Accounting is a significant part of running a small business - especially when your industry has unique accounting needs - but many entrepreneurs are not prepared to keep and organize proper financial records. However, for a while after first opening your doors, you'll likely be left trying to manage your bookkeeping and taxes through the use of subscription software. What do you do if you still struggle with it after some time has passed and your business has continued to grow?
At CSI Accounting & Payroll, we've worked with many cleaning businesses over the past 50+ years. That means we know about the unique accounting requirements and challenges your industry faces. Soon, you'll grow enough to work with an outsourced accounting service, but for now, the following five accounting tips can be used to keep you on track.
5 Bookkeeping Tips for Cleaning Services
Regardless of your level of experience in the cleaning industry, you need to be conscious of managing your cash flow - not just your business. The following five accounting tips will put you on the right path moving forward with your cleaning service accounting.
1. Keep all of your receipts.
As a business whose service involves the use of your own inventory of products, you probably find yourself making frequent purchases. Even small ones matter for bookkeeping purposes - and the smaller the purchase, the easier it is to lose track of it. For these reasons, the cleaning industry has an emphasized need to retain receipts.
All of the supplies you buy throughout the year are considered business expenses, including the large purchases you make. If you purchase any single item worth more than $2,500 then you must give the invoice or receipt to your accountant. This can significantly impact your tax planning opportunities.
When it's time for you to come on board with an accounting service, they should inform you of best practices (timeline of record retention, method, etc.) for receipt-keeping for your business. However, if you're currently struggling to keep your receipts organized, try smartphone apps that allow you to snap pictures of your receipts and organize them online. Whatever process you choose, make sure your receipts are easy to access so you can deduct the right amount of money from your taxable income.
2. Analyze your costs.
At the end of every month, do you know if you’re overspending in specific areas? If not, you may not be able to react in time to cut costs moving forward. Having tidy books on categorized expenses allows you to make informed business decisions regarding flexible costs.
One of the most common overspending areas for cleaning services is supplies. More specifically, because you have a quick inventory turnaround, you may be inclined to stock up - a lot. However, this ties up your cash flow and can be a critical error if you ever run into a situation that requires cash quickly. To avoid this, be sure to stock your supplies only as needed - for the short future - instead of overstocking and holding onto items for too long.
Similarly, payroll costs can stack up, so you should only employ the people who you need on your payroll; don't overstaff! A good way to get around this is by outsourcing when possible. Not only can this help you save money, but it can also reduce the time you need to spend managing employees instead of growing your business.
3. Reinvest in your business.
Investing in your small business takes discipline and proper budgeting. Without affecting cash flow to the point of being unable to pay monthly bills, make an effort to set aside some funds to maintain and grow your business without having to seek outside funding.
For commercial cleaning businesses, a major thing you want to upkeep or upgrade is your company vehicles. Without them, it's a struggle to get to your cleaning sites. Plus, eco-friendly vehicles will not only help you save on gas, but they may also help with your tax liability.
Keep an eye on the news - or work with a trusted accountant - to make sure you're staying on top of tax credits. If you have an accountant, they can help you with this (and other purchases over $2,500) further.
4. Separate your personal and business accounts.
When you first started your cleaning business, you may have made your personal and business purchases together and organized them the best you could later. Many sole proprietorships or single-member LLCs do this.
However, as your business becomes more profitable and experiences growth, having a clear separation of personal versus business funds is crucial for tax purposes. If you don’t already have separate bank accounts and credit cards for your business, establish both immediately. That way, you won’t be in a pickle come tax time - determining what you can or can’t deduct.
5. Keep a close eye on sales tax and use tax.
In the cleaning industry, sales tax and use tax are typically confusing to business owners. You should familiarize yourself with sales and use tax - or trust an accountant to educate you on which portions you need to handle.
Sales tax is a major thing that you should be monitoring. It's based on where you're performing the cleaning service - not where your business is based. Because this is misunderstood, many sales tax filings are done incorrectly - if done at all. In the past, CSI has had to perform back work to fix sales tax because it was charged at the rate of where the business was located.
Use tax can also be complicated. For example, you need to maintain your own space. Use tax can come into play if you're purchasing supplies for both your cleaning jobs and your own office space from the same vendor. Use tax only applies if you're purchasing those items under tax exemption - or not paying sales tax on them. (This can often happen if you purchase from a wholesaler.)
Work With an Experienced Cleaning Service Accountant
The cleaning industry has many unique accounting needs, so familiarizing yourself with these accounting tips is beneficial when you're starting out. However, after a while, you may find yourself ready to work with an accountant.
If you need help with accounting, bookkeeping, tax payments, or payroll for your cleaning business, give CSI Accounting & Payroll a call. We’re here to help hardworking small business owners maximize their profits and tax savings. To see if we can be a good fit for your business, click the button below to schedule a free consultation:
Not ready to talk yet? That's okay! Learn more about the advice a monthly accountant can give you first:
Brian began working at CSI in 1996, and he purchased the business in 2002. As Owner, his primary role is in the management and growth of the firm. Since 2002, the firm has more than quadrupled in size. In 2009, Brian started CSI’s payroll service to complement CSI’s accounting and tax services. Brian received his Bachelor’s degree from the University of North Dakota, with a double major in Accounting and Financial Management. He’s a member of both the National Society for Tax Professionals and the National Society for Accountants, and he serves on the board of directors for the Professional Association of Small Business Accountants, where he was once president. Brian also serves on the business advisory council for Opportunity Partners, an organization that helps people with disabilities find employment. He’s also contributed to several business books, including Six Steps to Small Business Success and The Lean Mean Business Machine. Fun Fact: To help put himself through college, he used student loans, delivered pizzas, and worked summers in a salmon processing plant in Alaska.