15 Easy Steps in 21 Days
This Chapter explains what to do once you’ve decided to start a house cleaning company. We assume that by this point in the process, you’ve already researched alternative industries, visited at least a couple of different maid service franchise headquarters, hopefully half a dozen local franchisees. If you’ve done all of that then you have a pretty good idea that the industry is right for you, that the franchise route is not right for you, and are ready actually start your own independent house cleaning enterprise.
Before proceeding with the 15 steps, you should have completed a detailed business plan and economic forecast. Of course, we would expect that you will have done so in connection with your industry due diligence and evaluation of the franchise alternatives. We encourage you to consider the sample forecast included in the HCA Articles if you require some ideas and guidelines in preparing your forecasts—there is absolutely no guarantee that you can achieve the results shown in those forecasts in the time frame shown in the projections. Indeed, if you are launching a house cleaning company in an inferior market, it’s probably safe to say that you will never achieve those results.
We attribute the disparity in failure rates between franchise and independent maid services primarily to this one single factor: most independent maid service start-ups are under-funded, while most franchise maid service start-ups are well-funded. So if you are an entrepreneur who has chosen not to purchase a maid service franchise, solely because you can’t afford to purchase one, then it would similarly be reckless for you to start an independent maid service enterprise. One final thought before we proceed with our 15 steps: if you have not read the Chapter entitled How to Buy a House Cleaning Company, then we recommend that you read that now.
Here is a summary list of the 15 steps to Starting a House Cleaning Company:
- Choose a Business Form (Day 1)
- Choose a Name (Day 1)
- Establish a Mailing Address (Day 1)
- Register the Company (Day 1)
- Order an Incorporation Kit (Day 1)
- Open Bank Accounts (Day 3)
- Get a Logo & a Website (Day 6)
- Choose an Insurance Agent (Day 6)
- Buy Two Company Vehicles (Day 7)
- Lease an Office & Get a Landline (Day 8)
- Create Marketing Materials (Day 14)
- Hire Four Employees (Day 16)
- Train and Sort Employees (Day 17)
- Advertise like a Maniac (Day 18)
- Get Your First Customer Referral (Day 21)
The 21 day schedule is mostly flexible, and there is a logical place for a break between steps 8 and 9, as it is not until step 9 that you will really start to invest much. If one were searching for a house cleaning company to purchase, as a means of entering the market through an acquisition, then it would be reasonable to complete these first eight steps and then pause, in order to pounce on the right acquisition once it arises. Waiting can be tedious and uncertain, so it is no surprise that most entrepreneurs don’t. When I am stuck in stop and go traffic, I always prefer the alternative road on which they I can head sixty miles per hour in the wrong direction, to the road which is on a logical route, but chock a block full of bumper to bumper cars moving at just five miles per hour. So, I’ll be the last to criticize anyone lacking the patience to enter the industry, by hunting for the right acquisition.
The easy answer is to hire a lawyer to assist you in selecting the proper form of business and company structure. It is standard good advice, but then so is “Pick the winning lottery ticket” and “Be sure you are born into money.” If you haven’t yet managed either of those, then you’re like us—you just want to begin business without wasting too much money. And in our experience, involving lawyers is nearly always a matter of the cure causing more anguish than the illness. We were lucky in the beginning to stumble upon a very valuable “How To” document written by the department of our secretary of state. So to begin with, we recommend that you spend a couple hours perusing the website of your department of state. If you don’t have time, or still can’t figure it out after you’ve visited your state’s website, then maybe you should go ahead and hire a lawyer.
In terms of business structure, we won’t advise you, but we can tell you our choice. Since we like living in our house, and planned from the beginning to someday be sued (without cause) by employees and customers, we chose to incorporate. If you decide to incorporate, you will create, by default, a C-Corporation, which means the company will be taxed on its earnings, and then you will be taxed again personally on any dividends from the company. We thought that seemed like quite a lot of income taxing, so we filed a form 2553 with the IRS and elected to become an S-Corp. So now any income from the corporation just flows straight through to our personal income tax return, and we are just taxed on it once. If you wish to elect an S-Corp, you can do so after you are incorporated by logging on to www.IRS.gov and filing form 2553. If you meet the limited criteria, your corporation will then become an S-Corporation. See, even the IRS offers choices.
Step 2: Choose a Name (Day 1)
The most important thing in choosing a name is to make sure the URL for your name is available in an optimal form. There are a lot of companies which can help with this—we use www.godaddy.com. Once you’ve researched the name online to determine if the URL is available, then log into the Secretary of State’s website and research the availability of the name in your state. Once you’ve determined the name is available in both places, then you’re almost ready to register the name with the state and buy the URL.
