You want to start a plumbing business, but you have no money. The good news is that a service business can get started with very little investment. The bad news is you can’t do it with no money at all.
Licensing and insurance.
You can not run a plumbing company, or any trade business, without proper licensing and insurance. It’s a terrible idea that could bankrupt you and, in some places, land you in jail.
If you have zero money to start a business with, begin by mowing lawns. Clean gutters. Pressure wash driveways.
Start a service business that is low risk and doesn’t have a specialty license. Any legitimate business requires at least a few hundred in start-up costs. Let’s say $500.
With trades, there are a few costs on top of that.
The good news is that in most places, you can do “side work” earning up to $500 without a business license. Heck, hold a yard sale if you have to.
Either way, I’m going to assume you aren’t literal. You want to know how to start a trade service company with very little money. In that case, here you go:
(Quick disclaimer: I have done my best to keep this linear. I wanted it to be step-by-step. Keep in mind that some states may have different requirements that put things out of order.)
Step 1: Trade Licensing
If you plan to start a plumbing company, I’m assuming you know how to plumb. If you plan to start an electrical company, I’m assuming you know electrical. In any case, you may already have your license.
In most places, trade work requires a license. Licensing requirements vary from state-to-state and sometimes city-to-city. You need to understand the rules in your area.
If you aren’t aware of your local licensing requirements, fire up a search. Start by searching for ‘contractor licensing board’ in your state or area. Ignore any commercial site and look for a state-run website for legitimate information.
Licensing usually requires a trade test and a business administration test. You may have to provide proof of your net worth as well. Net worth limitations may limit the kind of work you do at first.
Of course, if you live in a union state, you will need to understand how they affect your business operation.
Do not do unlicensed trade work. It is not an exaggeration to say it is putting the health and safety of your community at risk. Do not go any further until you understand the regulations in your area.
Step 2: Tool Inventory
Before you do anything else, take inventory of your tools of the trade. If you are starting on a budget, you don’t want to buy any extra tools until you’ve made some money.
Knowing what tools you have will decide the type and scope of work you take on. Use what you’ve got for now and start saving for high priority purchases.
Of course renting tools is an option. For any equipment, you might rent on a regular basis go ahead and gather a list of suppliers and pricing. Knowing your cost will help you figure out how you need to price these jobs to remain profitable.
Step 3: Business Planning
Don’t get intimidated. Do not skip this step. Yes, you need a business plan.
It doesn’t have to be a crazy long, complicated document. You wouldn’t build a house without a blueprint. Why would you start a business without one?
Photo by Sergey Zolkin on Unsplash
You can download my business blueprint worksheet to get started. It’s one page. You’ve got this!
If you don’t want to do the download, get out a piece of paper:
- Describe your business in one sentence.
- What problem does your customer have?
- What service will you provide to solve this problem?
- Describe the customer whose problem you plan to fix.
- How is the customer currently solving that problem (including competitors)?
- How will customers make appointments and how will you collect money?
- How will you find your customers?
- How do you plan to make money? (Hourly vs. flat rate, etc.)
- Describe your largest expenses for both starting up and staying in business.
- Create three major goals for your first year of business.
- Who will run things? Do you have any help?
Your business blueprint can be brief, but detailed answers will help. Thinking these things through will help you make decisions further down the road. You will know where to focus your energy.
Step 4: Name your Business
If you already have a name in mind, great! If not, start brainstorming.
The best names are descriptive. Scott’s Plumbing is fine.
Revisit your business plan. Who is your customer and what are you doing? These answers may influence how you name your business.
For example, if your customers are residential, a catchy name is helpful. But if your customers are other businesses, don’t be cutesy. Use your main keywords in your name. Plumbing or drain cleaning, for instance.
Before you go ordering business cards, take some time to do research:
Check the name against your state registry.
Businesses are usually registered at the state level. In my state, the Secretary of State handles this. I’ve heard of some places where you have to go to the courthouse. What really matters here is your DBA.
DBA stands for Doing Business As. You can have a legal name like, “Mike’s Plumbing LLC” but your DBA could be “Snappy Service Plumbing.” The DBA is what counts.
Make sure no one else has already claimed the name you.
Start by doing a search for “how to register a business in [my state].” Look for a .gov website. There are a lot of companies out there who want to charge you a few hundred bucks to fill out a form that your start charges $10 to file. Beware.
STOP! Before you turn in that paperwork, check a few other places first. Unfortunately, the name search doesn’t really stop there.
Check the U.S. Trademark database that no one has a trademark on that name.
You don’t want a nasty cease letter after you are in business! A simple word mark search should do it.
If you see someone in a different industry uses the name, you should be fine. Look for company’s that could lead to confusion. (Disclaimer: I’m not a lawyer. If you want to be sure, get legal advice.)
Check domain names and social media.
Even if you aren’t going to create a website immediately, you want to check the availability. Make sure that the name you want is available as a .com and on the major social media sites.
I recommend you not compromise on this! You can go ahead and secure these names if you’d like. Social media is free, but a .com will cost you about $12/year to keep.
You won’t need hosting or anything until you are ready to develop a website.
Step 5: Legal Registration
Some advisers will recommend using a sole proprietorship when you first start out. A sole proprietorship is a terrible idea for plumbers. There is too much risk in our industry.
Set up an LLC. It provides some legal protection from your assets in case you get sued. You don’t get that with a sole proprietorship.
Starting an LLC is not hard. You can get legal documents drawn up for a fee online. This may not be necessary though.
The rules for an LLC’s requirements can change from state to state. In general, you will need:
- A name
- Articles of organization
- An operating agreement
The outline for these documents is available at your local library. If you want to use a local lawyer on an online program to help, you can.
