Mistakes Carpet Cleaners Make
When starting a carpet cleaning business, we rarely consider the various ways we can create problems for ourselves.
We purchase expensive equipment and advertise our business in the weekly newspapers and ultimately we become a legitimate business in the public eye, right? Wrong!
When consulting, the first series of questions I ask my clients is related to the company’s financial situation. It is amazing how many small carpet cleaning operators can’t see what can hurt their business. Not knowing what can hurt your business is like driving a car blindfolded.
Blindfolded business owner can drive a distance without hitting obstacles. However, when you navigate long enough in the blind, you are bound to crash into something. Likewise, your business will struggle when you fail to follow best practices for running a carpet cleaning operation.
Here are six common mistakes that can hurt a carpet cleaning operation.
Mistake # 1
Failure to track your income and losses.
When I began consulting, it was obvious to me that many owners don’t track their income and losses. Does this describe you? Can you create a budget? Do you have a budget in place? If you don’t, you’re not alone. Many carpet cleaning business owners don’t, either.
Business owners may know what a budget is; however, many have no idea how to create a budget or how to adhere to one. This is exactly the point I am trying to make here.
Large multi-truck operations have a dedicated person to watch the Profit and Loss (P&L) of their business to help the company stay within their budgets. Most small carpet cleaning operations need to hire a certified public accountant (CPA) to explain how a budget works and to help them to understand their numbers.
The lesson small business owners receive from their accountant can be an eye opener to many. It can be shocking to discover the reality that you may not be making as much money as you think.
Once you have a budget in place to track your numbers, it will assist you in controlling frivolous spending. Tracking your spending will assist in helping you to make better choices with your company’s revenue. I need to stress before moving on that you shouldn’t delay creating a budget. A budget is critical to the success of your business and is something you should never overlook.
Mistake # 2
Co-mingling your personal and business bank accounts.
It is very common for small carpet cleaning operations to co-mingle their personal and business bank accounts.
Do you use dedicated business funds for personal purchases? If this describes you, I strongly recommend that you set up payroll accounts for yourself and your spouse, if he or she is also employed by the business. It’s important that you live off of what you pay yourself and avoid using your business account like a piggybank.
There must be a “fire wall,” so to speak, between your personal and business expenses. Why is this important? It’s important to follow Internal Revenue Service (IRS) accountability guidelines, and if you are established as a Limited Liability Corporation (LLC), separating personal and business accounts provides you with accuracy in accounting that give your business an identity of its own to protect your personal assets.
When you co-mingle your personal and business banking, you unwittingly pierce the corporate veil of protection. This leaves your bank accounts vulnerable to IRS scrutiny which could lead to a ruling that your business account is personal and not business. What could result is an invalidation of your corporate status as well as possible penalties. To avoid this unsavory outcome, never co-mingle your personal purchases with your business account.
Not paying estimated taxes.
Money is very tight these days and it is tempting to wait until the end of the year to pay your taxes.
It bears to be emphasized that the IRS requires all small businesses to pay quarterly estimated taxes. As you know, taxes are already calculated; all you need to do is deposit the money into the bank on payday.
You write one check for FICA withholdings to the IRS. Be sure to keep accurate records of all your deposits. This is nothing you want to play with. Be dutiful in making on time deposits!
When you are a corporation, the IRS requires you to pay estimated taxes quarterly on your projected income for the year. You need to consult an accountant to make sure you are withholding the correct amounts. Do not try to under pay the estimated amount. If you do this it will trigger a large penalty and audit, and is not worth the added scrutiny.
Delaying payment of estimated quarterly deposits on a 1040 ES can dig a financial hole so deep that it could take years to recover from this debt. It’s much better to simply to get into the habit of depositing these accumulated funds as you are paid.
Treat the IRS like a hungry newborn infant who must be fed at regular intervals, and you will never get into troubled waters.
Over capitalized in equipment.
Most carpet cleaning operators have big plans for their business. One common mistake is to spend your discretionary monies on impetuous purchases of equipment you do not need.
Please avoid purchasing frivolous equipment to feed an unquenchable appetite for a dream whose time has not yet come. Equipment hoarding for a far-off dream can cripple your business.
You don’t want to make the mistake of thinking that a lot of equipment is an investment. You want to invest in a debit-free lifestyle that doesn’t depreciate. You want to invest in a retirement account and into your family residence.
When you review your current business situation, you may discover that you have blurred the line between a “need” and a “want.”
Not investing enough capital back into the business.
Not long ago, I received an email from a young entrepreneur who was eager to hire me as a consultant.
He stated that his business had plateaued and he needed expert help. The advice I gave him helped him to see his business from a different perspective, which included three strategies he could use to grow his business:
1. Purchase better technology than your competition.
2. Hire an industry consultant to help you. This will shorten the learning curve.
3. Boost your marketing efforts like never before.
Equipment is only one component; there is also the human capital aspect to consider. When you are hiring an employee and/or a consultant at the right time, it can catapult your presence in the marketplace.
The person you entrust with your strategic business plan is very important. Employees can create an awesome cleaning experience for your clients. And a professional consultant can help you to troubleshoot shortcomings in your operation.
Although this economy may lead you to cut back in certain areas to conserve revenue, it’s important that you avoid cutting back on marketing. An effective marketing strategy brings increased revenue.
Not having working enough capital to run your business.
How would an infusion of cash impact your decisions? Would you purchase equipment, or would you become more circumspect about your financial choices?
I learned long ago “advice not asked for, is advice not followed.” Therefore, always ask for professional advice before you spend money on equipment or other expenditures that may become more of a liability than something that will make your business flourish.
There are different schools of thought about the amount of working capital that you need to operate a business. The rule of thumb is to have six months to one year worth of untouched working capital.
Working capital gives you great options. You can do many things with working capital, including attracting the best technicians and offering them benefits, which makes them cheerleaders for your business.
Michael Morrow is a weekend consultant for Goldmarc, speaker and an IICRC approved instructor. Morrow lives in Scottsdale AZ with his wife Leslie. He can be reached at (480) 388-4742 or [email protected].