Should I Start an LLC for my Pressure Washing Business? Pros and Cons

Should I Start an LLC for my Pressure Washing Business?

The pressure washing industry has seen sustained growth over the past years, with an increased focus in sustainability and technology to increase the efficiency of businesses. Customers are more likely to prefer an eco-friendly approach and with the help of new technologies businesses are able to automate certain operations such as scheduling, invoices, and marketing.

Starting an LLC ensures the protection of your personal assets due to the creation of liability protections that having an established business entity grants business owners. As a separate legal entity, it can work for either a single-owner operation or a partnership. Due to this line of work constantly being on homeowners properties, spraying and cleaning their homes, and having a risk of injury due to the tools you are using, it is very advantageous for business owners to have the protections that come with having an LLC set up.

Establishing an LLC also allows business owners to be able to create a recognizable brand for themselves and be able to market under a legitimate business name. Starting with a local marketing effort to build your reputation is a good starting point to begin building your list of clients and to get set up for starting to scale your pressure washing company operations.

It typically is beneficial to the owners of a pressure washing business to set up an LLC to be granted the liability protections, have a credible and reliable brand established, and ensure you are able to easily hire employees as you begin to grow.

What is an LLC and How Do They Work?

An LLC, also referred to as a Limited Liability Company, is an official business structure that is formed with your specific Secretary of State. These tend to be one of the most popular business types due to the ease of formation, ownership flexibility, and the personal liability protections they grant to the business owners. An added benefit of an LLC is they are able to establish these advantages similar to a corporation, but will have less administrative burden, making them easier to maintain and stay in good standing.

Establishing a Legal Status

Forming an LLC will provide you with the legal documents from the Secretary State that establishes your business as an official business entity in your state. When compared to operating as a sole proprietorship, operating as an LLC will allow you to gain the credibility and freedom that comes with having a legitimate business structure. Due to having an official business entity set up, your personal assets will be protected in the case of any lawsuits, damages, or injuries that occur.

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 a Pressure Washing Business Start an LLC

For a short answer, it will typically be useful to form an LLC as this will grant you personal liability protections, help strengthen the separation of personal and business finances, and provide added credibility for your business. Especially if you are earning a consistent income, it will make sense financially to set up and maintain an LLC to enjoy the benefits that go along with it, but it does not replace the need for general liability insurance. However, it is not always the best option to set up an LLC if you are not ready for it. For example, if you are operating as a side hustle and not consistently having clients or jobs to do, you will most likely be safe to continue this way until your business scales up. But, be aware that if you are operating as a sole proprietorship then you will not receive any of the benefits or protections that come with having an LLC.

Key Threshold

Most LLC owners will be fixated on a threshold of around $3,000-$5,000 a month to justify forming an LLC solely based on revenue. Although the costs of the maintenance of an LLC will be less expensive than this amount, this will typically be when your business is making a consistent income and has built out a solid client list.

Important Factor to Consider

Although the costs are an important aspect to take into account, they are not the only reason a business owner should plan to form an LLC. An LLC is able to provide the personal liability protections and give owners a shield over their personal assets such as their home, car, and savings accounts. This is especially a factor when working in an industry that has more risk, and a pressure washing business falls in this category. Since you will be on people's property and using high powered tools, there is an added risk of property damage or injury. If your business is not on a clear schedule to ensure you are staying in good standing then these protections will not be continued.

Simple Answer for Business Owners

Typically, you will want to set up an LLC for your business to ensure you are protected and are able to have an established business structure. This type of business will benefit from operating as an established LLC rather than something like a sole proprietorship as this can lead to potential risks such as lawsuits and debt collectors coming after your business and your personal assets. The creation of an LLC will provide you with the liability protections and get your business set up to remain in good standing.

Trends Affecting the Pressure Washing Industry

In recent years the trends that are affecting the power washing industry are coming from an increased focus on sustainable practices, advances in technology, changes to consumer behavior, and higher industry standards. The sustainable practices include eco-friendly sprays such as a biodegradable solution to avoid harming any of the homeowners property. On larger commercial jobs, you may also need environmental permits and runoff controls around storm drains. Another trend that is affecting the pressure washing industry is the growing developments in technology to better help owners run their business. This can be anything from automations to send invoices, schedule jobs, software to help with payroll or managing customer relationships, or specialized equipment that allows you to complete jobs better and faster.

