How to build a successful home improvement business

The home improvement industry has experienced steady growth in recent years. It grew to $522.25 billion in 2023 and is expected to exceed $600 billion by 2027. As the remodeling industry expands, the demand for skilled professionals continues to grow.

A home improvement business offers many benefits to those who like the idea of being their own boss. The business model offers a great deal of scheduling flexibility and the profit potential is strong. The startup costs can also be relatively low, especially if you already own tools and transportation.

If you’re researching how to start a home improvement business, it’s important to carefully plan your business startup to make sure you’re properly set up before taking on your first job. Let's go over this process so you can build a strong foundation for success as a general contractor or specialist.

The first step in starting a home remodeling business is to assess the demand in your area to identify opportunities. You can start by looking at the age and types of homes in your community. For example, an area with older homes might need more renovations and remodels than a community with newer homes.

You also need to identify who your target market is. For example, you could focus on residential homeowners who are looking for remodeling projects, landlords who need ongoing maintenance, or property managers who need reliable contractors for multiple properties.

You should also determine what kind of renovation projects you'll take on. This will depend on your skill set. It’s important to choose a niche that you both have expertise in and there’s a strong demand for. While you may have more opportunities as a general contractor or handyman, construction business entrepreneurs who specialize in a specific skill often charge higher rates.

Home improvement niches to consider include:

• Kitchen remodeling
• Bathroom remodeling
• Flooring installation
• Custom cabinetry
• House painting
• Custom carpentry
• Hanging drywall
• Landscaping
• HVAC installation
• Roofing

Selecting a niche doesn’t have to define your business forever — you can always expand your services later as your business grows and as you identify new opportunities.

The next step in beginning a remodeling business is to create a detailed business plan, which will outline your short- and long-term goals and the services you offer. You’ll also need a pricing strategy, which will require you to research competitors’ rates.

More specifically, you need to determine whether you’ll charge by the hour, by the project, or use a cost-plus model that factors in materials, labor, and overhead, plus your desired profit margin.

Your marketing strategy is one of the most important aspects of your business plan to ensure that you have consistent leads. Consider using a combination of online and traditional strategies to maximize your reach. For example, you could establish an online presence with a website, social media platforms, and paid ads. Building relationships with real estate agents and other industry professionals may also result in client referrals.

Make sure your new business is legally compliant before you start advertising your home repair services. To do that, you'll need to choose a business structure and obtain the proper contractor licenses and permits.

Most independent contractors select a limited liability company (LLC) business structure because it separates personal and business assets in case of lawsuits. An LLC also offers pass-through taxation, in which profits and losses are reported on your personal tax return.

A sole proprietorship is simpler to set up, but offers no liability protection. On the other hand, an LLC provides the strongest protection but involves more complex paperwork and tax requirements. Before you select a business structure, be sure to consult with an attorney or CPA to determine the best option for your specific needs.

You’ll need to register your business with federal, state, and local authorities. The first step is to apply for an Employer Identification Number through the IRS website. You’ll need this federal tax ID for hiring employees, opening a business bank account, and filing your taxes.

Next, file your business registration paperwork with your state. Note that most states allow you to do this online.

You’ll need to obtain a business license from your local municipality and the necessary licenses for contractors. License requirements vary depending on the state you live and work in, so you’ll need to reach out to your state and local contractor licensing boards to understand the requirements.

Many jurisdictions often require contractors to obtain surety bonds to protect customers from incomplete or substandard work.

Check to make sure you're compliant with local zoning laws and business regulations. For example, some local governments may have restrictions on home-based businesses or have restrictions on parking commercial vehicles or receiving deliveries.

Also, if you’re part of a homeowner’s association (HOA), review the bylaws to make sure that operating a business from home is allowed.

Having the right insurance is essential for protecting your home improvement business from potential liabilities. You’ll need to obtain insurance coverage before taking on your first project to keep yourself financially safe against liabilities and risks.

Many states require specific types of insurance coverage before they will issue you a contractor's license. Homeowners and property managers may also request proof of insurance before hiring you.

To start, you’ll need general liability insurance, which covers third-party bodily injury, property damage, and advertising injury claims.

As your business grows and you hire employees, you’ll also need workers’ compensation insurance. This policy is legally required in most states when you hire your first employee (sometimes including subcontractors), and helps pay for medical expenses and lost wages if an employee is injured on the job.

If you have business-owned vehicles, you will also need commercial auto insurance. This coverage is required by law in most states. For personal, rented, or leased vehicles, look to hired and non-owned auto insurance.

Tools and equipment insurance is also important to protect your valuable assets from theft, damage, or loss while they’re stored at a jobsite or another off-site location.

In addition, you’ll need professional liability insurance, also known as errors and omissions (E&O) insurance, to protect your small business from claims related to professional negligence, errors or oversights (e.g., design errors), or omissions.

Insureon can help you find cost-effective insurance solutions tailored to your personalized needs. Our licensed insurance agents can assist you with comparing quotes from multiple insurers to identify policies that provide the right balance of coverage and affordability.

The next step in launching a home renovation business is to select a professional business name.

