As a cleaning business owner, you probably think about preparing invoices, meeting tax obligations, or managing cash flow, as only accountants can do that. You can do it yourself if you are still a small business owner (making $70,300 per year on average).
Medium to large-size cleaning businesses will need an accounting agency as the numbers get bigger, and it will be time-consuming to do bookkeeping yourself.
According to a study conducted in 2011, they estimated the central benefits of accounting for cleaning businesses to exceed costs by a factor of more than 30 to 1. This study highlighted the importance of proper accounting practices for cleaning businesses in terms of efficiency, cost savings, and accuracy.
In this article, we’ll go through every single option you have as a cleaning business owner with average costs for each option.
What is accounting for cleaning businesses?
Accounting is the practice of recording and summarizing financial records to ensure a healthy financial status and meet the GAAP rules. It involves practices such as bookkeeping, tax preparation, ensuring the accuracy of financial statements, and reporting.
While small business owners have basic bookkeeping and accounting skills, they lack the proper understanding of financial concepts and practices. It becomes hard to form a financial decision without a basic knowledge of accounting terms.
That’s why financial literacy would help business owners manage their finances, record transactions, and meet tax obligations.
How to do accounting for cleaning business in 7 steps
We’ll walk you through each step to understand the basic accounting procedures to manage your finance properly.
1- Find the most suitable accounting software
It’s a tool to help business owners and accountants to record transactions, process invoices and bills, make a chart of accounting, and creates financial statements monthly. Typically, some software goes beyond, but this is the basic function.
Studies have found that businesses that use accounting software tend to be more profitable and have greater cash flow. It also found that it reduces time on accounting tasks by 34%.
Our experts found the following options fit the needs of cleaning business owners:
2- Record entries in your software
After picking up your accounting software, the first thing you’ll need to do is to record every business transaction and revenue. It calculates profit and prepares financial statements based on your input.
For instance, you’ll need to record rent and salaries as recurring expenses to save time recording the same amounts every month. You’ll also need to prepare an invoice for each client to record revenue.
The accounting software then gives you an overview of your business’s financial status with a chart of accounting. It looks like this:
Record every transaction as soon as it’s done to ensure the accuracy of the records.
3- Record Cost Of Goods Sold (COGS)
Cost of goods sold (COGS) is a metric used to calculate the total cost of the inventory that a company has sold. It provides a more accurate assessment of a company’s financial performance by calculating the actual costs.
The cost of goods sold formula is Beginning Inventory + Purchases – Ending Inventory = Cost of Goods Sold.
By adding products/services to the accounting system, it automatically calculates COGS based on the invoices you’ve created.
It would be helpful if you add salaries and other costs as the COGS of the cleaning service based on the package.
4-Make a chart of accounts for proper bookkeeping
The chart of accounts is the account that the business is using to record financial information understandably. It helps to calculate profit-and-loss statements and report financial status.
The chart of accounts for a cleaning business would typically include accounts for revenue, costs of goods sold, operating expenses, assets, liabilities, and equity.
Examples of accounts in each category would include:
- Revenue: Cleaning services revenue, rental income, etc.
- Costs of Goods Sold: cleaning supplies, labor costs, etc.
- Operating Expenses: Advertising, rent, utilities, etc.
- Assets: Cash, accounts receivable, inventory, etc.
- Liabilities: Accounts payable, loans, etc. Equity: Retained earnings, capital contributions, etc.
5- Automate the accounting process to save time
Accounting process automation is the practice of using software to streamline time-consuming tasks. This includes tasks such as accounts reconciliation, payroll, invoicing, budgeting, and more.
Automating the accounting process can save businesses an average of 4.8 hours per week, according to research by Zapier. Invoice processing automation software can save companies up to 50% of the time it would take to process invoices manually.
That’s why you should choose an all-in-one accounting software to create workflows. Then you create automation triggers that will initiate the process.
6- Hire an accountant
Hiring an accountant can be a great way to save time and money in the long run. An accountant can help you to comply with tax laws, maximize tax benefits, and focus more on running the business.
An accountant can also help to avoid mistakes and fines, which can save you money in the long run.
It’s recommended for cleaning business owners to use an accountant if they don’t have time for accounting tasks and to ensure books’ accuracy.
Best accounting agencies for cleaning businesses
Hiring an accounting agency would be a superior option for medium to large-size cleaning businesses. Here are some great agencies to consider:
1-800 Accounting Agency
1-800Accountant is an accounting agency based in New York. 1-800Accountant specializes in working with small businesses. It offers services starting from $0 to $375/month, which is quite affordable.
It has a 4.7-star rating on Trustpilot, a 4.2-star rating on Google my business, and a 3.5-star rating on Books time.
Accotax Accounting Agency
Accotax is an accounting agency based in London that works internationally with small businesses, partnerships, and other business types. Accotax’s pricing is perfect for startups and self-employed as it ranges from $265 to $600/month on average.
It has a 4.9-star rating on Google My Business, a 4.7-star rating on Facebook, and a 4.9-star rating on Trust Index.