Once you’ve drawn up the documents, you’ll need to register them with the state. This will have a fee, which varies.
Step 5.5 Get an EIN.
Once you have registered your business with the state, you will want to apply for an EIN # with the IRS. This is like a social security number for your business. This is surprisingly easy and free.
Step 5.75 Open a Bank Account
Never mix business and personal money. All money earned through your LLC should go into its account. You can pull as much out for yourself as you want, but it should flow through this account.
Use your business name and your EIN to set it up. This will allow you to accept checks in your business name.
I would recommend setting up a separate but linked account for taxes during this step too. Set aside 25% of everything you make into that savings account. You will need to pay taxes quarterly.
Step 6: Business License
Yes, another license and more government paperwork. We are in the home stretch now. That’s the good news.
The bad news is, depending on your area, you may need more than one business license.
Your trade license allows you to do work, but a business license allows you to do it in a certain place. Everyone wants their pound of flesh.
In my business, we cover a large area with many municipalities. Each has their own business license. That means we hold over 20 business licenses.
It’s frustrating but necessary. Again, you don’t want to get caught operating without a license.
When you are starting, you don’t need to get a license for every area you could do business in. Start with the city where you live or will have an office. This is your “home” business area.
Pay the minimum license fee but expect that you may have to pay an adjustment every time you pull a permit. While you are doing this, take some time to understand permitting in your city and county!
Step 7: Insurance
You can’t start a trade service business without insurance. If you do, you are one flood away from losing everything. In some states, your license may need proof of insurance.
You will need:
Commercial Automobile Insurance
Don’t try to use your policy, even if you are using your old beater pickup truck. If they find out you were doing work on that thing when you got into an accident, they will drop you like a hot potato.
Photo by Samuel Zeller on Unsplash
General Liability Insurance
I call this ‘bad day’ insurance. Everyone has a bad day eventually. Three million in general liability is the recommended minimum for trade service companies.
Inland Marine Insurance
Inland marine insurance covers your tools and equipment when it is on a job site. You can skip this, but remember these tools are how you make a living!
It’s ‘umbrella’ because it covers the gaps in any other policy. You may not need it day one, but you will need it soon. It’s usually pretty inexpensive so check it out!
Either way, you need to work with a good insurance broker. They should have a track record of working with small businesses. Develop a personal relationship with your insurance agent.
Extra insurances that you may need once you get a bit bigger and get employees to include:
Key man insurance provides income if you get hurt!
Unemployment and worker comp insurance once you have employees
Bonds for certain types of work, including government contracts.
Step 8: Operational Plan
Your business requires more work than the trade service itself. Bummer, huh?
Now is the time to figure out how you are going to handle these details. Figure out your day-to-day logistics. Here are a few things to think through (and optional expenses to consider):
- What vehicle will you use to arrive at jobs? Unless you want your claim to fame being the plumber on the bike, you need a truck or van.
- Do you want a logo? You can get away with an easy to read font to start. A logo is more important if you plan to work with residential customers, but it isn’t essential. There are a few places online to get inexpensive logos.
- What phone number will you ask people to call? You can start with a cell phone, your phone being the cheapest choice. Make sure it is a local number!
- Who is answering the call? Answering your phone is common. It’s also problematic. Consider how you will handle appointment requests when your hands are full, or you are on the other line.
- How will you write up your bills? Do you want to spend money on custom invoices or go with stock invoices?
- Will you take credit cards? Decide if you want to take only cash and check or if you want to open a credit card account. It’s easy these days, but be aware of the fees.
- Can you afford to get your vehicle lettered? If not, consider car magnets to start. It’s a drive-able billboard and worth the expense.
- Can you afford to order business cards? Order business cards, if you have it in the budget. You can get them for about $10.
- Create your price list. Take a few minutes to figure out your costs and appropriate markup on your major service areas. Customers want a quick and confident quote.
These things seem like small details until you start to put them into practice. If you haven’t thought them through ahead of time, everything feels like an emergency. Now is the time to think them through!
It includes a great checklist to get you moving. You can also check out my resources page for recommendations on where to find these items.
Step 9: Get your first customer (!)
Finding customers is where the real work starts. Not only do you have to deliver quality plumbing, electrical, etc but you also have to find and keep customers.
Photo by rawpixel on Unsplash
When you are first getting started you should push hard on friends, family, and neighbors. Use your personal social media and reach out to every contact in your phone. Your first jobs will likely come from your network.
Be shameless with the people you know. Ask them to post about you on social media. Ask them to hand out your business cards to their co-workers. Let them know you are counting on them to help you get the word out about your business.
Step 10: Get more customers.
Okay, so I liked the idea of having ten steps. Hey, I never promised this would be a simple process. I only promised it would be as cheap and as straightforward as possible.
Getting the first job from a stranger is hard, but you’ll knock it out of the ballpark. Be confident in your prices. Ask for a social media shout out or a review.
In the early days of your business, do not discount how important it is that you keep looking for your next customer. Every day you don’t have a job, you should be looking for work.
A few final tips:
- Stay organized. Use a calendar to keep up with appointments. Call people back. Be on time and proactively communicate.
- Keep up with your paperwork. Don’t get behind. Do it every day.
- Keep up with billing! Don’t let people get away with not paying you when promised. That’s a quick way to ruin your business.
- Set aside your tax money up front. Before you pay yourself, pay Uncle Sam. You will have to pay taxes every quarter for a while. Now is the time to find an accountant to work with who can help you with your filing dates. Stay on top of this stuff if you want to be a legit business (and avoid penalties down the road!)
This article was originally published on Tradebiztoolbox.com.