Getting your contractor license is just the beginning. Building a successful contracting business requires more than trade skills — it requires business acumen. Here are the financial mistakes that sink new contractors and how to avoid them.
1. Underpricing Jobs
New contractors often bid too low to win work, forgetting to account for overhead, insurance, taxes, and profit margin. A healthy bid includes: direct costs (labor + materials) + overhead (15-25%) + profit (10-15%). If you’re winning every bid, you’re probably too cheap.
2. Not Tracking Cash Flow
Revenue isn’t profit. Many contractors go broke while technically being “profitable” because they don’t manage cash flow. Track every dollar: when invoices go out, when payments come in, and what bills are due when.
3. Skipping Insurance
Beyond the required workers’ comp and license bond, you need general liability insurance ($1M-$2M is standard). One lawsuit from a jobsite injury or property damage can bankrupt an uninsured contractor.
4. Mixing Personal and Business Finances
Open a separate business bank account on day one. Mixing personal and business funds makes tax time a nightmare, reduces your deductions, and can pierce your LLC/corporate liability protection.
5. Not Setting Aside for Taxes
As a contractor, you’re responsible for self-employment tax (15.3%) plus income tax. Set aside 25-30% of every payment in a separate tax savings account. Quarterly estimated tax payments are due in April, June, September, and January.