A lot of folks who read this site are homeowners looking for guidance for an upcoming home improvement contract. Some of you might have had such success with a DIY project that you’re considering starting your own small home improvement business.

For those thinking about becoming an independent or general contractor, there is more to consider than the quality of your work and your ability to generate revenue. Contractors have a lot of financial responsibilities beyond simply sourcing the required materials and additional labor. For folks who have a knack for home improvement work, research the financial side of the occupation before making a career transition.

Costs to Consider as a Contractor

Independent and general contractors have a lot of financial obligations. There’s a lot more to the business than building relationships with material suppliers. Whether you’re starting your own company or just want a peak behind the financial curtain, here are some cost responsibilities to acknowledge.

• Materials: Material costs are the most obvious financial obligation. As a new contractor, you’ll want to build relationships with local suppliers to ensure you get the best rate for your client. If a client is considering multiple bids from different contractors, you may consider taking a loss on the cost of materials in order to secure the job.
• Labor: All construction workers need to be paid a living wage. For a large home build-out, you may need as many as two dozen workers contracted for several weeks. While most of this is covered by the client, you’ll need to also consider things like health insurance and overtime pay.
• Management Tools: From payroll to project planning, all contractors need some type of management software. Payroll, in particular, can be difficult for general contractors. See below for more information about the quirks of construction payroll.
• Insurance: Insurance is necessary for all construction ventures and some major home improvement projects. This can cost several thousands of dollars each year.
• Licensure: Most states in the U.S. require contractors to have a general contractors’ license. Certain states require additional licenses to break ground on certain projects.

Difficulties with Construction Payroll

Starting a construction company or becoming a general contractor also requires familiarity with the idiosyncrasies of construction payroll. Construction providers work with several different types of workers, and each has a specific tax and wage obligation. Additionally, construction companies and general contractors work with different people throughout the year, depending on the project, season, and worker availability. This means you might end up hiring someone for a one-week job at the beginning of the financial year, but you’ll still need to send them a 1099 when tax season rolls around.

When you invest in a construction payroll software , be sure to choose a tool that can handle a wide variety of W-2 and 1099 workers, as well as the ability to save data for end-of-year filing. There’s nothing more frustrating than attempting to complete business taxes in January and not having the information required for a contractor you paid back in May.