How to start an electrical business in 10 steps
Quiz: Who has kept computers powered, Zoom meetings on schedule, and students learning remotely during the COVID-19 pandemic?
One answer is electricians, essential service providers who have provided services that power all other businesses. With our increasing reliance on electrical equipment, it is a good time to start your own electrical contracting business.
And the need for electricians is growing. In the year before the pandemic, twice as many electrical businesses hired workers than lost them. The industry is expanding with an average growth rate of 8% from 2018 to 2028. Experts say it will grow more as construction returns to pre-pandemic levels, adding more than 60,000 jobs.
You can be your own boss and capitalize on industry growth. First, it’s a good idea to ask yourself these 5 questions before you start a business. To avoid falling into the 50% of new businesses that fail within 5 years, you’ll have to plan thoughtfully. The following steps can help spark ideas for your success.
1) Choose what services you will offer
Professional electricians work in a wide variety of industries and settings, but there are two main categories:
- Linemen (Outdoor electricians): Linemen work on electrical transmission systems. They operate at higher voltages on wires that move electricity from substations to customers.
- Wiremen (Indoor electricians): These electricians install, maintain, and repair interior wiring systems. They may work on alarm, door, and gate systems or install receptacles or light fixtures and fans. Residential workers help homeowners while commercial wiremen focus on electrical installation for businesses like the construction industry.
Some other specialties you can start an electrical business in are:
- Industrial electricians
- Maintenance electricians
- Auto electricians
- Wind turbine electricians
- Electrical inspection
- Telecommunication line repair/installation
- Outdoor lighting
- Installing smart solutions
- Security and fire alarm installation
After looking at your skills, check out your local area. What services do your competitors offer? Look at the following elements where you might stand apart from the crowd:
- Geography covered
- Customer reviews
- Marketing strategy
While a small, one-person van electrical business may not compete with the local leader, the analysis can give you an overview of where you stand. You might see potential partners the established companies are overlooking and services that are too small for more prominent companies.
2) Uncover your unique selling position (USP)
After having a good look around your local market, you will want to differentiate your electrical business. Suppose you’re offering residential electrical services amidst fierce competition. In that case, you’ll want to make it easy for customers to understand why they should choose you.
Many electrical contractors start by understanding what licenses they hold and what kinds of jobs they can do. If you’re lucky, your specialty will align with a service that is hard to get in your market, and you’ll become the premier provider. Not everyone is fortunate enough to offer a unique service. You may specialize in a saturated niche within a competitive market. For example, you could be a residential electrician in a large city. Your qualified electricians can still stand out from the crowd.
- What features does my business offer? Are you a master of smart house technology? A ninja with security systems? Do you go above and beyond in customer service?
- How do these features benefit the customer? After-hours emergency service, for example, allows customers to relax when a problem arises instead of worrying all weekend that it will turn dangerous. The benefit is that this feature protects your customers’ families, homes, and peace of mind.
Another example might be your “No call out charge” policy. Reassured customers may be more likely to recommend your business to friends.
Your USP allows you to direct your marketing to your target demographic, saving you money and bringing you new clients.
3) Pick your business name
A spark of creativity can take you far. An electric company’s name should unite your niche and USP and help customers remember your business.
You can keep it simple with a name like “John’s Residential Electrical” or own your niche with “Luminations Outdoor Lighting Systems.”
Use a business name generator if you need help with ideas. Talk to family and friends. See what is memorable as well as easy to spell and find online. You’ll also want to check the social media accounts and domain names available.
4) Get your paperwork in order
States and local governments differ in their electrical licensing requirements. A typical path to a new electrical business starts with having your master contractor designation, certified electrical administrator, or electrical contractor license. General electric contractors are licensed to work in residential and commercial settings in all specialty electrical contracting tasks like pump and irrigation, appliances, or door systems. An electrical contractor’s license will cost roughly $120.
If you aren’t licensed yet, you can start by studying up on how to become an electrician and get licensed.
Whether you do your electrical work or hire a licensed electrician, you’ll register your business and apply for a business license from your state or city. In most states, this is a requirement to do business in your state.
Finally, you’ll apply for an Employer Identification Number (EIN) from the IRS. This tax identification number works like a Social Security Number for businesses. It will let you open bank accounts, credit lines, apply for business licenses, and file taxes. It’s easy to apply online.
Insure your business
Electrical businesses can be shockingly dangerous, and business owners cannot forget about insurance to protect themselves from unexpected volts. You’ll likely need proof of business insurance for electricians to do business in your state.
The types of coverages you’ll need depend on your particular business needs. Sometimes, a Business Owner’s Policy makes sense as your primary small business insurance. Other times, you’ll buy coverage individually.
