In the rapidly evolving world of renewable energy, starting a solar panel installation business offers an exciting opportunity to enter an industry with significant growth potential. But starting a solar panel installation business is more than just knowing how to install panels.
This guide aims to steer you through the process of setting up your solar panel installation business, providing an overview of the business, steps to get started, and answers to common questions.
Solar panel installation companies design, sell, and install solar photovoltaic (PV) systems on residential and commercial properties. This involves assessing a site, recommending a system design, securing the necessary equipment, managing installations, and providing maintenance and repairs. Successful companies need strong technical know-how around solar systems as well as key business skills like sales, marketing, accounting, project management, and strategic planning.
Related Business Ideas
The solar industry in the US is experiencing rapid growth. According to Wood Mackenzie Power & Renewables and The Solar Foundation, solar capacity has grown significantly in recent years, and there’s enough solar capacity in the US to power 27 million homes. A big reason for this growth is the solar Investment Tax Credit, which has helped solar capacity grow by 24% on average each year over the past decade.1
To keep up with demand, there are now over 10,000 solar businesses in the U.S., according to the Solar Energy Industries Association (SEIA).2 Continued declines in solar panel costs coupled with supportive government incentives and policies have made these systems more affordable, and solar energy is now the fastest-growing energy source worldwide. Key trends helping drive demand include simpler customer financing options, improved technology, and increased environmental awareness.
Steps To Start A Solar Panel Installation Business
Starting a business from the ground up isn’t a quick process, especially when it involves solar installation. The following steps will point you in the right direction when deciding to pull the trigger on your business venture:
Step 1: Write your Business Plan
Every journey starts with a plan, and starting a solar panel installation business should be no different. A business plan lights the way, guiding you through the twists and turns of entrepreneurship. While many people only write a business plan because a lender requires them to, writing a business plan is a good idea for a number of reasons.
For starters, it’s an excellent way to understand your business idea clearly. It defines what your company is about, who your customers are, and how your services will benefit them. A well-written business plan will also outline your company’s long-term and short-term goals, strategies, and the resources needed to achieve them. Essentially, a business plan is a blueprint for your business, and it will give you a roadmap to follow as you start and grow.
Another important component of a business plan is market research. Understanding the demand for solar installations in your area, identifying your competition, and determining the best marketing strategies will help you tailor your services to meet local needs and stand out in the market. By answering questions like “What are your goals?”, “Who are you hoping to serve?” and “How will you reach them?” your business plan outlines these details, giving you a clear picture of what your business will look like.
Last, estimating startup costs and predicting the profitability of your business is a major part of your business plan. This step is particularly important as you will detail the costs for equipment, staff, training, marketing, and more. It will also project revenue and expenses to help you understand whether your business is feasible and when your business might start making profits.
Step 2: Source Funding
With the business plan out of the way, the next step is to make sure the funds are available. There are several ways you can go about it.
Personal investment: Before you consider borrowing, the first place to look is your personal savings. If your savings aren’t enough to cover all your startup costs, there are other funding sources you can turn to.
Bank loans: When personal savings fall short, bank loans are a common source of funding. Lenders usually require borrowers to contribute a portion of the total project cost from their own funds, often between 15% and 25%, in addition to a good credit score and collateral (property or assets). In cases where a bank deems a loan too risky, they might opt for a Small Business Administration (SBA) loan guarantee.
Friends and family: You might consider getting help from friends and family. They might be able to lend you money or invest in the business, but always put agreements in writing to avoid misunderstandings later.
Microloans: If you need a smaller amount or traditional borrowing options aren’t available to you, you might consider microloans. Microloans come from local economic development organizations, and some provide business education in addition to funding.
Step 3: Register the Business
Starting a solar panel installation business involves several important steps to ensure that the business is legally compliant and structured correctly. Each state has its own specific rules and regulations, so it’s important to research the requirements in your area thoroughly, but here’s an overview to help you through this process:
Business structure: First, decide on a business structure. The four types of business structures are sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).
