Dave,
Your forgetting a very important step in becoming a contractor, it's called  
a license. If your projects go over a specific dollar amount, ($10,000 or so)  
you are required to have a license. The licensing process requires you to 
prove  financial responsibility, insurance, withholding and workers comp. I know 
in a  lot of cities, these rules aren't enforced, but around here they have a 
lady  going around town checking each and every contractor, right down to the 
guy  mowing your lawn to make sure he has a contractor and business  license. 
Cities have found that this is a great way to increase  revenues.
 
Rummy