Here are some of the coverages you could use in your electrical business:
- Business Owner’s Policy (BOP): This coverage includes general liability, property insurance, and businesses interruption coverage wrapped up in one package. Each of those coverages can be purchased separately as well.
- General liability insurance: This coverage is almost certainly required to do business in your state. It covers your business if you’re sued for injury or property damage.
- Workers’ compensation insurance: If you hire electricians or other professionals to help run your business, your state will almost certainly require workers’ compensation insurance. It can help sustain your business when a worker is sick or injured. Workers’ compensation insurance is designed to cover medical bills, rehabilitation, and lost wages, protecting both the worker and your business when someone cannot work. It’s easy to calculate your premiums.
- Property insurance: Property insurance can include coverage for both your business location and the personal property inside. You may need a building for housing your fleet or responding to business calls.
- Business interruption: This coverage can supplement lost income if your business needs to cease operations for any reason temporarily.
5) Create a business plan for your electrical business
A business plan is almost always required when seeking investment funding or start-up loans. It can also be a way to convince employees and partners to come on board.
There are multiple templates available online to help you craft an intelligent business plan. Most suggest you include these sections:
- Executive Summary: Can you describe your business, mission, goals, and the keys to success?
- Company Summary: What services will you provide? What is your management structure? Where are you located?
- Market Analysis: What is your market segment? What does the housing or commercial stock look like in your locale? Is the industry growing?
- Strategy: What is your sales strategy, budget, and competitive edge?
- Personnel Plan: How will you hire electricians and a management team
- Financial Plan: What are your financial projections, including projected profit and loss? What are your fixed costs, margins, and expenses? How is your cash flow? Do you know your “break-even” number (which you need to attain to be profitable)?
The financial plan section is essential if you’re seeking funding for your business. You’ll want to research the funds needed to start your business. Include categories like working capital, vehicle costs, and equipment costs. Document your pricing and the number of jobs you’ll handle per day, showing total costs and profits.
How much will you have to pay contractors? Typical labor costs range from $90 to $140 an hour. Other electrical businesses use flat-rate pricing and can earn $200 to $240 an hour.
How much will you make? The average small residential job costs customers $140 to $420, whereas large jobs average $2000 to $6000. Average industry prices for typical residential jobs are listed here:
- Wiring: $7 per foot
- Doorbell installation: $120
- Wiring a new switch: $150
- Installing a ceiling fan: $250
- Installing an attic exhaust fan: $400
- Installing a bathroom fan: $325
- Wiring a new outlet or replacing a conventional outlet with a GFCI outlet: $150
- Installing a light fixture: $240
- Wiring a new hot tub: $1,150
- Installing an electric car charging station: $1,675
- Upgrading an electrical panel: $1,800
- Installing a home generator: $4,000
- Installing a home automation system: $1,200
- Rewiring a home: $4,250
- Installing a sprinkler system: $2,850
- Installing a video surveillance system: $1,450
Many new contractors think the fastest way to profitability is to fit as many jobs into a day as they can get. But try to stay grounded when thinking about your profitability. Being able to cross-sell a customer and take care of all concerns they have with their electrical systems, doing a thorough job and explaining the type of work you’re doing, and being available for unexpected emergencies are profitable ways to customer satisfaction and more referrals.
6) Decide on your business structure
Many electricians choose to incorporate their new business as a limited liability company (LLC), which protects owners’ assets if the business is sued for damages. You can file the paperwork without lawyers if you’d prefer your start-up budget go to that fancy thermal imaging multimeter.
An LLC means:
- You can protect your personal assets
- You can choose between pass-through and S-corp taxation
- Tax benefits can mean faster growth
- Increased consumer trust
Your state may not require you to form your company as an LLC. You can operate as a sole proprietor instead. Other structures are partnerships, which can be limited liability. You can also consider forming a corporation. Your lender may require this.
7) Figure out your financial plan
Electrical business margins can be tight at 5%. Keep them from being trimmed further with a solid financial plan. It starts with keeping start-up costs low.
How much do you need to spend? Electrical businesses often pay $5,000 or more. Large costs will include equipment and a van. However, expenses vary. What you spend depends on the current state of your toolbelt and whether you’ll be starting from scratch (as well as how many pricy, digital tools your specialty requires). Here are some estimates:
You can easily spend $10,000 to $60,000 on a kitted-out van to run your mobile business. However, you can start by renting or buying a used van or financing a van and forking over just the down payment.
Often considered the gold standard of advertising for the trades, your van is a visual marketing tool that can cost around $1,000 for professional lettering and visuals.