The name you choose should clearly convey the services you provide and you should double check the name isn't already in use. You can also work with a professional designer to create a logo to use on your website, social media, business cards, and other marketing materials.

There are several ways to reach customers online. For example, you can work with a website designer to create a professional website that showcases your work. This should include detailed service descriptions, high-quality photos, testimonials, and contact information. It also needs to be optimized for local business search to make it easier for people to find you in their search engines.

Building a strong social media presence allows you to connect directly with potential customers. You could demonstrate your expertise on platforms by sharing home improvement tips, step-by-step guides for DIY projects, before-and-after photos of your work, and project progress updates. Engaging with followers by responding to comments and answering questions helps to position you as a go-to expert in your field.

Creating profiles on business directories, such as Google Business Profile and Bing Places for Business, ensures your business appears in local search results. Many people also check business reviews on Yelp and Angi before hiring contractors, so it’s a good idea to have profiles on these platforms. You can encourage satisfied customers to leave reviews, which helps to build trust with potential clients.

Having your business’s finances in order is crucial for long-term success. To do that, you’ll need to open a business bank account that is separate from your personal finances. This helps you keep accurate business records for tax purposes.

Seasonal fluctuations are common in the home improvement industry, which is why you’ll need to maintain cash reserves to cover at least three months of operating expenses.

You can also take advantage of business financing options — like Small Business Administration (SBA) loans, equipment loans, or business lines of credit from a bank or credit union — to grow your business or help you get through slow seasons. Local economic development organizations may also offer small business grants you can take advantage of.

Keeping track of your expenses and income is a must. Accurate financial records help you monitor cash flow, prepare for taxes, and make informed business decisions.

Popular bookkeeping systems, such as QuickBooks, Xero, and Wave, allow you to track income and expenses, generate financial reports, create invoices, receive payments, and manage many other financial tasks. Many bookkeeping systems integrate with your business bank account, which simplifies record keeping.

Be sure to work with a qualified accountant who understands the construction industry. Home improvement businesses have special tax considerations, so you’ll need the expertise of a professional to make sure you’re compliant. An expert can also help you take advantage of all legal small business tax deductions to minimize your tax liability. You can also use a payroll service if you have employees to prevent costly errors.

The next step in starting a renovation company is to get the right tools and equipment, which can vary depending on the services you offer. You should invest in basic tools first and then obtain more as project needs arise.

When it comes to larger equipment (such as cement mixers, scissor lifts, or excavation equipment), renting may be better than owning, especially for equipment you use infrequently. In addition to saving on the purchase price, renting also allows you to save on maintenance and storage costs.

Your work vehicle is one of your most important business assets. It doesn’t just provide transportation to and from work sites, but you’ll use it to transport tools, materials, and supplies. It can also serve as a mobile billboard by displaying your business name, logo, and contact information. Be sure to select a reliable truck or van with good towing capacity. You can start with a used vehicle in good condition and upgrade as your business grows.

Your business success depends on getting the word out about what you do. In today’s market, using a combination of advertising methods helps you keep your work pipeline full.

Many customers begin their search for a home improvement professional by looking online. To ensure you’re easy to find, you’ll need to optimize your website using SEO. Paid ads can also be used to boost your visibility, so you appear at the top of search results.

Don't overlook the power of traditional advertising methods, like distributing flyers in neighborhoods.

Also, consider offering a referral incentive to satisfied customers who’d like to refer new clients. Word-of-mouth referrals are often the best leads because they usually come from satisfied customers. Be sure to focus on delivering exceptional service that encourages customers to recommend you to friends and family.

Networking in your local community is another effective way to generate leads. You can join small business groups and home builders' associations, and attend home and garden shows to get to know other professionals.

Partnering with real estate agents and property managers can be a powerful way to generate leads.

Local real estate professionals can recommend your services to clients who are buying fixer-uppers. Property managers will also need reliable contractors for ongoing maintenance and improvement projects. You can join platforms like HomeAdvisor and Angi to build credibility.

Your reputation is a crucial part of entrepreneurship success with a remodeling company. To build your reputation, it’s important to keep clients informed at every stage of the project. Be sure to quickly answer any questions they may have and be transparent about timelines and budgets.

When challenges arise — as they often do in renovation work — be sure to address them immediately. Take the time to explain things in a way clients can understand, and always provide written documentation of project specs, changes, and agreements to prevent misunderstandings.

Today’s customers often make decisions based on online reviews. After completing each project, consider asking clients to leave reviews on platforms like Anji, Yelp, HomeAdvisor, and other sites. Be sure to respond to each review. When addressing negative feedback, focus on offering a solution so you’ll appear professional.

Also, consider offering a referral program to satisfied customers to spread the word about your services. For example, you could offer a discount on future work if a referral leads to work. Staying connected with past clients through periodic check-ins or maintenance reminders can also lead to repeat projects.

It's easy to get insurance for your home improvement business with Insureon. Just fill out our online application to receive quotes from trusted providers. Our expert insurance agents are available to answer any questions and help you find the right type of business insurance for your needs.

Most small business owners can get same-day coverage and easily download a certificate of liability insurance as soon as they purchase a policy.