Much like any other small business, mine started with one person (me), the idea to start a cleaning business and a strong desire to diversify my income stream by creating multiple income streams. A few months of planning, research and my cleaning business was born – Father & Son Cleaning Services.
Since I was the lone ranger in my newly formed business, my company structure was a sole proprietorship. This also happens to be the simplest of business structures.
Like most entrepreneurs with big dreams often don’t wait too long before expanding into incorporating their business. A few years (or months) of steady growth and a plan to continue to expand the business is more than enough incentive to incorporate your cleaning business.
Despite that incorporating a business comes at a stiff price, there are quite a few benefits to incorporating your cleaning business. And if you’re looking to take your cleaning business to the next level, grow it, and hire staff – a corporation is the preferred structure.
If you’re like my self still and own a cleaning business, you are still operating as a sole proprietor. A sole proprietorship is when the entrepreneur directly owns all of the assets and is personally responsible for all the debts and liabilities. The big advantage of being a sole proprietor is the simplicity, especially when it comes to paperwork.
However, if you’re planning to grow your cleaning business, hire more staff and gain more credibility, incorporating your cleaning business may be right for you due to added benefits:
Ownership stakes are easier to transfer.
Owners benefit from limited liability.
The life of the corporation can extend beyond that of the founder or founders.
One of the most attractive advantages of a corporation is that it acts as a separate legal entity and owners do not own its assets directly. Instead, they own shares in the corporation, which in turn owns the assets. And in the future if you’re looking to sell your cleaning business, transferring ownership stakes are much easier.
Incorporating your cleaning business comes with a limited liability, which essentially means the owners are not personally responsible for the obligations or acts of the corporation within legal limits. Potential losses are limited to the amount invested in the corporation, except if the owner has provided a personal guarantee, which many banks require.
The other key advantage that incorporated businesses have is that they benefit from a theoretically unlimited life. When shareholders die, their shares are willed to their heirs or transferred through a sale. Sole proprietorships, on the other hand, automatically dissolve when their principals pass away.
Despite so many advantages to incorporating your cleaning business, one small downside to being a corporation is the additional cost and effort. A corporation must maintain a separate set of accounting records, separate from the owner.
Corporations must also pay annual registration fees, and must file separate financial statements and tax returns.
A typical tax return for a sole proprietor (like my cleaning business) runs me roughly about $100 every tax season. This includes the filing of my own personal tax return as well.
A corporations tax return will run in the few hundreds of dollars and sometimes up to a thousand dollars. This is simply due to the extra paperwork and complexity of completing a tax return.
Despite a little more paperwork and extra costs, it’s worth it to incorporate your business. There are much more benefits versus down sides. Plus you can write off your tax preparation as an expense.