Starting a Small Business

by Gary Foreman


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Starting a Small Business

Dear Gary,
I'm currently working for a cleaning company and don't mind the work. It works out really well with my children. However, I've recently started collecting checks from the clients to turn into the company. Now, I feel so cheated! I make $8 an hour and I'm seeing checks for $80 to $100 for my work. I knew from the beginning that my pay was only a fraction of what I was making for the company, but after seeing the checks, it hit me.

Now, I'm considering getting into the business on my own. My plan is to start off small, making up some flyers to post around my area. I plan on giving some to my friends and leaving some with business owners that I know. Do I need to be bonded to start out small? What is the cost of getting bonded? Any words of advice would be greatly appreciated. Thanks!
Rita

Like many employees, Rita is wondering if she should take the plunge into small business ownership. Many do. According to the U.S. Census Bureau, there are over 17.6 million businesses with the owner being the only employee. The same report indicates that 20% of the new businesses started in the previous year were for janitorial services.

If Rita is serious about making a change, there are some preliminary steps that could help her make a good decision. Let's walk through some of those steps. Rita will need to decide if the business can be profitable. She should estimate how much work she'll get. From those sales, she'll need to pay for cleaning supplies, insurance, marketing and other incidentals. What's left over is her profit. Naturally, there will be taxes on her profits. What's left is her money to spend!

Rita will need to decide what to charge. She probably won't be able to charge as much as the company she works for now. They already have a list of clients, a good reputation and might offer more services that Rita can at the start. One way to determine prices is to check what other similar services are charging. Remember that newcomers generally are cheaper as they try to win over customers.

Rita may want to accept credit cards. The Internet makes that easier. PayPal has a service that will allow Rita to charge clients' credit cards through a website. She'll pay about 2.9% to PayPal for the transaction.

One of her main costs will be equipment and supplies. Buying from a janitorial supply will lower her costs. Again, a few phone calls should provide the needed information.

She'll have taxes to pay and forms to file. Software might get the job done. If she's the type that doesn't like paperwork, she might want a bookkeeper.

Rita should check with the city or county that she lives in. They'll tell her what's legally required for her to start a business. Often, a license is necessary.

Once Rita has all that completed, she should be able to estimate her revenue, expenses and profit. It's tempting to just charge a little less than the established companies and assume it will work out. But the simple act of planning will help her establish a roadmap for the business. And allow her to know when she's going off course.

Next, we'll look at bonding and insurance. It's only natural that people are concerned about who they let into their homes, especially someone who would have access to areas of the house where valuables are kept. So janitorial services are often "bonded and insured."

Usually "bonding" means that the homeowner is covered if the cleaner steals from them. "Insured" typically means that the cleaning company has liability and property damage coverage.

We found one website that offered $5,000 of "janitorial services" bonding coverage for a $100 annual premium. Liability insurance can run into the hundreds of dollars. In both cases, Rita should call her local insurance agent for details.

She may find that she's not legally required to have either. Then it will be up to her whether she wants the coverage.

Finally, let's look at some marketing ideas. Rita is correct that flyers are a good way to promote her new business. Another great, inexpensive advertising tool is the simple business card.

Rita will probably also want to encourage referrals. She might want to offer a "thank you" present to existing clients who refer new customers to her. She doesn't need hundreds of clients. So a few referrals could fill her schedule with a minimum of effort.

Rita could be well on her way to a successful new business. She's identified something that she does well and that other people want to have done. Hopefully, her research will lead to a decision that works for Rita and her family.


Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and he's a regular contributor to CreditCards.com. You can follow Gary on Twitter or visit Gary Foreman on Google+. Gary is also available for audio, video or print interviews. For more info see his media page.

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