- Easiest to set up with the lowest startup costs.
- Owner has complete control but also personal liability for business debts.
- Similar to a sole proprietorship but with two or more owners.
- Each partner shares in the profits, losses, and liabilities of the business.
- Offers the owners with personal liability protection as it’s a separate legal entity.
- More complex and expensive to establish and operate.
Limited Liability Company (LLC):
- Combines the liability protection of a corporation with the flexibility of a sole proprietorship or partnership.
- Often preferred for its balance of protection and simplicity.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Solar-related licenses and permits: Check your state and local government to determine the specific licenses or permits required for solar panel installation. For instance, some states require a plumbing, roofing, or electrician’s license, while others may require a contractor’s license.
While not a license, obtaining certification from an organization like the North American Board of Certified Energy Practitioners (NABCEP) can be beneficial as it helps gain professional knowledge and builds credibility.
Check local requirements: Different cities might have specific requirements for contractors. Always check local regulations where the solar panels are being installed before starting any work.
Obtain business licenses and permits: Depending on your location, there will likely be a variety of general registrations needed before starting your business. This could include a business license, seller’s permit, and Employer Identification Number (EIN).
Step 4: Set Up Operations
Now that you’ve worked through the planning and registration process for your solar panel installation business, it’s time to put those ideas into action. This next step begins te process of establishing your business operations.
To start, you will need to secure a suitable facility. Many solar installation companies operate primarily as a home-based, mobile service, collaborating virtually with administrative staff. However, as you take on more projects, a physical hub becomes essential for storage, preparation, and coordination. The facility should provide enough space for administrative work and to store equipment and solar panels, in addition to workshop areas for pre-assembly, testing tools and training staff on equipment. Another factor to consider in choosing a location is its proximity to your target market, which can significantly influence logistics and transportation costs.
Speaking of transportation, your business will need vehicles capable of safely transporting solar panels and related hardware. Depending on the size of the equipment and the scale of your operations, this might mean investing in vans or small trucks. You’ll also need a set of professional tools for the installation process.
Last, begin setting accounts with suppliers for the solar panels and necessary equipment to service your clients.
Step 5: Hire Staff
When you start your solar panel installation business, one step could be to build a team. If you decide to hire staff, there are several responsibilities you would need to manage.
One of the first things you’ll need to do is define the roles within your team. You may need solar panel technicians who can handle the physical work of putting up the panels or salespeople to connect with potential customers and sell your services. And don’t forget about administrative staff who can handle tasks like scheduling, customer service, and bookkeeping. Each person on your team plays a part in helping your business succeed, so you aren’t trying to do everything yourself.
With the roles figured out, you would also decide whether to hire employees or work with contractors. Both options have their own pros and cons:
Hiring employees allows you to have a dedicated team that is invested in your company and can provide consistent service to customers. However, it also includes responsibilities like managing salaries, paying payroll taxes, and making sure your company complies with labor laws and regulations.
Choosing contractors, on the other hand, can provide flexibility and may cut down on costs. But the trade-off might be less control over their work as they operate independently.
Step 6: Prepare to Launch!
With paperwork filed, facilities secured, equipment acquired, and teams hired, there are likely some remaining boxes to tick before opening your doors. Everybody will have different needs, but here are some of the common remaining actions:
Business insurance: Secure insurance to protect your business against risks such as general liability, worker’s compensation, and commercial auto insurance.
Setting up bookkeeping: Organizing your finances properly from the start ensures your daily transactions, tax payments, and financial statements are organized. Several helpful software options include Wave Accounting (FREE) or Quickbooks. Alternatively, you can hire a professional bookkeeper.
Contracts: Some examples of contracts might include a Solar Panel Installation Agreement or an Independent Contractor Agreement if you’re hiring contractors. RocketLawyer and Law Depot have free and inexpensive templates that may be helpful.
Opening a business bank account: Having a bank account for your business is important because it separates your personal finances from your business finances.
