If you are passionate about home improvements, starting a home renovation, repair, or re-construction business can be an exciting and rewarding venture. There’s nothing quite like being your own boss while doing something meaningful and fulfilling. Play your cards right, and you’ll also get to make a decent income and career out of it.
The home renovation space is teeming with lucrative opportunities. Many homeowners will pay top dollar for room additions and improvements, bathroom and kitchen makeovers, landscaping, roofing and flooring, décor, HVAC services, and more. The US home remodeling market grew to $340 billion in 2020. And it could reach $450 billion by 2027, with the Do-It-For-Me (DIFM) segment taking a 60+ percent market share.
So, where do you begin? Starting any business calls for careful planning and finessing. Even a small contracting business has several moving parts. And it’s your job to put everything together that makes the business work.
This is more than a guide on how to start a home renovation business. It will take you through all the necessary steps, worthy considerations, and pitfalls to avoid when establishing a home remodeling business.
Let’s get started.
Step-by-Step Guide to Starting a Home Remodeling Business
Before you make any moves toward starting your own home contractor business, it’s important to understand what you’re getting into. Get the lay of the land and learn what to expect. So, take a step back and ask yourself the following questions:
- Why am I getting into the business?
- How will I be involved in the business?
- What will I sell?
- Where will I sell and to whom?
- What unique value does the business bring to the market?
- Who are my potential competitors?
- Is my idea financially feasible?
- What will it take to make the venture work?
- How big can the business really get?
- What challenges lay ahead?
Conduct some rough preliminary research into the home remodeling scene in your target area or market. You need a good picture of the market’s size, dynamics, and potential competitors. Find out what consumers want, what they’re getting, and how much they’re paying for it. After that, you can identify the market holes or niches that your business could fill. Then build your business model and unique selling points from there.
Going into any business also requires the right mindset. For starters, check your expectations, anticipate challenges, and set realistic and achievable goals.
With that in mind, here are steps to start a remodeling business.
Draft a Solid Business Plan
A business plan is a formal document that serves as a roadmap for your new business. It’s a dynamic guide that describes how to structure, run, and grow the enterprise. Business planning essentially fleshes out your business idea and represents it as a digestible and actionable blueprint. This should help you get an overview of the renovation business and spot its potential strengths and challenges.
There are generally two ways to write a business plan. One, you can draft a comprehensive traditional business plan detailing every aspect of the business. But for a small home improvement business, it’s better to keep things simple at first with a lean business plan. This type of business plan is more compact and concise. It covers just the core business elements in a few short pages.
These are the key components you should include in your lean business plan:
- Business overview – Give a general description of the business model.
- Key activities – Outline the home renovation services you’ll be offering and your role in the business. Will you be doing the work yourself or contracting outsourced professionals?
- Resources available – What key resource will your home renovation business leverage? It could be your skills and expertise in the home improvement industry, a capable labor force, construction/renovation equipment, or a proprietary asset.
- Value proposition – Explain the unique value your business brings to the consumers. These are your unique selling points (USP), the attractive qualities that distinguish you from competitors.
- Customer segments – Narrow down your target customers. Your ideal customer might be a fresh homeowner looking to turn their new house into a home. Or anyone wanting to raise their property’s value for an upcoming appraisal or sale.
- Revenue streams – Paint a picture of how the business will make money remodeling homes.
- Cost structure – Design a cost structure fitting your business model and its services. More importantly, set an affordable and competitive price point.
- General financial plan – Work out what it’ll cost to launch and run the business, how you’ll get the money, and what the cash flow will look like.
- Goals and objectives – You should have a clear vision for your new business. How far do you want to take it?
Pick a Name and Get Registered
Choose a catchy name for your business and get it registered in your state. However, there’s much more to registering a new business than simply picking a killer name.
First, you have to choose a business structure under which to register your home remodeling venture. There are several business structures to choose from. But sole proprietorship and LLC (limited liability company) are the best structures for a small home renovation business.
Registering a Sole Proprietorship
A sole proprietorship is a business that’s owned and controlled by one person. It’s also the simplest of all business structures. To register a sole proprietorship, you can either put up your own name or pick a fictitious name by filing a DBA (“doing business as”). Registering an LLC
Unlike a sole proprietorship, an LLC separates your personal and business identities, legally speaking. That means you won’t be personally liable for the business’s legal or financial obligations, such as debts and lawsuits. However, registering an LLC is a lot more involved than a sole proprietorship.
With an LLC, you’ll have to nominate (depending on your state) a “registered agent” to submit and receive legal papers on your behalf. You’ll also have to file two documents: Articles of Organization (also known as Certificate of Formation or Certificate of Organization) and an LLC Operating Agreement, though this is not required in every state.
In either case, you also need an Employer Identification Number (EIN) to hire workers, file federal taxes, open a business bank account, and apply for business permits. The federal government also requires every business with employees to have unemployment, workers’ comp, and disability insurance. Remember, business insurance laws vary from state to state. But compulsory or not, insurance is essential in the home renovation business. So, consider insuring your business anyway.
Learn more about business structures and registration in this article by the SBA.
Secure the Necessary Permits and Licenses
Every business needs a license in order to operate anywhere in the country. Business licenses are issued by local government agencies, usually the city or municipal office. But a license only allows you to do business. You’ll also need various business permits to carry out home renovation projects in specific states, cities, municipalities, or zones.
The permit requirements for your home contractor business will depend on its specialization and location. You may also need temporary work permits for specific projects. But generally, most states and cities require builders and contractors to have a professional license/certificate, health and safety permits, and general contractor permits. Check with your local industry and government authorities to see the permits you’ll need.
