How to Do Accounting for Your Cleaning Business
Owning a cleaning business opens the door to amazing opportunities—from connecting with homeowners in your community to creating your own source of income. But running a small business also comes with often tedious responsibilities, such as invoicing, bookkeeping, and accounting.
The good news is you don’t have to be an accountant in order to manage your cleaning business finances like a pro. With the help of this guide and the countless accounting tools available, you’ll have everything you need to take control of your small business accounting.
Here's What We'll Cover:
Introduction to Cleaning Business Accounting
According to Investopedia, accounting is defined as, “the process of recording financial transactions pertaining to a business. [This] includes summarizing, analyzing and reporting these transactions to oversight agencies, regulators and tax collection entities.”
For cleaning business owners, this means monitoring your transactions and ensuring you’re meeting all your tax obligations.
Whether you’re a new small business owner or have been in business for years, you need to be conscious of managing your business financials and cash flow.
This will help you make informed financial decisions, manage your expenses, and avoid costly mistakes come tax time.
1. Set up a Business Bank Account
The first step in organizing your business financials is to separate your personal accounts from your business accounts. You should create at least one bank account for your business that will be used to collect revenue, pay your business taxes, and cover operating expenses.
Simply go to your preferred bank or credit union to discuss your options for a new business checking account. In order to set up a business account, you will need:
- Social security number or employer identification number (EIN)
- Form of personal identification, such as driver’s license or passport
- Business license with the name of the business
- Organizing documents filed with the state
- Monthly credit card revenue (for merchant accounts)
2. Create a Cleaning Log
Next, you will want to create a cleaning log in order to keep track of your jobs and the revenue coming in. This log will also help you see how long it takes to clean a home so you can determine whether you need to raise your prices for services, speed up your cleaning time, or both.
Your cleaning log should include:
- Client’s name
- Start time and end time
- Total cleaning fee for services
- Labor costs and expenses
3. Save Your Receipts
Cleaning businesses typically have low overhead costs, but it’s still important to keep track of your expenses so you are not only aware of how much money is coming in, but how much money is going out.
These expenses can sneak up on you—using an expense tracker and saving your receipts can help you avoid slipping into “the red.”
Take note of how much you spend on:
- Cleaning supplies
- Cleaning tools
- Office supplies
- Marketing and advertising
- Professional services
4. Invest in Online Accounting Software
While manual accounting methods like Excel sheets and PDF invoice templates exist to help you keep your finances organized, they can only take you so far. As your small business grows, you’ll need a more powerful solution to help you manage many cleaning jobs at once.
That’s where automated accounting software comes in. With an online solution, you can invoice clients for services in a matter of minutes, get paid faster, and manage your books all in one place. You can also generate reports and get a better idea of what to set aside come tax time.
5. Calculate Cost of Goods Sold
Cost of Goods Sold (COGS) refers to the cost of goods that are either manufactured or purchased, and then sold. Your business sales revenue minus the cost of goods sold equals your business's gross profit.
COGS is considered an expense in accounting and it can be found on your company’s income statement.
Calculating COGS is important because it helps you determine how much it costs to clean a home. You can then use this information to set your prices, make hiring decisions, and determine your profits.
The formula for calculating COGS is:
Starting inventory + purchases - ending inventory = cost of goods sold.
If you determine that your COGS is too high, you have a few choices:
- Increase your prices
- Buy fewer supplies
- Decrease payroll
6. Reconcile Your Transactions
Every month your bank will send you a statement that includes your deposits and withdrawals (income and expenses, respectively). With this information, you will want to reconcile all of the transactions into your chosen accounting program. Business owners need to keep a record of all transactions so managing their small business bookkeeping (not to mention tax time) is hassle-free.
Reconciling your transactions involves:
- Comparing your bank records to your receipts
- Looking for any discrepancies
- Calculating total revenue and expenses
- Comparing any transactions to what you have in your expense of revenue sheets
- Contacting your bank and/or accountant to discuss any errors
7. Pay Estimated Taxes Quarterly
As a cleaning business owner, you should pay estimated quarterly taxes throughout the year. This will not only give you peace of mind knowing your taxes are covered, but will help you avoid any costly surprises at the end of the year that might interrupt your cash flow.
Being in the cleaning industry requires that you stay on top of your bookkeeping and keep track of all your tax information.
To pay estimated quarterly taxes, you have a few options, including:
- Signing up for the Electronic Federal Tax Payment System (EFTPS) online
- Paying online via the IRS website
- Paying using debit or credit card
- Sending a check or money order by mail to the IRS
8. Hire an Accountant (Optional)
It’s entirely possible to manage your cleaning business accounting on your own, but it’s easier when you have a professional accountant on your side. An accountant will help you make sense of the numbers, reconcile your accounts, manage your bookkeeping, estimate your quarterly tax payments, and more.
Hiring an accountant doesn’t have to be expensive either. According to the Bureau of Labor Statistics, the average hourly rate for an accountant in the U.S. is about $35. Most small businesses can expect to spend $150-$500 per consultation; these rates may vary depending on the project and your unique needs.
Manage Your Cleaning Business Accounting Like a Pro
Your cleaning business provides a valuable service to businesses and homeowners in your area. You deserve to get paid for all your hard work, and have money left over to reinvest back into your business.
When you manage your business accounting like a pro, you are empowered to make better financial decisions and avoid costly mistakes down the road.
Use this guide to create your business bank account, set up your accounting system, reconcile your transactions, and more. Now you have the basic steps you need to take your business bookkeeping into your own hands.
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