From installing the electrical systems in new homes to making sure that the wiring in public buildings is safe and up to date, electricians are an integral part of any community. And as a highly-skilled trade, electrical work is a career path rife with opportunities for success.
The truest sign of success for many electricians is starting their own business. Whether you want to learn how to become an electrician or you’re an electrician who’s ready to become your own boss, keep reading to learn all you need to know about how to start an electrical business.
Step 1: Develop a business plan
Savvy small business owners approach starting their companies by first creating a framework. In this case, that means drawing up a comprehensive business plan.
A business plan is an essential tool when opening a small business. First, it helps you chart a navigable course for opening and operating your business. Second, it can help you stay on track as you work to achieve the goals you’ve set for your company.
Your business plan should answer important questions like:
- What is the name of your business?
- What are the start-up and ongoing costs?
- Who is your target market, and how will you reach them?
- How much will you charge for service?
When you’re starting an electrical contracting business, it’s important to determine early on whether you’ll service residential, industrial, or commercial customers or some combination of the three. For example, STS Electric, a full-service electrical contractor in Chicago, works with clients across all three sectors. However, you may choose a more specialized focus, depending on your business goals in the electrical industry.
Step 2: Form a legal entity
Once your business plan is in place, it’s time to form a legal entity. This step makes your business official.
First, you’ll choose a business structure. The most common options include:
- Sole proprietorship
- Partnership
- Limited liability corporation (LLC)
- Corporation
When it comes to choosing a business structure, you must choose the one that works for your company and how you plan to run it. Understanding how much electrical contractors make and how each business structure works is essential. Will you require investors? How much personal protection do you want against business debts and other liabilities? Will you be running the show solo or with the help of a partner? These and other concerns should all factor into your decision.
It’s worth noting that, for many electrical businesses, forming a limited liability corporation is a popular option because it offers the most personal protection. Take Tann Electric, for example, a locally-owned business in Kansas City, Missouri. As an LLC, the personal finances and property of the business owner are all fully protected from any business debts or liabilities.
Step 3: Register your business with the state
After you’ve chosen a business structure, it’s time for an important milestone in your journey— registering your business with your state. For most small businesses, this is a simple process that involves little more than filing the necessary paperwork with your Secretary of State’s Office and having your business name approved.
However, when it comes to starting an electrical contracting business, nearly all states require certain licenses and permits. Along with filing the standard paperwork, you’ll need to include proof of your compliance.
Specifics regarding licensing and permits can vary by location, so be sure to check the requirements where you live. In general, registering your business with the state will require:
- State licensing – Most states require electricians to pass an electrical exam to become certified. You may also need to apply for a general contractor's license, depending on your company structure. The website of the International Association of Electrical Inspectors is an invaluable resource for finding licensing information specific to your state.
- Local licensing – In some cases, your city or county may require special permits or licenses in addition to those required by the state. To find out the regulations where you live, check with your local clerk’s office.
You’ll also need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service. You’ll need it to identify your business when it’s time to pay taxes and perform other duties related to your business’s finances.
Step 4: Draft a financial plan
Money is a necessary component of any small business. Financial issues represent one of the five biggest barriers to success for small businesses, whether that’s managing ongoing expenses or coming up with the money it takes to open up shop in the first place.
That’s part of what makes financial planning so crucial. You’ll know starting out how much capital you’ll need to get your business off the ground, and you’ll have a sense of how much it’ll cost to operate it.
Unless you have the money to fund your own venture, you’ll likely need to seek some sort of third-party assistance. For most small businesses, this means either:
- Taking out a small business loan - The Small Business Administration offers reduced-risk loans for small businesses through their network of lenders. These loans are guaranteed by the SBA, which makes it easier for many lenders to get approved. On the other hand, you might find lower interest rates and a quicker approval process by going with a conventional bank loan.
- Finding private investors - If a bank loan isn’t in your plans, you can look for independent investors to help with capital. Family, friends, angel investors, and even crowdfunding your venture are all options you can consider.
- A break-even analysis – This shows how much business you’ll need to do to cover the costs of doing business. In part, it’s a good indication as to when your company will start turning a profit.
- A cash flow forecast – This estimates the amount of money that your business will spend and earn over a specific period of time. It’s essential to estimate the amount of capital you’ll need to start your business.
Step 5: Obtain business insurance
Like your car or your house, your business should be protected with insurance. Even if your business structure shields you from personal liability should anything go awry, having the proper business insurance means you’ll be able to keep operating no matter what happens.
When it comes to how to start an electrical company, there are three types of insurance you should be aware of:
- General liability insurance – If a customer injures themselves in your shop or you cause damage to their property while working on-site, general liability insurance will cover the cost of restitution and legal fees.
- Professional liability insurance – You can think of this as malpractice insurance. It’s there to cover settlements, legal fees, and payouts in case a customer accuses you of faulty work.
- Worker’s compensation insurance – Depending on your state, this one might not be optional. Worker’s compensation pays the medical bills of any employee who suffers an injury on the job. If they’re unable to work during their recovery, it’ll also pay their salary in the meantime.
Step 6: Promote your business
No business is successful without promoting itself to its customer base. That means:
- Building a website - A well-designed, regularly updated website helps SMBOs reach new potential customers in the electrical industry. Make sure you know all of the important marketing tips for electricians, including website features with engaging content like blog posts and testimonials from satisfied customers once you have them.
- Knowing the competition – Check the websites of other local electrician businesses to see what services they do and don’t offer, and check their online reviews to see where they stand with customers. This will help you identify gaps you can fill in the market and anticipate what local potential customers are looking for in an electrician.
- Connecting locally with and digitally with Nextdoor - When it comes to promoting your local business, the best place to reach the neighborhoods that matter most is Nextdoor. When you list your business on our platform, you can build a community with your neighbors by posting business updates, offering special promotions, etc.
Set off sparks in your community with Nextdoor
Once the power’s on in your electrical business, you’ll need a way to stay on top of the latest happenings in your community and engage with customers where you live. The way to do that is by listing your business with Nextdoor.
With nearly 1 in 3 households using Nextdoor for local business recommendations, it’s a sure-fire way to get your business in front of new customers, keep in touch with old ones, and grow your business at the hyper-local level.
Find the neighbors that matter most to your small business with Nextdoor. Claiming and setting up your Business Page is quick, easy, and free.