CSI Accounting Agency
CSI Accounting is an accounting agency that was founded in the early 1960s by Al Clausnitzer, specializing in bookkeeping, consulting, and tax services for small businesses. It works with small or medium-sized businesses.
It has a 4.9-star rating on Google My Business, 4.6 on Facebook, and a 4.5-star rating on Yelp.
Best 5 Accounting Tips For Cleaning Businesses
1-Use accrual-based accounting to record transactions
2-Understand basic tax requirements
3-Keep your business bills
4-Reconcile your transactions
5-Create a business bank account
Use accrual-based accounting to record transactions
Accrual-based accounting provides a more accurate representation of financial performance by recognizing revenue and expenses when they occur, rather than when cash is exchanged. Accrual-based accounting works by recording transactions as soon as they happen, regardless of whether money has changed hands.
For example, if you paid for advertising on credit that will be paid for in 30 days, the expense would still be recorded immediately even though no money was spent at the time.
Another benefit to accrual-based accounting is its ability to help identify trends in income and expenses across different periods, so businesses can plan accordingly with realistic expectations regarding their expected costs and profits.
Additionally, it ensures compliance with Generally Accepted Accounting Principles (GAAP), which are important standards used throughout the world’s economy.
Understand basic tax requirements
Once you know what form(s) needs completing, then consider any deductions or credits available that could reduce the amount owed in taxes. Businesses use forms such as the 1120S (for S-corporations) and 990T (for tax-exempt organizations).
Common deductions include mortgage interest payments; charitable donations; medical expenses; state/local income tax paid throughout the year, student loan interest payments, etc. Whereas common credits include child care costs, earned income credit, etc.
In addition, make sure all relevant information is reported accurately, including wages from employers; self-employment earnings; dividends from investments; capital gains and losses from stocks & mutual funds.
It’s important not to overlook any source of taxable income as this will result in underpayment penalties if caught by IRS during the audit process.
Finally, remember that each state has its own set of rules and regulations regarding taxation – so make sure these too are taken into account before submitting returns at the end of April deadline!
Keep your business bills
Keeping track of all the bills you receive can be a daunting task, but having an efficient system in place for managing them is essential for keeping your business running smoothly.
One way to keep up with incoming bills is by setting up an online payment system that allows you to pay them quickly and easily. Melio is a good example of such a system.
This will help ensure that payments are made on time and help reduce any potential late fees or interest charges from piling up over time.
You can also set reminders, so you don’t forget when they’re due, which will save time and money in the long run. Additionally, automating payments means fewer paper statements coming through the mail each month – which helps streamline operations while reducing clutter at home or office!
Reconcile your transactions
Reconciling helps you make sure that all the financial records in your accounting system are accurate and up-to-date. It also allows you to identify any discrepancies or errors, so someone can quickly rectify them before they become a problem down the line.
The first step in reconciliation is gathering all relevant documents including bank statements, invoices, and receipts related to each transaction being examined. This will help ensure accuracy throughout the process by providing detailed reference points if needed later.
Next would be entering each transaction into the accounting software online banking feature which enables direct downloads from bank accounts for easy access & review. Then verifying those entries against what appears on associated paper trail documentation i.e. invoices & receipts.
If not, then there must still be some sort of discrepancy somewhere along the way requiring further investigation until the issue has been resolved completely.
Create a business bank account
As a business owner, setting up a business bank account is essential for managing your finances. Having an organized and separate bank account helps you keep track of income and expenses as well as ensure that you are properly paying taxes.
It also protects from personal liability if something were to go wrong with the company’s finances.
Creating a business bank account is easy, but there are some important steps to consider before getting started:
1. Decide on which type of entity your business will be – sole proprietorship, partnership, or corporation – since these affect how you open the account.
2. Research different banks to determine which one best meets your needs.
3. Gather all necessary documentation such as Articles of Incorporation or DBA forms and proof of identity.
4. Make an initial deposit into the new accounts, so they can be activated immediately.
Setting up a dedicated banking solution for small businesses doesn’t have to take long nor does it need complex procedures – but having one will provide peace of mind knowing that all funds related directly back into operations are tracked efficiently without mixing them with personal assets thereby avoiding potential legal issues down the line when filing taxes.
Accounting for cleaning business owners FAQ
How often should I review my books and financial records, so they stay accurate and up-to-date?
it’s recommended that you review all financial records at least once per month. This includes income statements, balance sheets, cash flow statements as well as any other documents related to finances or taxes. It’s also important to make sure all transactions have been properly recorded, so they appear accurately in reports like profit & loss statements or accounts receivable/payable summaries.
You may need more frequent reviews if certain aspects of your business change rapidly—for example if you offer new services.
If there are large fluctuations in revenue from one month to the next (such as seasonality). In this case, weekly reviews might be necessary for greater accuracy when tracking changes over time throughout the year.
What taxes do I need to pay as part of running my cleaning service?
You’ll have to pay sales tax, employer payroll tax, etc. business It’s always best practice to check with an accountant who will be able to understand specific requirements depending on state laws.
Overall, accurate bookkeeping practices require regular monitoring which helps businesses remain compliant with regulations while keeping track of their overall success metrics over time.