How to legally set up your cleaning business

How to Start a Cleaning Business - Part 3 - How to Set Up Your Business Legally

This is Part 3 of our series on starting a cleaning business.

How to Find Good Professional Advisors for Your Cleaning Business (accountant, insurance agent and attorney)

Finding a good accountant who you feel comfortable working with is important to your cleaning business.

It's his responsibility to stay on top of all the ever-changing tax laws, plus he can give you financial advice that will help guide you in the growth of your business.

Perhaps you're a sole-proprietor who is thinking of incorporating your business. Your accountant will be able to advise you about how this move would affect your taxes and business growth. Or maybe you have questions on whether you should buy or lease a new truck for your business. Once again, your accountant will be able to help.

So how do you go about finding an accountant who is a good fit for you and your cleaning business?  Here are a few tips:

• Ask other business owners for references. Find out who their accountants are and how happy they are with the services their accountant provides.

• If you can't get any references, go online and search for several firms to contact. Call their offices and ask for the names of accountants who are familiar with cleaning businesses. Call four or five of the accountants on your list and ask them to tell you about their experience with working with clients in your industry and about their fees. From that information, narrow down your list to two or three accountants to interview in person.

• Prepare a list of questions to ask at the interviews, including:

o Do you have experience working with cleaning companies? (As a cleaning business you have unique expenses, including cleaning supplies and equipment, so it's helpful to find an accountant who understands your business.)

o How long have you been an accountant?

o What certifications do you hold?

o What continuing education or workshops do you attend?

o What is the hourly billing rate and what are the charges for extra services such as completing tax returns or helping with payroll?

o Who will I be working with and will I always be working with the same person?

o How accessible will my contact person be?  Can I reach him/her by phone and e-mail?  If I have to leave a message, how soon will he return my call? Will I be charged for every phone call?

o What other services do you provide and at what fees? 

o If my cleaning business is audited, what are your responsibilities?

o What type of insurance do you have?  (They should carry liability and errors and omission insurance.)

o Look for an accountant who is forward thinking.  Ask what problems he might foresee and what he would do to correct those problems.

o What experience do you have?

o What are your educational qualifications?

o What services do you offer?

o What is your approach to ________?

o How will I pay for your services?

o Have you ever been publicly disciplined for any unlawful or unethical actions in your professional career?

o Will you provide a written agreement for the services to be performed?

o Do you have any professional credentials? Are these credentials updated?

o Do you have proper business/operating licenses if required?

o What kind of clients do you have?

o What are your ethical standards?

o Do you use confidentiality clauses?

• Meet with several prospective accountants and ask your questions.  An accountant should be willing to meet with you for a brief "get to know you meeting" at no charge. A face-to-face meeting will help you to assess if you are comfortable with him or her and if you can establish a long-term relationship.  As you are asking the accountant your questions, watch their body language.  Do they seem interested in you and your business? Have they communicated with you in a language that you understand and not used accounting language jargon?

Service is important.  If the accountant doesn't seem interested in you and your business or takes calls during the meeting, it might be best to move on to the next candidate who will devote his full attention to you and your business.

After interviewing several candidates sit down and decide which one you are comfortable withand that you are confident has the knowledge and abilities to keep your business finances on track. Once you have decided on who you want to work with request a written estimate of costs that spells out what your responsibilities are and what your accountant's responsibilities cover.  Knowing what you will be doing and what your accountant will be doing can eliminate confusion and save you time and money.

Remember, your accountant should be more than just someone who prepares your tax return.  He or she should be able to help you in making important financial decisions that guides your business and makes your business profitable.  Spending time and effort in finding the right accountant when starting your business can help to assure your cleaning business is successful in the long run.

Protect Your Cleaning Business with the Proper Insurance

Too many companies don't think about their insurance policies and what they cover until after something happens -- and unless you have prepared ahead of time, that something might not be covered in your policy.  The following are just a few of the things that can occur: lost keys, chemical spills, employee theft, damaged equipment and broken items.  The proper insurance coverage can play an important part in keeping your risks to a minimum.

 The basic business insurance normally includes general liability insurance, commercial auto coverage, workers compensation and equipment breakdown.  These may be all combined into a package policy, but you need to check with your agent to make sure you have coverage in these four areas.

Besides the coverage listed above, the janitorial service industry has risks unique to it and you should make sure that you are covered for the following:

• Lost key coverage.  This should pay to replace lost keys, adjust locks, or purchase and install new locks. 
• Coverage for property in your care. This may include rental property, such as carpet cleaning or floor care machines.
• Theft of customer property coverage. This should cover losses incurred for theft and losses that occur from negligence, such as an employee who forgets to lock a building and allows a thief to steal your customer's valuables. 
• Limited pollution coverage.As a cleaning company your employees will most likely be working with an assortment of chemicals.  You need to have coverage for accidental job site pollution that may arise from chemical spills. 
• Business income coverage.  If your biggest customer went out of business and your main source of income dried up, could you stay afloat until you had a chance to sign on new clients? 
• Office equipment coverage. Check your policy to make sure you have enough coverage for your computers and office equipment. If you have a home-based business you might be able to get a rider attached to your homeowner's insurance policy. 

