Starting an electrical business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful electrical business.
Importantly, a critical step in starting an electrical business is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start an Electrical Business:
- Choose the Name for Your Electrical Business
- Develop Your Electrical Business Plan
- Choose the Legal Structure for Your Electrical Business
- Secure Startup Funding for Your Electrical Business (If Needed)
- Secure a Location for Your Business
- Register Your Electrical Business with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Electrical Business
- Buy or Lease the Right Electrical Business Equipment
- Develop Your Electrical Business Marketing Materials
- Purchase and Setup the Software Needed to Run Your Electrical Business
- Open for Business
1. Choose the Name for Your Electrical Business
The first step to launching an electrical business is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally, you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your electrical business:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your electrical business.
2. Develop Your Electrical Business Plan
One of the most important steps in starting an electrical contracting business is to develop your business plan. The process of creating your electrical contractor business plan ensures that you fully understand your local market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your electrical business.
- Company Overview – this section tells the reader about the history of your electrical business and what type of electrical business you operate. For example, are you an electrical contractor, electrical manufacturer, or an electrical wholesaler?
- Industry Analysis – here you will document key information about the electrical industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your own electrical contracting business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your electrical business make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your Electrical Business
Next you need to choose a legal structure for your own electrical business and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the business owner and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the business owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small business owners. It is an agreement between two or more people who want to start an electrical business together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for an electrical business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for an electrical business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your own business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Electrical Business (If Needed)
In developing your electrical business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for an electrical business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in an electrical business that they believe has high potential for growth.
5. Secure a Location for Your Business
When starting an electrical business, you’ll need to find the right location. There are a few things you’ll want to keep in mind when choosing a location:
- The area should be zoned for commercial businesses.
- The location should be accessible and easy to find.
- It’s important to find a space that’s big enough to accommodate your business operations.
- Check the cost of rent and utilities in the area.
- The neighborhood should be safe and have good infrastructure.
- Make sure you have enough parking available.
6. Register Your Electrical Business with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your electrical business’ name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your electrical business to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
In order to start an electrical company, you will need a business license, a trade name registration, and a general contractor’s license. You may also need a specialty contractor’s license, depending on the services you plan to offer.
10. Get Business Insurance for Your Electrical Business
The type of insurance you need to operate an electrical business will depend on the scope of business operations.
Some business insurance policies you should consider for your new electrical business include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right Electrical Business Equipment
To run your electrical business, you will need a variety of equipment, including tools, testing equipment, and safety gear. Ensure everything you need before starting your business. You may also want to consider purchasing a vehicle or trailer to transport your equipment.
12. Develop Your Electrical Business Marketing Materials
Marketing materials will be required to attract and retain customers to your electrical business.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your electrical business. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional electrical business website provides potential customers with information about the services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your electrical business.
13. Purchase and Setup the Software Needed to Run Your Electrical Business
You’ll need electrical estimating software to help you price out jobs and materials. You’ll also need a Computer-Aided Design (CAD) program to create wiring diagrams and other designs. Billing and invoicing software can help you keep track of payments and customers. Finally, a project management tool can help you stay on top of jobs from start to finish.
14. Open for Business
You are now ready to open your electrical business. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start an Electrical Business FAQs
No, it is not hard to start an electrical business. You will need to have a good understanding of the electrical code, and how to safely install and repair electrical systems.
There are a few ways to start an electrical business with no experience. One way is to find an experienced electrician who is willing to mentor you. Another way is to take classes or attend seminars that will teach you the basics of the trade. You can also watch instructional videos online or read books about electrical work. Make sure you are well-informed and prepared before starting your own business.
The type of electrical business that is most profitable is a business that provides services such as repair, installation, and maintenance. Providing these services can be a lucrative business, as there is a lot of demand for them. Additionally, other small business owners that provide residential electrical services often have low overhead costs, which can help to increase profits.
The cost to start an electrical business varies depending on the size and scope of the business. However, on average, starting an electrical business can cost between $10,000 and $30,000. This includes licensing, permits, insurance, and equipment costs.
The ongoing expenses for an electrical business can vary greatly, depending on the size of the business, the services offered, and the location. Some of the most common expenses include utilities, labor costs for electrical workers, materials and electrical supplies, marketing and advertising, and insurance.
Professional electricians make money by completing electrical jobs for their customers. This could be by installing or repairing electrical equipment, or providing a consultation service.
Yes, owning an electrical business can be profitable because there is a consistent need for these kinds of services. Electrical businesses are necessary for both residential and commercial properties, so they are always in demand. Additionally, as technology advances, more homes and businesses will require updated electrical systems, providing greater opportunities for electrical business owners.
There are a number of reasons some electrical businesses fail. One reason may be that the business does not have a solid business plan and marketing strategy. Other reasons may include competition from larger businesses, bad customer service, lack of qualified electricians, or not enough capital to sustain the business.