How to Start a Solar Panel Installation Business
If you’re warming up to the idea of starting a solar installation business, your future may be bright. The push for going green is greater than ever before, with homeowners and corporations leveraging solar for many different purposes. Some see it as their civic duty to combat the ever-worsening climate crisis, while others see a personal benefit in a solar power investment like reducing their long-term cost of electricity or increasing the value of their home.
A solar installer evaluates the potential installation location before installing the panels. Additionally, managing staff and having a basic understanding of solar energy, construction, and electrical experience will help you stick out and be a better leader to your staff when they come to you for guidance.
Every second, the sun creates enough renewable energy to power the earth for 500,000 years. As of September 2021, there was 108.7 GWdc of total installed solar capacity, which is enough to power 18.9 million American homes. There have been 3 million installations in the United States, with most solar panels installed on residential properties.
Accounting for 1.6% of the total U.S. electricity generation, solar panels are a hot commodity. Not to mention, Solar panels could meet the demand for the United States’ electric needs by using a mere 21,250 square miles of solar panels. To put this into perspective: That’s approximately 50% of land leased by oil and gas and an estimated 0.5% of American land.
While tax incentives have been a positive force to incentivizing solar panel installations., states such as California are also helping drive solar panel installation growth through legislation. Beginning in 2020 the state required that all new single-family homes were required to include solar panels.
The Solar Market Industries Association anticipates that the solar industry will continue to shatter glass ceilings and break installation records every year for the next three years, minimum. As more people are opting-in for solar, the solar industry is seeing an annual growth rate of 15%.
Home and business owners hit the sweet spot for the solar target market but don’t forget about the recent boost in digital nomads. Before 2020, the amount of American’s who worked from home was approximately 7% and has since increased to 49%, according to Stanford University. As 10.9 million Americans currently combine work and travel, many aim to be fiscal and choose to install solar panels to power their rigs off the grid and avoid having to paying fees at R.V. parks.
Additionally, Adtargeting.com reports that the words “solar panel” have an audience of 26,244,600 people on Facebook, with the major age group being between 25 and 34. Out of that audience, 66.8% are men, and 33.2% are women.
Skills, experience, and education useful in running a solar installation business
Being an expert in the solar niche is indispensable, as no one can take away your knowledge. Most workers in the solar industry hold a minimum of high school diplomas and will receive on-the-job training. Having experience in the following categories can help you stand out from your competitors:
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 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.
Checklist for Starting a Solar Panel Installation Business
It isn’t a quick process to start a business from the ground up, 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
After coming up with the idea, the next step in starting your own roofing business should be to write a business plan. This is a document that will be requested by banks, potential partners, investors, and sometimes, employees. It will help you navigate where you want your business to go and help you to hold yourself to a high standard, and guide you to hit your targets.
Have your business plan established so that you can lay out in front of you your competition and see what sets you apart from them. Additionally, it will help with keeping track of your financial targets.
Step 2: Name the Business
Deciding on a company name can greatly impact whether you achieve success or not. Choosing a good name that resonates with potential customers can help to build a recognizable brand. A few tips for choosing a name include it being easy for customers to spell and ensuring it isn’t being used elsewhere. It’s also beneficial to get feedback from outsiders on the name. Some business owners will conduct polls on their Instagram or Facebook stories once they’ve narrowed down their options to gain honest feedback from their followers.
Step 3: Form a Business Entity
A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a solar panel installation business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: 3 steps to forming your LLC
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.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 4: Select your Location
Since the work of installing solar panels is at the client’s home, a solar business can be a home-based business, or it can operate out of a storefront. In either case, having a secure location to store the company vehicle, tools, solar panels, etc., is important to protect from theft.
Having a physical storefront offers an established appearance and a place for customers to look at products and discuss the project. Lease costs will vary according to location and the size of the space available. If a storefront isn’t in the budget, or the business will initially operate as a part-time business, starting as a mobile installer may be the way to start.
Be sure to factor in utilities, property taxes, maintenance, and other related expenses.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
Several states require a plumbing, roofing, and/or electrician’s license to perform solar installation work. Before starting any work, it’s important to check both state and local regulations, as many cities will have different requirements for contractors.
Additionally, there are general requirements many for many new businesses such as obtaining a business license, sales tax permit, Employer Identification Number, among others.
Also, obtaining certification may be beneficial for a solar installation business to gain professional knowledge in addition to building the business’s credibility. The North American Board of Certified Energy Practitioners (NABCEP) is a recognized organization.
Step 6: Find Financing
How will you finance a solar installation business? Personal savings accounts or getting a small business loan are a couple of options for entrepreneurs to find funding. One finance option that many forget about is pulling cash out of the equity of their home. Mortgages come with low-interest rates in comparison to credit cards or personal loans. Just make sure you explore all options and list the pros and cons of each once you get quotes.
Step 7: Open a Business Bank Account
Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the income and expenses of the business.
Documentation such as a business license, business tax number, owner’s driver’s licenses are typically a few requirements of opening a business bank account.
Step 8: Get your Marketing Plan in Place
Marketing is easier than ever now, with the internet right at everyone’s fingertips. Leveraging marketing for your business allows you the opportunity to create growth and skyrocket your sales. It keeps customers up to date or in the loop with the latest updates you have.
According to a study by Business News Daily, 86% of consumers said they are more enticed to pay more to shop at a small business, so don’t forget to put a face to your business so that you stick out and don’t seem like a large corporate robot. In addition to social media marketing, you may want to consider advertising in local newspapers and tv, in addition to sponsoring and being involved with local community events and partners like the local Chamber of Commerce.
Step 9: Get Business Insurance
Property, liability, workers’ compensation, and auto are a few types of insurance policies that a company installing solar panels should consider. The type of coverage will be largely dependent on the state requirements, so just make sure you do your due diligence and research before providing services.
Step 10: Hire Employees
There isn’t a shortage of people wanting to find work in the solar industry, as the U.S. has over 242,000 solar workers. That’s more employees than the oil, natural gas, and coal industries when you put them all together. Kansas has the fastest-growing solar market with a 66% growth rate from 2017 to 2018!
Related: Hiring your first employee
Step 11: Set up an Accounting System
An accounting system for your business will help keep finances organized and give you visibility on the business profits. Not to mention, it keeps things easier for tax purposes. Considering a solar installation business is unlikely to have smooth operations with just the business owner doing everything, there will likely be several employees which makes an accounting system key for payroll purposes.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
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. Here’s a breakdown of what you can expect to spend.
However, generally speaking, it’s probably going to take you at least $50,000 and upwards of a year to build your business from the ground up – depending of course on how much you pay for your equipment and what kind of a building you set-up shop in.
How profitable is a solar panel installation business?
You shouldn’t go in expecting an immediate profit with this type of business. Consider it a long-term investment, especially when many customers will choose to finance and not pay all at once. The average purchase price for a residential solar system is $15,000 and based on the average profit margin for a business being 22%, the business owner should expect to see a profit of $3,000 from the average installation if the customer pays everything in one payment and it typically takes one to three days to complete it. So, hypothetically, if the customer pays for the P.V. installation in one payment and if your business completes two installations a week, you can expect to make $6,000 a week or $322,000 a year. It all depends on the staff, business costs, and how your customers are going to finance the cost of the installation.
Installing the panels is the most obvious way to make money, but what about different avenues to earn cash like from investors, tax credits, or when someone you previously installed panels for calls you and needs maintenance completed?
Are there grants to start a solar panel installation business?
It’s extremely rare to find a grant to start a solar panel installation business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.
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.