A new development that is affecting the industry is the rise of a practice called soft-washing. This is a special method using low pressure and solutions or chemicals that allows you to clean soft surfaces such as house siding, roofs, and other delicate areas, while also handling different surfaces safely to expand the services you are able to offer. Although Firstep does not have any specialized equipment available, we do offer a custom CRM tool that is able to automate processes such as scheduling, marketing, send meeting reminders to clients, send invoices, and much more. This system allows business owners to focus on running their business instead of dealing with the administrative tasks that come along with that.

Key Advantages of Forming an LLC for a Pressure Washing Business

One of the main advantages of forming an LLC, as mentioned before, is the personal liability protection that is granted to the business owner. As mentioned before, this will protect your personal assets in the case any lawsuits or significant debts are incurred by your business. This is an important aspect, but it is not the only advantage to having an LLC.

Forming an LLC is also able to provide your business added credibility by establishing an official business entity with the state you are operating in. This credibility can be a benefit to potential customers that are searching for a reputable business to hire for this type of job, and can be easier to get any partnerships or additional investors since you are able to prove this is a serious business venture rather than a simple side hustle you use to make extra money.

Establishing an LLC will provide you with the banking advantages that are commonly overlooked by busy small business owners. Once you have your business formed, you can set up a business bank account which significantly strengthens the separation of personal and business finances that is so important to have to be able to ensure you stay active and in good standing as a business. The loss of good standing also loses the protections that are such an advantage to LLCs.

Lastly, having an official LLC set up will allow you to market your business under one brand, and create a reputation in your local area as a reliable and credible business that people can trust. This can help to build an awareness of your business, as well as having a legitimate business name that can be remembered by customers. All around, it is seen as more professional for any service or product you buy to come from an established business that you can trust.

Common Reasons a Pressure Washing Business Needs to Form an LLC

Expanding Your Business

Forming an LLC can help your pressure washing business begin to expand your operations. As you grow and are receiving multiple streams of revenue, it will be more difficult to manage your finances through one personal bank account. By having an LLC set up along with a business bank account, you will be able to clearly separate your personal and business finances. To continue to keep your business in good standing you will be required to maintain this separation of finances. If you choose to expand your business to begin offering window cleaning, gutter cleaning, or Christmas light installation it will make it more difficult to track your revenue and keep a clear separation of finances if you are using a personal business account to manage both your personal and business finances.

Hiring Employees

At the beginning of your pressure washing business you will more than likely be a one person team. However, as you grow your business and your client list you will probably need to hire employees to keep up with the increased amount of work, and businesses with employees typically also need workers' compensation insurance in most states. Having an LLC, along with an EIN will allow you to be able to easily hire employees as you need, while also making it easier to set up small business insurance. This will ensure you are able to keep up with an increase in demand for your services and be able to start to delegate tasks to employees while you work with some of the more administrative or management level tasks that others are not able to do.

LLCs vs. Sole Proprietorships

Your business will automatically be recognized as a sole proprietorship if you do not form an official business structure with the state you are operating in. Both of these structures have their advantages and disadvantages and whichever structure your business is will change how your business is able to operate. Forming an LLC will provide you with more flexibility, but you will also be paying higher fees to form and maintain your LLC if you choose that route.

Limited Liability Company

If you decide to form an LLC it will require you to formally organize your business entity through the Secretary of State where you are doing business in. This will include filing an Articles of Organization, possibly an initial report, and annual reports each year to maintain your business's compliance and stay in good standing. As long as you are keeping your business in good standing and maintaining a separation of personal and business finances, you will be able to enjoy the personal asset protections that come with having an LLC established.

The default tax structure for an LLC will be pass through taxation, which is also what sole proprietorships will be. If you choose, you are able to set your LLCs tax structure to something different such as a corporate tax structure or an S-corp structure. These can be useful for businesses that have a higher amount of earnings as these tax structures will lower the amount of self employment taxes.

Setting up an LLC will typically be most useful for businesses that are planning to hire employees, operate out of one or more physical locations, do business in an industry that increases the amount of risk you face, or if you plan to scale your business to offer more services and will be bringing in multiple revenue streams. For a power washing business, a formal company can make that growth and risk easier to manage, which is why setting up an LLC can be so beneficial for this business type.