How do you choose an insurance carrier?To make sure that you get the proper insurance and the right types of coverage you should look for an agent that has experience working with businesses that provide janitorial services.  Remember, the more your insurance agent knows about your business, the more confident you can be that he or she will provide a comprehensive program that meets your needs.

Look for a company that is financially strong and stable.  It is also important to know that the company has a solid history of paying claims in a timely manner.  Once you have an agent that understands your company's needs you should consider buying all of your business insurance policies through one company.  This saves on paperwork and you are more likely to make sure that all of your various coverage's work together. 

Once you have your policies in place don't forgot about your insurance.  Keep your agent informed of any changes in your business, i.e., new business location, new vehicles, etc. Also, make an inventory of all of your property; keep one copy at the business and one copy of the inventory off-site.  Provide a good safety training program to your employees to reduce the likelihood of accidents and injuries. 

Any one incident that happens could cause serious problems for your business and without the proper insurance coverage, could put you out of business.  Taking time before something happens is vital to make sure that your business will survive if a catastrophe happens.  Getting suitable insurance for your cleaning company can be a complex and confusing task.  But having the proper insurance coverage for your company is something you can't afford to be without.

Avoid Frequent Tax Mistakes by Keeping Good Records

It is important for small business owners to keep good records. Complicated tax laws cause many small business owners to make mistakes in bookkeeping and record-keeping.  However, business owners can avoid making some of the common mistakes with a little forethought.

Following are some of the common mistakes small business owners make and how you can avoid making the same mistakes:

1. Not saving receipts for expenses under $75.00.  There are some expenses the IRS does not require receipts for - meal and entertainment expenses if the cost is under $75.00.  However, you still need a record of what you spent, where, who you were with, the business relationship, and the purpose of the expense.  When you look at the requirements it is in your best interest to keep the receipt with written information about whom you went there with and why.  Make sure the receipt is also date and time-stamped. 
2. Treating an equipment expense as a supply.  Equipment is normally considered a capital expense and it may need to be depreciated.  Supplies are items that are used up in a short period of time. Check with your accountant on tax laws for equipment purchases as they change frequently. 
3. Forgetting to track reimbursable expenses.  As a small business owner you will no doubt have to pay for some expenses out of your own pocket or with a personal credit card.  Don't make the mistake of losing track of those expenses and having the company fail to reimburse you.   
4. Miscalculating automobile deductions.  There are different ways to calculate deductions for the use of a car or truck.  Find one that suits you and stick with it.  You can either take a standard mileage deduction or a deduction for expenses, but you cannot mix and match. 
5. Giving more than you can receive.  You can offer gifts to clients and business associates.  Just check with your tax professional to make sure that you are not going overboard here.  There is a limit on the amount of deduction you can take for these items.

Keeping receipts and good records does not have to be a difficult task.  Talk with your accountant or tax professional to see what records you should be saving and make sure to pay attention to the common mistakes listed above.  A good record keeping system is the only way you will know if your business is making a profit.

Paying Estimated Taxes 

Be sure to pay all of your taxes when they are due. If you miss those payments, you may end owing huge penalties and interest to the government. That is not a place you want to be! Here are some of the taxes to watch out for:

Quarterly Estimated Taxes 

Once you have the proper documentation, the next step in starting your cleaning business is learning how to pay your business taxes. The IRS and possibly your state department of revenue requires that you pay income tax every quarter - these taxes are called Estimated Taxes and the form you use is 1040 ES. If you don't pay your estimated taxes according to IRS regulations you may have to pay penalties. To find a copy of the form, just do an internet search for Form 1040 ES and add the current year to the search to get the most up to date form. If you read through the form and don't understand what you need to do, then consult with your tax accountant.

Estimated State Tax Payments 

Check with your state department of revenue to see if you need to make estimated tax payments to your state. Some require quarterly payments and some allow you to pay it all at the end of the year. Most states should also have an online payment system and some may even require that you make your payments online.

Personal Income Tax Payments 

Because you, as a business owner, are required to pay your own income taxes, you should make a plan to put money away into a separate savings account every month. Many people have gotten themselves into trouble because they receive payments from their customers but then don't set aside any money to pay taxes. The IRS is not forgiving and they do not let you claim ignorance when it comes to paying taxes.  It's up to you to make sure you pay your taxes and you can't make any excuses for not doing it. So talk to your accountant to see how much you should set aside and then talk to your banker to set up that savings account. Start making those payments on time!

Making Tax Payments Online

EFTPS stands for Electronic Federal Tax Payment System, and you can find it at https://www.eftps.gov/eftps/  First you'll need to enroll, so look for the Enrollment link. You can enroll as an individual to pay your individual taxes. You can also enroll as a business so you can pay employment taxes online. When you enroll, you'll need your checking account information, your Social Security Number (SSN) or Employer Identification Number (EIN), so be prepared. After enrolling you'll have to wait to receive your login information to come in the mail - it's not automatic.

Congratulations! You have your business set up legally but you still have a ways to go. Your next challenge will be business planning, which is an important part of starting and running a successful business.

In Part 4 you will lean about Business Planning:

• How to write a Business Plan
• Finance Your Cleaning Business by Bootstrapping
• Advantages to Leasing Equipment
• Supplies Checklist

 How to Start a cleaning Buisness- Part 4 - Business Planning