Running a contracting business is no easy task. While the work itself is demanding, managing finances can be even more challenging. Many contractors face cash flow issues, unpaid invoices, and unexpected expenses that put their businesses at risk. However, with the right strategies, you can avoid money problems and build a financially stable operation.
Here are 10 ways contractors can structure their business to stay financially secure.
1. Set Up a Proper Business Structure
One of the biggest mistakes contractors make is not setting up their business correctly from the start. Operating as a sole proprietor can leave you personally liable for business debts, while an LLC or corporation can protect your personal assets and provide tax benefits.
How to Do It:
• Consult with a business attorney or accountant to determine the best structure (LLC, S-Corp, C-Corp).
• Register your business properly with the state.
• Keep personal and business finances separate to protect yourself legally and financially.
2. Create a Detailed Budget and Stick to It
Without a clear budget, it’s easy to overspend or find yourself short on cash when bills come due. Many contractors operate without a financial plan, leading to costly mistakes.
How to Do It:
• List all business expenses, including materials, labor, insurance, taxes, and emergency funds.
• Set a monthly and yearly budget and review it regularly.
• Use accounting software like QuickBooks to track expenses in real-time.
3. Price Jobs Correctly to Ensure Profitability
Underpricing jobs is one of the fastest ways contractors lose money. Many contractors make the mistake of bidding too low to win work, only to find themselves struggling to cover costs.
How to Do It:
• Calculate the total cost of materials, labor, overhead, and profit margin before bidding.
• Research industry pricing standards to stay competitive.
• Avoid the temptation to lower prices just to secure a project.
4. Get Paid on Time with Clear Payment Terms
Late payments from clients can cripple a contracting business. Without steady cash flow, you may struggle to pay your own bills, employees, and suppliers.
How to Do It:
• Require upfront deposits before starting work.
• Set clear payment terms (e.g., 30% upfront, 30% at midpoint, 40% upon completion).
• Use contracts with strict payment deadlines and penalties for late payments.
5. Build an Emergency Fund for Slow Seasons
Construction work isn’t always consistent—some months are booming, while others are slow. Many contractors get into money trouble because they fail to plan for these slow periods.
How to Do It:
• Save a portion of every job’s earnings into a reserve fund.
• Aim for at least 3–6 months’ worth of expenses in savings.
• Reduce unnecessary spending during slow seasons to stretch your reserves.
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Protect Your Business with the Right Insurance
Even if you do everything right financially, a workplace injury or workers’ compensation claim can destroy your business if you’re not properly covered. That’s why BGES Group specializes in workers’ compensation insurance for contractors in the Tri-State area. Whether you need better coverage, help handling a claim, or expert advice, BGES Group is the team to call.
If you operate outside the Tri-State area, BGES Group has an associate that can assist contractors across the country. Don’t wait until an issue arises—protect your business today.
📞 Call BGES Group at 914-806-5853 – Gary Wallach
📧 Email bgesgroup@gmail.com
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6. Use Contracts for Every Job
Many contractors operate on verbal agreements, which can lead to misunderstandings, unpaid work, and legal battles. Without a solid contract, you’re putting your business at risk.
How to Do It:
• Always use a written contract, no matter how small the job.
• Include details on pricing, payment schedules, scope of work, and deadlines.
• Have a lawyer review your contracts to ensure they’re enforceable.
7. Keep Business and Personal Finances Separate
Mixing business and personal finances can lead to tax problems, accounting nightmares, and personal liability for business debts. Keeping them separate is essential.
How to Do It:
• Open a separate business bank account and credit card.
• Pay yourself a salary instead of taking money directly from business funds.
• Keep detailed financial records to simplify tax time.
8. Plan for Taxes and Avoid IRS Trouble
Taxes can sneak up on contractors who don’t plan ahead. Many small business owners fall behind on tax payments, leading to penalties and financial struggles.
How to Do It:
• Set aside a percentage of each payment for taxes (typically 25-30%).
• Make quarterly estimated tax payments to avoid a large year-end bill.
• Work with an accountant to ensure proper tax planning.
9. Reduce Debt and Avoid Overborrowing
Taking on too much debt can put a contractor in a financial hole that’s hard to climb out of. While loans can help grow your business, they should be used wisely.
How to Do It:
• Only take out loans for necessary investments (e.g., equipment, expansion).
• Pay down high-interest debt as quickly as possible.
• Avoid using credit cards for day-to-day expenses unless you can pay them off monthly.
10. Diversify Your Income Sources
Relying on just one type of work or one big client can put your business at risk. If that client disappears or work slows down, you could be in financial trouble.
How to Do It:
• Offer multiple services (e.g., residential and commercial work).
• Build relationships with several clients to avoid dependence on one.
• Consider subcontracting for larger companies to generate additional income.
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BGES Group: Your Partner in Workers’ Compensation Insurance
Even with the best financial planning, unexpected events can put your business at risk. Workers’ compensation claims can be costly, and without proper coverage, you could face financial ruin. That’s why contractors trust BGES Group to provide top-notch workers’ compensation insurance.
Serving the Tri-State area, BGES Group ensures contractors are fully protected. And if you work outside the Tri-State area, BGES Group has an associate that can assist contractors across the country.
For expert guidance and top-tier coverage, reach out to BGES Group today:
📞 Call: 914-806-5853 – Gary Wallach
📧 Email: bgesgroup@gmail.com
🌐 Website: BGES Group
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Final Thoughts
Running a contracting business comes with financial risks, but with the right structure in place, you can avoid money problems and build a stable, successful company. By following these 10 steps—pricing correctly, saving for slow seasons, using contracts, and getting insured—you can protect your business and your livelihood.
And when it comes to protecting your contracting business with the right insurance, BGES Group is the name you can trust.