How Much Money Can I Make Annually as a General Contractor?

General contractors often earn based on the projects they complete, rather than receiving a set salary or wage. They make what they earn, and their annual income can vary widely, depending on various factors such as the number and size of projects they take on, their expenses, and the profitability of each job.

Understanding Income Potential for General Contractors

Every contractor's journey is unique, and it’s essential to understand that there is no 'typical' annual rate for a general contractor. The path to success, much like the path to earning a significant annual income, is highly variable and depends on the individual’s strategy and business acumen. It’s important to ‘back into’ the numbers to determine your earning potential.

Back-End Calculation for Annual Income

Let’s use an example to illustrate how to calculate your annual income:

If you want to earn before taxes $120,000 in a year, you need to make $10,000 per month. How do you achieve this? If each kitchen remodel you do results in a gross revenue of $15,000 and you incur costs of $10,000, you can expect a profit of $5,000. By completing two such projects every month, you will generate $10,000 in revenue and achieve your income goal for the year. However, you must also account for expenses such as insurance, vehicle costs, and advertising.

Pertinent Business Strategies for General Contractors

To thrive as a general contractor, you must focus on keeping your expenses to a minimum. Whether you are a new or established contractor, effectively managing your costs is crucial for long-term success. Expenses can be gut-wrenching if not handled properly, which is why becoming a contractor is not for the faint of heart.

For instance, a friend of mine in the blinds business grosses approximately $60,000 to $70,000 per month on multiple jobs. If he can handle this workload, he could potentially make a profit of around $5,000 per job. Depending on the number of jobs he handles each day (up to five in some cases), he can potentially complete 200 miles of driving daily.

The Challenge of Being a General Contractor

Being a general contractor, especially a new one, can be incredibly demanding. You must be ready for the hustle and bustle of running a business. You could be busy to the point where your word-of-mouth references keep you booked up, and you may find yourself even busier than when you were employed.

A significant advantage is that you work for yourself, but the downside is that you’re also responsible for every aspect of your business. You can be the CEO, laborer, taxi driver, and more. However, if you don’t manage your finances properly, you could end up in hot water with the tax authorities or even bankruptcy.

One of my early mistakes was being victimized by a client, losing $60,000 on a project. Soon after, I was hit with an IRS audit for not filing taxes for the past six years. This experience was particularly harrowing because the IRS did not accept my copies of the filed documents. The combination of my Brazilian client and the IRS resulted in bankruptcy, leaving me to buy back a car from the bankruptcy trustee over a two-year period.

These experiences underscore the importance of financial prudence and professional integrity in the construction industry. While it’s possible to focus solely on profit, often the best approach is to become a respected member of a profession that upholds high standards of practice.

In conclusion, the annual earnings of a general contractor can vary widely, but with careful planning, strategic business management, and a focus on minimizing expenses, it is possible to achieve significant success. Always be prepared for the challenges and opportunities that come with being a general contractor.