Bookkeeping for your cleaning company can range from simple to complex. If it’s just you as both owner and cleaner, using your personal vehicle and relying on word of mouth, your needs will not be as extensive as a franchised cleaning company with employees and a fleet of cars! Both business models are great and serve their communities well, but they do have different bookkeeping needs, so let’s take a look at some common cleaning company accounting considerations you may face as you grow.
A few niches that your cleaning company might serve include:
- residential cleaning
- commercial office cleaning
- construction cleanups
- rental turns
- short-term rental cleaning
- specialized services such as carpet cleaning or biohazard site cleanups
Service providers specializing in window cleaning, pressure washing, gutters and roofs, car detailing, etc. can use these same strategies, even though they are not directly covered in this article.
Cleaning Company Income and Expenses
Each of these niches will have similar yet slightly different Charts of Accounts. For example, a residential cleaning company might want have income accounts for weekly cleanings, monthly cleanings, and one-off cleanings. To give you the best picture of your revenue streams, we would break these out rather than lumping them all together in one account for cleaning income.
Likewise, companies focused on office cleaning might break theirs into different types of customers such as banks, retail shops, etc. So, when we run your P&L each month, you can easily see which service is bringing in the most income.
The same is true for expenses; we break them out so we can account for each type of expense. A certain amount of your expenses are for COS – cost of services. These directly tie to the work being done and include items like cleaning supplies such as chemicals and paper goods, uniform and laundry costs, and disposal fees if you need a specialized method of disposing of waste (like a trip to the dump for a major cleanup project, or disposing of gray water at a site you must pay to use). A good rule of thumb is that if you have no sales, you also have no COS.
The rest of your expenses are operating expenses and overhead. These are things like a lease, utilities, office supplies, marketing, insurance, bonding fees, background checks on your cleaners, interest expense on your fleet, and royalties if you are a franchised location.
The Link Between COS and Inventory for a Cleaning Business
Under the umbrella category of the COS for supplies, we can put each category of items you use; this gives the Chart of Accounts a great hierarchy that makes sense. An example would look like this:
- COS
- Cleaning Supplies
- Chemicals
- Disposable Tools and Supplies
- Reusable Tools and Supplies
- Paper Goods
- Cleaning Supplies
This allows us to assign a cost to how much you are using during the course of doing business, and this is itemized as above on your monthly P&L.
Now, these are not just COS items, but they are also inventory items, and this idea can be a little bit confusing when it comes to how we account for these in practice. In QuickBooks, the supplies used for your cleaning business are not being sold directly to anybody else, but we enter them as inventory so we can still track them and how much they cost you. This allows us to put a dollar amount on the value of your in-stock inventory so we can list it as an asset on your Balance Sheet.
We calculate inventory by taking your beginning inventory, adding in purchases of each thing (and this is done EVERY time you order new stock – we do it straight from the invoice you receive, or from the purchase order if you use them), and subtracting the ending inventory. This process allows us to compute a number for how much was used throughout the year, which gives the ending inventory dollar amount for your end-of-year Balance Sheet as well as your expenses for that year to deduct from your revenue for tax purposes. Preferably, this count would be done weekly or monthly to give you the most timely info on your business.
A Digital Paper Trail
One of the best things about QuickBooks Online is that you can keep all of your receipts and invoices and purchase orders straight by attaching them directly to the applicable entries in the software. This eliminates the need to hold onto tons of paper if you are ordering a lot of product! You can simply download an email order confirmation or snap a picture of a receipt and get that added into QuickBooks while working on your books.
Assets and Liabilities for Cleaning Companies
Another item that can be tricky is any payments you make on fleet vehicles. These cars or vans are assets and they are capitalized over a period of years. Here is a run-down of how these payments work when you have a vehicle loan:
- The principal portion reduces cash (the bank account) and also reduces the amount of the liability (the loan or note).
- The interest portion reduces cash (the bank account) and also represents an expense (reducing taxable income).
This affects cash flow more than anything, which is very important for planning purposes! You definitely do not want to overdraw your account because you didn’t factor in this cash flow issue.
It may feel a little unfair that you cannot write off the whole payment, but keep in mind that your depreciation expense will offset this. Cars are useful assets which retain value for a certain period of time, and you having them increases the value of your company.
This idea of depreciating assets could also apply to any equipment you use in your cleaning business. Equipment costing over $2500 would be considered an asset that needs to be depreciated rather than written off as an expense the first year.
Notes payable in a cleaning business mostly apply to the purchase of vehicles unless you own an office or warehouse building, but other liabilities on your Balance Sheet include accounts payable and credit cards. Purchasing your supplies on account and then paying later would be considered A/P, and of course, anything on a credit card must be paid off at some point as well.
Subtracting your liabilities from your assets leaves you with an amount for owner’s equity, which is the true monetary value of your business.
Unearned Income – A Liability for Cleaning Businesses
I would be remiss if I didn’t mention that receiving payments ahead of time results in a liability for your company. Say you have a customer who gets monthly cleanings and pays for a quarter at a time, in advance. That revenue has not been earned yet, so it represents a liability that is owed until the work has been completed. This is called accrual-basis accounting, and it’s really the most accurate way of recognizing income and expenses, as opposed to cash-basis accounting which recognizes everything when payments take place and ignores whether the service has been performed yet.
As far as invoicing is concerned, I always advise business owners to bill in advance as much as possible and put clients on auto bank draft. There are several low-cost options for setting this up, and it is a real timesaver while also helping minimize client nonpayment!
Payroll for Cleaning Company Employees
Most cleaning companies have employees rather than independent contractors. This is an important distinction. Either way, they will need to be paid at regular intervals in accordance with whatever type of pay you agree to. This could be based on an hourly rate, or a fee per cleaning. You will be responsible for payroll taxes and most likely FUTA and SUTA, and let’s not forget workers’ comp. This is the price to pay for being able to exert maximum control over your workers – the what, the when, the how.
If you allow your cleaners to schedule themselves and you don’t exercise too much control over how they go about cleaning each site, you might actually have an independent contractor instead of an employee. In this case, they would be issued a 1099 instead of a W-2. Best practices for handling payment of 1099 cleaning company contractors would be for them to invoice you periodically, and you pay the invoice. Be sure you get a W-9 when first engaging their services so you’re not hunting them down in January in order to issue the 1099.
Alternatively, if you have both employees and contractors, you can also pay your contractors using your payroll system. This should not be confused with having to pay payroll taxes for them, just that whatever payroll processor you use should be able to integrate that into your payroll workflow.
Outsourced Accounting for Your Florida Cleaning Company
When all is said and done, keeping up with the accounting for your cleaning company can be relatively straightforward once everything is set up. However, if your time as a business owner is better spent on other things, you can always outsource this to an expert who will keep everything straight for you. All of my clients receive advisory services as well, so I come alongside you to help you understand your financial reports which enables you to make the most out of the good data you’re receiving.
The first step to engaging virtual Florida accounting services is to utilize my new instant quote calculator to get a ballpark for how much everything will cost based on your business’ actual needs. Then, when you’re ready to proceed, schedule a quick call so I can answer any questions and get everything finalized. I can take over your books in under a week when you’re ready and have you on your way to maximizing your business’ profits.