Creating a marketing strategy: To get the word out about your new business, you’ll need a marketing strategy. This could include creating a distinctive logo and a professional website. You might also consider other strategies like local advertising, social media marketing, and attending community events.
Common Questions When Starting A Solar Panel Installation Business
How much does it cost to start a solar panel installation business?
While start-up costs can vary depending on the size and scope of your business, there are some basic expenses you’ll need to cover. A rough estimate for starting this type of business typically falls between $20,000 to $100,000
Here’s a breakdown of what you can expect to spend.
Vehicles & equipment: $15,000 – $30,000 for fleet trucks or vans, lifting gear, safety supplies, and electrical tools.
Initial inventory: $10,000+ for the first purchase of solar panels, racks, wire, and balance-of-system components.
Location: Whether you choose to operate from a home office or rent a commercial space, there will be initial costs involved. For a commercial space, deposits and initial rent can range from $2,000 to $10,000.
Business registration: Registering your business entity and any permits typically costs between $50 to $500, varying by state.
Insurance: Initial insurance costs for general liability, property, and professional liability insurance can range from $500 to $2,000.
Marketing: Initial marketing efforts, including creating a website, designing a logo, and initial advertising campaigns, can cost between $1,000 and $5,000.
Other costs: Don’t forget to budget for other start-up costs, like office supplies, setting up utilities, and software.
How profitable is a solar panel installation business?
The profitability of a solar panel installation business can vary significantly based on numerous factors such as operating expenses, costs of supplies, cost of labor, and the going rate for solar panel installation in a specific geographic market.
Profit can be calculated by subtracting the total expenses from the total revenue. For instance, if you charge the national average of $18,0003 for a residential solar panel installation and complete about 50 installations in a year, your potential annual revenue would be around $900,000.
Looking at expenses, the cost of sales, which includes the cost of solar panels, other system elements, and installation costs, typically accounts for around 65% of the revenue, leaving a gross profit of $315,000.
Operating expenses, including salaries, rent, taxes, advertising, and other costs, can account for around 25% of the revenue. Therefore, the operating income, which is the gross profit minus operating expenses, would be around 10% of the revenue, which would be $90,000 per year.
This is a simplified calculation, and actual profits will vary.
What skills are helpful in running a solar panel installation business?
Running a solar panel installation business requires a combination of technical, managerial, and interpersonal skills to ensure success and growth. Here are key skills that are particularly beneficial:
Construction experience: Installation includes checking the roof and ensuring that there are no missing shingles or tiles. After ensuring the proper condition of the roof, an installer will complete the wiring and then install racking to hold the panels in place.
Electrical experience: Connecting electrical wires is part of the installation process. Once the panels are situated, the installer will connect inverters to the panels. This allows the direct current energy to be converted into alternating current energy.
Knowledge of solar and science: A basic understanding of the science behind how solar panels can power homes is essential for explaining to customers and to make a sale. The solar P.V. system can work through what’s called the “photovoltaic effect.” This is where light particles are converted into energy. When a photon contacts a P.V. device like a solar panel, the energy knocks electrons in it. When the electrons begin flowing, it produces an electric current. In other words, solar cells located within solar panels act as an absorbent to the sun, which creates an electric current to begin flowing.
Attention to detail: It’s vital to imagine how the solar panels will look once completed, but it’s even more important to notice when something is out of place during the installation process.
Project management: Efficiently managing installation projects from start to finish, including planning, execution, and follow-up, is vital. This skill ensures projects are completed on time and within budget.
Business acumen: Understanding basic business principles such as finance, marketing, and strategic planning is essential for making informed decisions that contribute to the growth and sustainability of the business.
Customer service: Excellent customer service skills are crucial for building and maintaining relationships with clients. This includes effective communication, responsiveness to inquiries and concerns, and the ability to educate clients about solar energy.
What is the NAICS code for a solar panel installation business?
The NAICS code for a solar panel installation business is 238210, which falls under Electrical Contractors and Other Wiring Installation Contractors.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.