Nail Down the Business Logistics and Resources
By this stage, you already have a fundamental business framework. Now is the time to gather all the resources you’ll need to get going. This will obviously depend on your business model, size, and service scope. Top-of-the-list items might include:
- Funding – Get the funds to start and run the business until it can stand on its own. You can bootstrap the venture or apply for financing from banks or alternative lenders.
- Labor – Start hiring subcontractors, handypersons, project managers, etc., if needed. But you don’t have to make permanent hires right away. It’s safer and more cost-efficient to hire staff on a contract basis at first.
- Suppliers – Find the best suppliers for any construction, plumbing, or electrical materials you’ll need for various home renovation projects. Remember to consider reliability and quality above pricing when selecting suppliers.
- Assets – Acquire all the equipment, machinery, and tools you’ll need to start work (specialized construction equipment, vehicles, hand tools, etc.). Buy what you can afford and hire the more expensive machinery, such as trucks and power tools, only when needed. These assets can also include the tools needed to run a business, like an estimating and invoicing app, or setting up a template in Excel.
Define Your Remodeling Business Brand
Branding is a way of setting your business apart from its competitors. It’s a means for customers to identify and associate with your business. Branding also forms the basis for marketing. Anything that identifies your business is part of your branding, from its name and logo to USPs.
However, there’s more to branding than just the business name and logo. Branding extends beyond mere recognition to the customers’ perception of the business. Customers prefer to engage with the businesses they trust, and you can build that trust through strong branding.
Your brand should represent what your renovation business stands for, expressing its qualities, strengths, values, and personality. In other words, instill customer confidence through your business’s presentation. Make assurances, quality guarantees, and value-added advantages part of your business identity.
Once everything is set up, you can start a rigorous marketing campaign. Focus your marketing efforts on spreading brand awareness and generating leads to score your first customers. That means presenting your brand to the relevant audiences and getting people excited about signing up for your home remodeling services. You can do this in any number of ways.
Here are some proven marketing ideas worth trying out:
- Create a website and optimize it for local search within your service area.
- Get your business on social media: Facebook, YouTube, Instagram, Nextdoor, Twitter, and LinkedIn.
- Involve yourself in local community activities.
- Brand your vehicles, machinery, and work sites.
- Cold pitch to homeowners using direct mail.
- Hand out flyers and branded merchandise at local gatherings and events.
- Get your business listed in local and online directories.
- Join various home remodeling and construction groups/associations to build your credibility and leverage their advertising muscle.
- Consider taking out paid ads in local publications and on the internet.
- Entice first-time customers with irresistible home renovation discounts and offers.
Avoid These 8 Rookie Mistakes
Fundera calculates that about 20% of small businesses fail in their first year. Meanwhile, about half never make it past five years. Worryingly, start-ups in the construction industry have relatively low survival rates. Only 35% of small construction businesses make it through their fifth year.
These grim figures are not meant to scare or discourage you from starting your home renovation venture. In business, failure is always an opportunity to learn, even the failures of others. And there’s a lot you can learn from failed businesses when starting your own. On that note, here are some of the costly mistakes that can easily run you out of business as a home improvement contractor:
Starting with Too Little Cash
Running out of cash is one of the top reasons many small start-ups fail. Don’t underestimate your business’s financial needs. Ensure you have enough capital to begin with and avoid unnecessary purchases or drawing money out of the business during its infancy.
Underestimating the Competition
Understand your competitors before going up against them. The home improvement sector is often a highly crowded commercial space. So, carefully gauge the possibility of carving out a niche for your business. Check whether your value proposition and unique selling points are a match for what’s already available in your target market.
Lacking a Solid Business Plan
Starting any business without a solid plan is like wandering blindly into dangerous waters. A good business plan lays out a clear path to your goals, sets up contingencies around potential obstacles, and puts guardrails to keep the business on track to success.
Ignoring Customer Satisfaction
Praise for home renovation businesses largely spreads through word of mouth and referral from past clients. Therefore, customer satisfaction is a big part of passive marketing. Plus, happy customers are more likely to contract your business again in the future. The rules of customer satisfaction are pretty simple: work on customer service, promise and deliver, and never compromise quality.
Doing Everything Yourself
A contractor business doesn’t have to be a one-man show. Besides, you surely can’t expect to juggle every aspect of the business yourself. Don’t hesitate to seek wise counsel, outside financing, subcontractors, and labor whenever you need it. Surround yourself with people and resources that support your enterprise.
Setting the Wrong Price
Writing price estimates for home renovation services is a delicate balancing act between competing and profiting. The trick is to set a price that not only best represents the value of your services but also fairs well against competitors’ benchmarks.
Poor Project Management
Develop an efficient project management strategy that prevents delays, cost overruns, and poor-quality delivery even when handling multiple projects at a time. Also, accept only the projects you’re sure can be completed in time and within budget.
Focusing on Rapid Growth
This may seem counterintuitive, but rapid growth can lead to all sorts of problems. Expanding too fast can deplete your cash reserve faster than the business can replenish it and introduce sudden risks, choices, or opportunities you were not prepared to handle. Aim for homogenous and organic growth that’s more sustainable and manageable.
Running your own home renovation business can be rewarding and liberating. However, these rewards and freedom come with great responsibility. It takes a lot just to start a business, let alone run it for years and years. But although it may be challenging, it becomes easier once you break everything down and take it one step at a time.
Once you’re ready to get started, use this guide for help and let Joist save you time, win more jobs, and get paid faster with quicker remodeling estimates, professional invoices, and payment tracking.