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You have decided that the cleaning industry is for you and you feel ready to become self employed. Now you must decide what business model will suit you best. There are 4 business models: Which One Is Right For Your Cleaning Business?

Below I will give you an overview of  the 4 business models, along with the pros and cons of each to consider.

Which business Model Is Right For Your Cleaning Business

 

1. Sole Trader

For the sake of this article, a sole trader is an individual that works by themselves for themselves; the business and the proprietor (owner) are one and the same in the eyes of the law. A sole trader cleans to make a living for themselves. As their business grows, a sole trader can register as an employer with the HMRC and is able to take on employees. A sole trader can also become VAT registered. All liabilities, debts and responsibility for the business lies with the proprietor of the business.

For further reading, please see articles from www.gov.uk on setting up as as a sole trader

Sole Trader – Pros

Sole Trader – Cons

  • Freedom – Run your business your way. Chose your branding, colours, strategy, website look, leaflet design etc.
  • Simple accounting required – Required to submit an annual self assessment and/or Payroll and VAT is and when required
  • Privacy – No requirement to make information public
  • Profit Retention – Sole traders retain all profits after taxes
  • Personal – No hierarchy, no red-tape processes, just you and your clients
  •  Unlimited Liability – There is no legal difference between the business and you. The businesses debts and liabilities are your debts and liabilities also.
  • Credit Rating of the proprietor can affect the credit rating if the business
  • Hard to raise funding – A sole trader may be viewed as less secure and unable to pay debts than a Limited company
  • Lower Sale Value – Investors or potential buyers may not value as sole trader business as highly as a Limited company
  • Responsibility – You and you alone are responsible for all decision making, problem solving, generating new business, recruiting new staff, training new staff, growing your business… you get the idea?

2. Cleaning Business

This is a business that is a Limited company or a LLP (Limited Liability Partnership) This is a business that operates in its own legal entity; the owner/founder are seperate and individual to their business. A Cleaning business employs 1 or more people to clean and has a manager or management structure. A cleaning business, for the sake of this article, is privately owned and run. A cleaning business provides employment in its local area and aims to make a profit on the services provided.

Limited Business – Pros

Limited Business – Cons

  • Status – “Limited” implies a structured, established and a safer option for both potential clients and/or investors
  • Finance – Because investments are protected to the value of the share, Limited companies are more likely to be able to raise finance and/or investment
  • Sale Value – A Limited company is more likely to be valued at a higher and be easier to sell on
  • Dividends – Dividends are exempt from National Insurance and are at a lower rate of tax than income from self-employment
  • Tax Rates – If you have a good accountant, a Limited business can be far more efficient at organising and managing its taxes and liabilities
  • Liability – Even though a Limited business has reduced liability, the Directors of the business can be asked for personal guarantees on the debts of the business
  • Administration – A Limited company is required, by law to submit statutory documents. Failure to do so will result in late filing fees and possible criminal prosecution
  • Privacy – All business accounts, director and shareholder information and other details are publicly held by Companies House – anyone, including competitors, can check your business details
  • Money – Withdrawals cannot be made in the same way as a sole trader, as it will cause confusion with what money is yours and what is the businesses

See this guide from Gov.uk on how to set up a Limited Company as further reading.

Which business Model Is Right For Your Cleaning Business

3. Franchise

These are existing businesses that have developed processes and operation manuals on how to run their business in a profitable and efficient way. A franchise is normally bought, by an individual, for the brand and the proven profitable business structures the franchisor has developed. As a franchisee you will have to pay for the rights to use the businesses systems and using the branding – franchisees are normally charged an up front fee, to cover the start up of their business, and are then charged a monthly fee, which is normally a percentage of profits or a flat monthly fee. As a franchisee you will learn the techniques and the business processes. The franchisee will follow set procedures for quoting and executing the work they do.

 Franchise – Pros

Franchise – Cons

  • Turnkey Solution – A turnkey solution means that there is a proven system to operate and grow the business and generate profits when followed correctly
  • Start Up Support – A franchisor will have training, manuals, and on-going support for franchisees, as it is in their interest that you and your business succeed
  • Brand – A franchise will have a known name and reputation. As a start up franchise there is a wealth of marketing, sales and business advice to refer to, learn from and use to promote your business
  • Recruitment – A known brand will find it easier to recruit, as potential employees know it is not a fly-by-night business and that offers security
  • Buying Power – A franchise will normally have more bargaining power and persuasion than a private business, when buying cleaning supplies, office supplies etc., due to its volumes and potential volumes of business.
  • Freedom – A franchise is not your business per se – you will not be able to change the colours of the brand, or create your own marketing materials for example. For a franchise to be successful it must follow the proven procedures in the manuals and training received.
  • Finance – You will have to openly declare your businesses accounts to the franchisor and will be held accountable to certain targets or objectives, usually by contract.
  • Money – You will pay an upfront fee for a franchise; a cleaning franchises average cost is around £16,500. As well as the one off “buy in” fee, you will also pay an ongoing royalty fee to the franchisor and must also ensure you have personal savings to live off for 3 – 6 months or until your earning get to the level they need to be to pay you a wage.
  • Limitations – You can only offer the services the franchisor says you can and use only the products that have been specified.
  • Reputation – You franchise is only as good as the reputation of your franchisor and your fellow franchisees, if someone misbehaves in the chain, it could have an effect in your profits

 4. Cleaning Agency

A cleaning agency is a little bit like a recruitment agency for cleaners, they are the middle men. A cleaning agency tends to be a office based business that will leaflet drop an area advertising for it’s cleaning services and, at the same time, recruit in the local job centers and local publications for self employed cleaners to fulfill the work. Working for a cleaning agent, you will still be self employed (see Number 1) but the agent finds all the work for you by using their brand to attract clients.

 Cleaning Agent – Pros

Cleaning Agent  – Cons

  • Client Base – A cleaning agent does the sales and marketing to find clients for you
  • Easy Self Employment – The process to join a cleaning agent is normally very quick. You are interviewed in your home, ID is checked and you are up and running!
  • Money – Paid in cash at the end of every clean, no chasing late payments or needing to invoice.
  • Insurance – The maid is normally insured by the cleaning agent whilst working on assignment
  •  Inconsistency – You may get 5 clients and fill your week or you may get 2 hours and need another job, depending on the brand and reputation on the agent in your local area
  • Money – You are paid an hourly rate. You are not paid for travel or mileage.  You will not get sick or holiday pay. The agent makes an “administration charge” of around £2-3 per hour on your clean
  • No support – No uniform, no training, no back office support
  • Self Employed – You will still need to register yourself with HMRC as self employed, sign up for self assessment, get a bank account etc.

How do you run your business? What business model did you chose and why? Would love to get your feedback or thoughts in the comments below.

Don’t forget to sign up for the Maid In Business monthly newsletter, full of the best content from the month and tips to help you grow your business. Also, come say “Hi” to me on Facebook or Twitter.

Next Wednesday: Buying A Franchise Vs Starting Your Own Business

Kelly x

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