How Do I Start a Small Electrical Business?

By Don Bowman

  • Overview

    Evaluate the surrounding area in terms of demographics. Look for the type of businesses in the area, the competition, median income, proximity of wholesalers and zoning. Knowing what to expect when the doors open allows for better planning. The right location is everything. Knowledge of the area helps in making an accurate assessment of the time and amount of capitol needed to break even or show a profit.
    • Step 1

      Once the area is decided upon, devise a business plan. This should include the total liquid cash, as well as assets such as equity, stocks, bonds, securities, insurance policies and 401(k) plans. It should also include assets that can be used to secure a line of credit to purchase electrical inventory, the type of service that will be supplied, the type of parts to be sold, the amount of inventory and associated cost and number of employees.
    • Step 2

      Decide on a name for the business and file a DBA fictitious name. Contact the IRS and request a Federal tax ID number (FEIN).


    • Step 3

      Decide on the entity of the business and consider the advantages and disadvantages of each entity for an electrical business before making a decision. An LLC affords tax advantages and limited liability in the event of a failed business and limited protection in the event of a lawsuit. Many times with an LLC, creditors will work on the strength of your personal credit rather than that of the business. If anything happens, they come after you as the guarantor. A corporation has fewer tax advantages than an LLC or proprietorship, but the business is a separate entity from personal property. Credit is given on the strength of the corporation and the liability is borne by the corporation only. Research the different entities before choosing the one that fits your specific profile.
    • Step 4

      Contact an insurance company and get a quote. Insurance for a business with any amount of liability can be a major cost factor. They usually want 50 percent down and then monthly payments for not more than six months. They will need to know the location, what kind of service, number of employees, type of inventory and whether the company handles hazardous materials.
    • Step 5

      Occupational licenses from the state, county and city must be obtained. These include the sales tax permit, which allows you to collect tax and buy wholesale, and the employee tax permit to take taxes from employees' paychecks (941s). There is also a cost for the Department of Agriculture license for those who are also affiliated with the EPA. All of these forms can be obtained by contacting the IRS.
    • Step 6

      Check with wholesale vendors as to the method of payment and amount of purchases required to achieve the lowest prices for any electrical parts inventory you will purchase, including wiring, outlets, ties, cable and connectors.
    • Skill: Moderate

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