Should I Form an LLC for my Cleaning Service? Simple Guide for New Business Owners

Should I Start an LLC for a Cleaning Service?

The cleaning services market has seen a boom in recent years due to a multitude of factors. Following this boom, businesses should be aware of the trends affecting their industry to capitalize on them and put their business in a place to excel. The cleaning services industry is expected to hit around $330 billion globally (Cleanerhq) and with this growth comes new ways to increase profits, drive customer retention, and set your business apart from the other businesses in this industry.

As the number of homeowners is increasing, the demand for cleaning services also is seeing an increase of demand as more and more homeowners are outsourcing their cleaning needs. And it's not just residential services, the post-covid demand for a clean and eco-friendly way to keep businesses clean is also a factor that is driving this growth. Contracts with these businesses are typically more profitable for cleaning services than residential, but they can be more difficult to obtain. Ensuring your business is in a position to properly market itself and is an established business entity can be the deciding factor on whether or not your business is chosen for these contracts.

Businesses and residential homeowners have experienced a shift from cleaning for appearance and maintenance, to cleaning with strict disinfection standards. This shift has led to more and more recurring contracts for cleaning services as businesses want to keep a clean and healthy environment for customers, as well as residential customers that have more of a focus now on air quality and eco friendly practices, not just the traditional cleaning that this industry experienced for so long.

Having an official LLC set up for your cleaning business and having all paperwork correctly filed can sometimes be the difference in whether or not your business is selected for these recurring contracts or one-off jobs, so it's important to properly run your cleaning business just how you would any other type of business. An LLC can help you stay organized, create a clear separation of personal and business assets, provide certain protections for you as a business owner, and allow you to market your business under one continued business name.

What is an LLC and How Do They Work?

LLCs, also known as a Limited Liability Company, are an official business structure that is formed with the Secretary of State of the state you are doing business in. Typically these are the most popular type of structure that business owners choose to form due to the ease of formation, the flexibility of ownership, and the protections they offer to business owners. There are many advantages to LLCs, and especially if you are running a business with consistent income or contracts it is highly suggested to have an LLC set up for these protections and credibility they bring to the business.

Establishing a Legal Status

Regardless of what kind of business you are running, you will most likely benefit from having an official business structure set up with the state you are doing business in. This will give you legal protections and an added amount of credibility for your business. Establishing your business in this way signals to potential customers or clients that this is more than just a side hustle, and also appears more professional to potential customers who may be deciding between a few different services.

Having this established legal structure also is what provides your business the liability protections that are so important for business owners to give them a shield between their personal assets and business assets. This liability protection is what protects your personal assets in the case of any significant debts or lawsuits that are imposed on your business. If this were to happen, debt collectors and courts will only be able to go after your business assets as opposed to any personal asset such as your home, savings, car, etc.

Pass Through Taxation

An established LLC that is in good standing with the state they operate in automatically receives pass through taxation. This means that the business profits or losses are "passed through" to the personal tax returns of the owners of the LLC, which allows you to avoid the double taxation that entities like Corporations typically deal with, while an S corporation election limits ownership to no more than 100 members and net income remains subject to income taxes and self-employment taxes.

Having an LLC is an important decision that business owners will need to make, as they provide many benefits and credibility but do come with challenges such as yearly fees and compliance to state guidelines. These fees can be costly, but typically the benefits of these will outweigh the costs of forming and maintaining your LLC. Consult a tax professional before choosing LLC or S corp tax treatment to understand the potential tax benefits.

Quick Answer: When Should You Form an LLC for a Cleaning Business

In short, it typically will be beneficial to your business to form an LLC if you are bringing in a consistent income or entering into any contracts, for example, with other businesses or homeowners to regularly provide cleaning services to these customers. Most businesses will not want to enter into any large contracts with you unless you have an established business, and this also proves to them you are operating legally and are up to date with any paperwork or filings that are required by LLCs in your state. When you are bringing in this consistent income, then the costs to form and maintain an LLC will usually be outweighed by the advantages that having an LLC brings to your business.

Key Threshold to Think About

Most LLC owners have looked to a threshold of around $3,000-$5,000 a month to justify forming an LLC. However, this amount changes based on the individual business owner and the circumstances of the business itself. This is not a black and white answer, as you will need to consider the other factors affecting you and your business. Although, once you get to that amount of revenue being generated each month and you do not have an LLC set up yet, you should strongly consider forming an LLC to be able to enjoy the advantages they offer.