A complete set of starter tools can be simple. Many electricians work with hand tools like pliers, fish tape, screwdrivers, and wire strippers. They rent more expensive equipment as needed. However, it is not unusual to spend around $6,000 for the basic set of new tools. Also, consider:
- Voltage testers
- Installation tools
- Strapping tools
- Multifunction testers
- Electrical wall chasers
- Digital tools, if needed, like circuit finders, and circuit analyzers
Stock to use on jobs
Don’t forget to stock your van with the little things you’ll need to do your electrical jobs, including parts like tape, wire, solder flux, solder wick, flux cleaner, and freezing spray. It can all cost $1,000 to $2,000.
You may need a website, software for invoicing and bookkeeping, computer, and printer. It can all cost $2500 to get started.
Shoe wraps, branded shirts, and safety equipment build your brand and your professional authority. They’ll cost $200 or more, depending on how many employees you will hire.
Insurance and licensing fees
Consider your first payments, licenses, and registration fees, and you’ll need to set aside at least $600.
You can use flyers, networking, and local partnerships to get word of mouth started free, but a modest advertising budget for pay-per-click ads or local newspapers is a popular way to jumpstart your phone ringing. Set aside at least $500.
Paying for it all can make you feel overwhelmed. Still, there are several sources of funding available for new electrical businesses.
Small Business Administration (SBA) loans for electrical businesses help cover working capital and equipment costs. There are many kinds of SBA loans, and lenders have different requirements, so be sure to check out other options. They cover expenses from $5,000 to $50,000. There are even microloans, which are quick to get and flexible in funding business expenses like tools.
Bank loans can be more challenging to get than SBA loans. Your local lender will be able to tell you the different payment options and funding available for your electrical company.
Another path to get started quickly is to self-fund start-up costs with a new 0% APR credit card, counting on an increasing customer base to pay off the debt before the regular interest rate kicks in.
8) Hire employees
How can you hire right for your small electrical business? If you’ve never hired employees before, read about how to hire your first employee, then think about the specific needs of your electrical business:
For starters, you’ll want licensed electricians to perform all the work you do. But what kinds of electricians will you need? Apprentices, journeymen, office workers?
According to the U.S. Bureau of Labor Statistics, electricians make an hourly average of $28.50, with an average national salary of $53,794 in 2019. You’ll pay more in areas with a high cost of living, like Alaska, Hawaii, or New York. You’ll also pay more for master electricians with multiple certifications.
9) Spread the word
Electricians have multiple opportunities to get the word out about their new business.
- Van: You’ve already outfitted your van, so start advertising there with signage that clearly states your business name and USP.
- Website: You’ve set up a website. Now get found in your community by setting up Google My Location services, looking into Google’s Adwords pay-per-click advertising. Formulate a strategy to be a featured result in the Google map local search results, which yield the best returns. Your website can also serve as a site to book calls or services, creating less friction for potential customers to reach you. You can use it to educate your customers through blog posts, videos, and testimonials and capitalize on search engine optimization (SEO).
- Local advertising: Electrical businesses serve a small local area and can therefore take advantage of affordable advertising directly to their target market in newspapers or radio. You can spread the word by sponsoring local sports teams or purchasing advertising on billboards or in local venues. Even leaving business cards with your phone number in local businesses can increase your visibility.
- Partnerships: If you are a residential electrician, why not partner with local real estate agents and offer to help teach them the basics of assessing electrical problems? Network with plumbers, roofers, and other tradespeople for opportunities to trade referrals.
- Social media: Electricians are not known for the visual appeal of their circuit breakers. However, showing before and after jobs, answering customer questions, and walking them through simple DIYs can build visibility and trust.
- Incentivize referrals from your customers: Developing word-of-mouth advertising is free and effective. Personal referrals make people 4 times more likely to buy because they come from a trusted friend. The more jobs you do in your market, the more opportunity you have to ask for referrals. You can even set up a digital system to incentivize customers with ongoing maintenance or another perk for referring new clients to you.
10) Check out these other tips for running a successful electrical business
A thriving new business means more than just rewiring fixtures for customers. You’ll have to coordinate trucks and appointments, handle proposals, billing, marketing, training, and complaints. It might make you question how you’ll stay sane as an entrepreneur.
When you’re ready to amp up your business, check out these extra resources for electrical business entrepreneurs:
- International Association of Electrical Inspectors: The online magazine features columns and discussions on industry trends that can help you keep on top of your game. Codebook quizzes are a great way to brush up on code requirements in all electrical specialties.
- National Electrical Contractors Association: Chapters, networking, conferences, and continuing education, this professional association for your electrical contracting business can keep you connected with industry trends and business necessities.
- Independent Electrical Contractors: An association hosting conferences, a newsletter, professional development, and apprenticeship programs
- Electrical Contractor Magazine: Stay up on new products and trade secrets with articles, videos, and more.
- Electrician Talk: Survey other electrical business owners on pricing, struggles, and ask for support. It’s all here on the community forum.
If you’re still excited to pursue your electrical business dream, grab a lightning-fast business insurance quote from Huckleberry.