Sole Proprietorships

If you decide to begin doing business and do not form an official business entity, you will automatically be classified as a sole proprietorship. This is the most simple and easiest structure to form and maintain as there typically will be no state forms to file, and you will commonly file taxes under your own Social Security Number, but your sole proprietorship will be registered under your personal name. This can make it difficult to market or show your credibility to customers since you do not have a business name that is official sounding as it will just be your name. A major downside of operating as a sole proprietorship will be the fact that you have unlimited liability, which means there will be no protections for your personal assets if your business was ever sued or took on significant debts.

On the other hand, an added benefit of a sole proprietorship will be that you will be the lone decision maker of the business which allows you to be flexible in your decision making and capitalize on trends that emerge within your industry or location.

The profits and losses of a sole proprietorship are all passed through to the owners personal tax return. For a sole proprietorship this will be the only option, and to set up a different method for this you will need to establish an official business structure.

A sole proprietorship is a great way to get into building a business, but in the long term this can make things more difficult as you grow. For example, if you plan to raise revenue for your business it may be difficult as a sole proprietorship since banks, partners, or investors are more likely to want to get into business with an officially organized business entity like an LLC or a Corporation. Another issue with this type of business is that the entire business will be tied directly to you, so if you decide to retire or you pass away the business will no longer be considered to exist. This differs from an LLC as you are able to appoint and remove members of the business as you please as long as you are updating your information with the Secretary of State. When looking at this decision from the perspective of someone who wants to start a pressure washing business, it very easily can make sense to want to start this way before becoming an official business entity like an LLC. However, it's important to be aware that when you are operating as a sole proprietor you will have unlimited liability. If there are any damages or injuries while you are doing a job in that structure, your personal assets will be at risk.

How to Form an LLC as a Pressure Washing Business

To start an LLC there will be a set of requirements for you to meet that are fairly standard regardless of the state you are forming your business in. Depending on your specific state, there may be more requirements so it's important to be aware of the exact guidelines that are set by your Secretary of State, but generally the list of requirements will include:

1. Choosing a business name - Your business will be required to have a unique and distinguishable name from the other active businesses in the state you are registering in to be able to avoid any confusion with customers or potential partners. You will also need to include a designator in your business name such as "LLC" or "Limited Liability Company".

2. Appoint a Registered Agent - All LLCs will be required to have an active registered agent that has a current physical address in the state they are registered in. Your registered agent will be required to be available at their listed address during regular business hours which are Monday-Friday 9am-5pm.

3. Submit Your Articles of Organization - This will be the form that officially organizes your business with the Secretary of State and creates the business as a separate legal entity. Sometimes referred to as the Certificate of Organization, this will include your business information, registered agent information, and your ownership information.

4. Draft an Operating Agreement - An operating agreement will be what outlines the roles and responsibilities of the owners of the business, as well as the processes for decision making. This also will detail the voting rights of the members and process for members joining and leaving.

5. Obtain an EIN - Your 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. The EIN will be used for hiring employees, filing taxes, and opening a business bank account. If you are operating as a sole proprietorship, a single-member owner may not need one right away because they can often use their own Social Security Number, but LLC owners should still follow the existing EIN requirements. These numbers will not expire and will only be given to each business one time, so it's important to be sure to store these documents in a safe place to ensure you do not lose them.

6. Open a business bank account - After you have obtained the necessary documents, you will most likely need to set up a business bank account. This account will be what helps to create a clear separation of personal and business finances, as well as continue to help keep your business in good standing.

7. Maintain ongoing good standing - After you have registered your business you will need to continue to maintain good standing. This will include filing annual reports to renew your business registration, maintaining a clear separation of finances, and obtaining the right licenses required by your industry or the state you are operating in, such as a business license or general business license often available through local city hall or the county clerk's office. You should also check local zoning laws and whether environmental permits are needed for certain jobs, especially work around storm drains or large properties. Also, an LLC also still needs business insurance, including general liability insurance.

These steps are all either required or highly recommended for new business owners to ensure they are setting up their business properly and following all required guidelines to operate in good standing. Depending on the state you are registering your business in, you may be required to complete additional tasks so it's important to check your specific state's guidelines. For more state specific guides, check out our blog section to see the exact requirements for your state. If you want to get your business online, setting up a google business profile can improve local visibility for pressure washing services, or use Firstep's Everything package to also get a custom built website. You can also post before-and-after photos, use social media to connect with potential customers, leave door hangers after jobs, and send email newsletters to keep clients informed about services and promotions. See our blog section to see state specific guides on forming an LLC.