Other Important Factors

Aside from the amount of money you are generating, you also need to think about the amount of risk your business is dealing with on a day to day basis. For a business that is faced with more risk, you will want to form an LLC early to protect yourself. For a cleaning services business you will deal with a moderate to high amount of risk due to the nature of the business.

First, and most obvious, you will be dealing with using chemicals and other products on your clients home or business areas which can be expensive materials or highly valued assets. Mistakes such as using the wrong products can cause damage and lead to potential lawsuits against your business, where you will be responsible for paying for damages and if you don't have an LLC your personal assets will be at risk. Also, cleaning businesses will need to ensure they are properly using warning signs for wet floors or surfaces. This can help to avoid any falls or injuries that can potentially happen if you have a wet floor that is freshly cleaned and also make people aware of this fact so they proceed with caution.

Another aspect to consider where your cleaning business will be facing risk is that you and your employees will be unsupervised in clients homes or businesses. It's important in any business to have trust in your employees, but for a business model where you are consistently left alone in homes or businesses with potentially expensive items it is important to have confidence there will be no issues with theft or property damage that is unaccounted for. Having the liability protections that are offered to owners of an LLC, as well as professional hiring practices such as background checks and insurance policies can be an extreme benefit to cleaning services wanting to form an LLC.

Expansion of The Cleaning Services Industry

As mentioned before, the cleaning service industry has been growing over recent years with expected growth to reach $330 billion globally in 2026. This increase in demand has also come with a shift in what customers are expecting from these services as well. Opposed to needing these services to maintain a clean look and feel to their business or home, clients are increasingly wanting a cleaning service to ensure areas are disinfected and thoroughly cleaned, as well as being presentable and tidy.

After Covid happened, it highlighted the need to have these common areas regularly cleaned and high traffic surfaces to maintain a clean environment. This boom that affected the cleaning services industry post covid has been a driving factor in the growth of the industry, and business that have excelled have been able to capitalize on this demand by offering a mix of services from deep cleaning, regular scheduled cleaning, and ensuring the use of eco friendly products and using less harsh chemicals that can be damaging to surfaces and contribute to a worsened air quality.

Another important factor that is contributing to the growth of the cleaning services industry is the increased use of technology to improve efficiency and make it more simple to plan and run your business. Tools like automated scheduling, a CRM that manages incoming messages and potential clients, and new cleaning products or technologies have made it easier to scale your business without having to invest large amounts of money into systems to help you do this.

Firstep is able to offer businesses technology that is able to replace up to 37 business management apps, and automate processes to allow you to not spend as much time dealing with repetitive tasks. You also are able to track potential customer's paths through this from first contact, potential lead, and closing the sale. From calendar management, to marketing, social media, and collecting payments, Firstep is committed to giving you the tools you need to run an efficient business. Having an LLC brings many benefits for a cleaning service, but managing your LLC correctly is what sets you a part from all the other services in the industry and gives you an advantage on businesses that have not adopted these new technologies yet.

As the cleaning services industry has experienced this growth in recent years, it has not only come from residential services and increased homeownership but also entering into contracts with businesses for regular cleaning. One of the most common partnerships like this is between cleaning services and businesses that are operating out of office buildings. These businesses will typically require nightly cleaning to empty trash, vacuum floors, and clean bathrooms each day to maintain a clean and healthy working environment. This type of work is important for a growing cleaning service as this is a consistent stream of revenue that is extremely useful for planning out expenses and budgeting purposes.

Expanding your own services to be able to meet more strict cleaning requirements such as those that are required at places such as dental practices, doctor offices, and healthcare centers or hospitals allows you to offer more deep cleaning and sanitizing services that these types of business will be looking for. This type of work will most likely be more time consuming, but also will be more lucrative for your business. However, as a business owner it's up to you on what types of services you would like to provide and who you want to work for. So, be sure to look into what all is required before you agree to a job or enter into a contract that could potentially be expensive to acquire the correct chemicals or equipment that is required.

Key Advantages to Having an LLC for a Cleaning Service

When considering the many advantages that LLCs are able to offer to business owners, the most important benefit will be the protection of their personal assets. This will provide you with added security and ensure that your personal assets are protected in the case of anything happening to your business such as taking on significant debt or dealing with a lawsuit. There are multiple things that can happen with any type of business that can put you at risk, so it's a smart idea to set up an LLC once you are taking on significant and consistent work to be able create a shield between your business assets and personal assets.

