local Small Business Administration. Regardless of where you go to ask for funding, be sure you have a set amount you’re asking for and a clear description of what you will use the funds for.
What Are Some Common Challenges in Managing an Electrical Business?
Managing an electrical business comes with its own set of challenges. One of the most common challenges is managing cash flow, as many jobs require upfront costs for materials and labor before payment is received. Hiring and retaining skilled employees can be challenging, as there is often a shortage of qualified electricians. Other challenges may include keeping up with industry regulations and advancements in technology, maintaining customer satisfaction, and competing with other businesses in the market. It is important to have a solid business plan and strategy in place to address these challenges and ensure the success of your electrical business.