How to Start a Contracting Business

They research their trade. They get licensed. They start taking jobs. Then six months in, they realize they've been depositing checks into their personal account, have no idea what their actual margins are, and their "bookkeeping" is a folder of receipts they haven't touched.

The entity was formed in the wrong state. The bank account has business and personal mixed together. QuickBooks was set up wrong and now the books are garbage. There's no invoicing process, so cash flow is always a problem.

None of this is fatal. But cleaning it up later costs 3–5x more time and money than building it right from the start. The five foundations below are what every contracting business needs on day one — and most skip at least two of them.

What do I need to legally start a contracting business?

At minimum: a business entity (LLC or corporation), an EIN from the IRS, a separate business bank account, and a basic bookkeeping setup. Most states also require a contractor license and general liability insurance before you can legally take on jobs. The exact requirements vary by state and trade — your state's contractor licensing board is the authoritative source.

Do I need an LLC to work as a contractor?

You're not legally required to have an LLC, but operating as a sole proprietor exposes your personal assets to business liability. Most working contractors form an LLC for the liability protection and credibility it provides with commercial clients. We can walk you through the decision framework — the final call should be confirmed with a licensed attorney.

What's the first thing to do when starting a contracting business?

Decide on your business structure (LLC vs. sole prop vs. S-Corp), then register the entity with your state, get your EIN from the IRS, and open a business bank account. These three steps need to happen in that order. Once those are done, you set up bookkeeping and invoicing. Most contractors skip steps or do them out of order — which creates cleanup problems later.

How do I separate personal and business finances as a contractor?

Open a dedicated business checking account and route all business income and expenses through it. Never pay personal bills from your business account, and never pay business expenses from personal accounts. This separation is required to maintain your LLC's liability protection and makes bookkeeping dramatically simpler. Set up your accounting software (QuickBooks, Wave) connected to the business account, not your personal one.

Do I need a business bank account if I'm the only contractor?

Yes. Even as a solo contractor, a separate business account is essential: it protects your LLC liability shield, simplifies tax prep, makes invoicing cleaner, and signals professionalism to commercial clients. Many commercial clients won't write checks to personal names.

How long does it take to set up a contracting business properly?

DIY, it typically takes 4–8 weeks with a lot of research and back-and-forth — state filing timelines vary, bank account setup takes a few days, and software setup is often done wrong the first time. Our Foundation Install takes 21 days and delivers a fully configured, documented foundation — entity through operating cadence.

What bookkeeping software do contractors use?

QuickBooks Online is the most common choice for contractors — it supports job costing, progress billing, and integrates with most construction management tools. Wave is a free alternative suitable for very small operations. The software matters less than the setup: a contractor-configured chart of accounts, job costing enabled, and correct expense categories from day one.

Do I need a CPA or accountant when starting a contracting business?

A CPA is valuable for tax strategy and filings, but you don't need one to get your business foundation built. Setup — entity, banking, bookkeeping configuration, operating systems — is a different scope from ongoing tax and accounting work. We handle the setup. Your CPA handles the tax strategy. They're complementary, not the same service.

What's the difference between a sole proprietorship and an LLC for a contractor?

A sole proprietorship gives you no legal separation between personal and business — your personal assets are on the line for business debts and lawsuits. An LLC creates a separate legal entity, protecting personal assets in most cases. For contractors who work on job sites, deal with subcontractors, or carry tools and equipment, the liability exposure as a sole prop is usually not worth the minimal savings in registration fees.

What insurance does a contractor need when starting out?

General liability insurance is the baseline — most states require it for licensing and most commercial clients require proof before you can work. Workers' compensation is required if you have employees in virtually every state. Depending on your trade, you may also need tools & equipment coverage, professional liability (E&O), or commercial auto. Insurance is outside our scope — we provide the business setup framework; work with a licensed insurance broker for coverage decisions.