Another advantage to having an official LLC formed is to give your business added credibility with customers and potential partners. Registering your business as an LLC with the state you are operating in will signal to these partners or clients that your business is more than just a side hustle to make extra money, but a professional service they can trust and rely on. This can help you scale up to get the opportunities to get bigger jobs, enter into contracts under your professional business name, and also to form a business bank account.

A business bank account is extremely useful for business owners who are starting out, as this will help to make sure their finances are kept separate from each other. Running a business through your personal bank account can lead to confusion and make revenue streams and payments difficult to track. Any commingling of funds, which is mixing your personal and business finances, can lead to the loss of the liability protections that are so important for business owners. If you are just starting out, you may be able to manage this efficiently, but as you scale your business it will almost be required for you to set up a business bank account to be able to maintain this separation as you are dealing with larger and larger jobs and transactions.

To be able to properly set up a business bank account, you will need to have an official business entity like an LLC formed with the state you are operating in, as well as an operating agreement and an EIN (employer identification number).

How to Form an LLC for a Cleaning Service Business

To correctly form an LLC there will be certain steps required to make sure you are following all the guidelines that are put in place by the state you are operating in. These requirements may vary by state, but typically will include a set list of tasks to complete regardless of the state you are in. These will include:

1. Choosing a Business Name - The first step of forming a new LLC will be to choose a name for your business. This will be one of the most important tasks as your business name will be the first thing potential customers see when they are interacting with your business. Also, you will need to check the state database to ensure your chosen name is not actively in use by any other businesses, as your name will need to be unique and distinguishable from other businesses in your state to avoid any confusion. Lastly, you will need to include a designator in your business name such as "LLC" or "Limited Liability Company" in your official business name.

2. Appoint a Registered Agent - All LLCs that are officially registered will need to have an active registered agent with a current physical address listed. Your registered agent will be responsible for receiving any service of process or important notices that are sent to your business by the state or by a court. To be approved, on top of having a current physical address, your registered agent will need to be at least 18 years old, and be available at their listed address during regular business hours to receive these notices which is Monday -Friday 9am-5pm.

3. Submit Your Articles of Organization - This form will be what officially establishes your business with the state you are operating in. Some states may call this something different, such as Certificate of Organization, but these all serve the same purpose. The Articles of Organization will include your business information, registered agent information, and ownership information that will be listed for your business on the state database.

4. Draft an Operating Agreement - The operating agreement will outline the roles and responsibilities of the business owners, as well as detail the processes for how significant decisions are made such as members joining and leaving the business and the decision making process for the business. An operating agreement is useful to determine the ownership percentages of the owners and voting rights to ensure there are no disputes between the owners of the business and owners are aware of their roles.

5. Obtain an EIN - An EIN, or employer identification number, will be issued to your business by the IRS and will act as a social security number for your business. Your EIN will be used for hiring employees, filing taxes, and opening a business bank account. These numbers are only issued to each business once, and they do not expire. If you forget your EIN that you have already gotten, you are able to retrieve it from the IRS but it can be a lengthy process.

6. Open a Business Bank Account - A business bank will help to establish a clear separation of personal and business finances by creating a separate account only used for your business. This is important for continuing the liability protections granted to LLC owners and make tracking revenues and expenses much easier.

7. Maintain Ongoing Good Standing - For the majority of states you register your LLC in you will be required to file annual reports and register for any required business licenses to maintain your business's good standing. You may need to obtain a general business license if your state requires it, as well as keeping your business information and registered agent information up to date with the Secretary of State to continue operating as a legal business entity.

As mentioned before, depending on the state you are doing business in your business might be required to file additional paperwork or licensing to maintain your good standing. It's important to research what all is legally required for your business to ensure there are no missed tasks, as these tasks can change depending on the state you are operating in.

Regardless of the state you are in, managing your business's ongoing compliance requirements is one of the most important things you can do as a business owner as this will ensure your business is able to be compliant and remain operating legally. If your LLC does happen to fall out of good standing, then you risk losing your liability protections and put your personal assets at risk. In addition to this, you will also risk your business being administratively dissolved by the Secretary of State which means your business will no longer be considered in legal operating status.