Step 3: Establish a Mailing Address (Day 1)
Be aware that you’re going to have to provide a mailing address when you register your website URL and also when you register your company with the secretary of state, and both records will become public. This may not be trivial; expect to receive considerable correspondence of sundry sorts as a result of both disclosures. So, you should consider whether you really wish to have your personal residence listed publicly in these records. We chose to lease a mailbox at a Pak-Mail store, and for a lot of reasons have been happy with this choice. Generally, it has: 1) provided better privacy; 2) provided better security of our mail (including correspondence and checks from customers); and 3) alleviated the need for address changes as we have moved locations of our physical office.
Step 4: Register the Company (Day 1)
Once you’ve chosen a name and established a mail address, then spend an hour or so online to register the URL and register the company with the secretary of state. In Colorado, and probably in your state, you can register on-line, which is much cheaper and also gives you instantaneous proof of registration/incorporation with a touch of the print button. You then need to apply for a Federal Employer identification number (in Federal documents referred to as EIN, most everywhere else as FEIN), also known as a tax identification number. You can do it online at www.irs.gov, using form SS-4. If you wish to elect an S-Corp status, you might consider doing so at the same time by printing Form 2553, fill it in and faxing it to the INS at the fax number in the instructions. If you fill in the EIN application form SS-4 on-line, you will get a provisional EIN immediately, confirmed by mail within two weeks. Under Colorado banking laws, you can use the provisional EIN to open a bank account, you do not need to wait for the confirmation. It’s likely the same in your state, but you’ll have to check.
Step 5: Order an Incorporation Kit (Day 1)
Suppliers, insurance brokers, bankers and what not are going to ask you for corporate minutes, proof of incorporation, proof that you are a corporate officer, etc. Although the Certificate from your Department of State will generally suffice, we have found it useful to create and maintain formal corporate records for board meetings and shareholder meetings. In this respect, we’ve found an incorporation kit to be really useful. We use one provided by the following company which specializes in Colorado forms: www.bradfordpublishing.com. Obviously, you should search for a kit which is tailored to your own state and form of business. Once you have the kit, and held your first board meeting appointing a President and Secretary, then you’re officially ready for business.
Forget the fancy seals and what not—you’ll never use them. Just get the basic incorporation kit which includes the bylaws, minutes, stock certificates and transfer ledger.
Step 6: Open Bank Accounts (Day 3)
Once you have the Federal Tax Identification number, the incorporation proof from the department of state, and your board minutes, then you’re ready to open bank accounts. As an independent startup in the maid service industry, statistically, bankers know you’re doomed to fail. Come back after a year when you’ve beaten the odds and they’ll treat you differently. In the beginning, just be glad you found a banker willing to return your phone calls.
We have found it extremely useful to maintain three accounts: general disbursement, payroll, and revenue bank accounts. If you are strict about the use of the three accounts, then the bank statements themselves will serve as accurate records of revenue and payroll. Having three accounts does require some extra shuffling of funds, but we find it worthwhile (the transfer can be done on-line or by phone).
Banks typically offer a Visa or MasterCard credit or debit card account when you open new corporate accounts. You’re going to need one, in order to buy stuff online. It’s best to immediately get a corporate card, because otherwise you’ll just end up using your personal credit card for business purchases, and that can create quite a tangled mess later at tax time in terms of separating personal and business expenses. Of course, we are not suggesting that you use credit cards as a source of credit. If you find yourself revolving credit cards to finance your new venture, then you’re basically toast. We use an American Express card when we can (about 75% of vendors will take Amex, in our experience), and depend on our Visa and MasterCard cards for tracking expenses, not as a form of credit.
Aside from credit cards, you might also consider initiating the process of opening a merchant credit card account before you get started. This can take some time. We offered credit cards as a form of payment from the first day, but weren’t actually able to charge cards for the first two months because of delays in organizing all the details of charging cards. Luckily, we didn’t have many jobs to charge during that period, so not being able to charge the cards immediately wasn’t much of an inconvenience. In terms of shopping for rates, it’s going to be tough starting out. If you want a merchant account, we recommend asking for one as part of the deal of opening your other bank accounts with whatever bank you’ve chosen for your business checking accounts. Take whatever rates they offer you (expect them to be punitive) with a view to renegotiating rates after a year.
Once you have a business credit card, then you can buy a website. You’ll need a logo when you start your company; generally whoever does your website should be willing to do your logo for free.
In the past several years things have changed considerably in the house cleaning industry, because consumers have moved to searching online for service providers. So gone are the days of having your nephew create a chintzy website for free. Get a great website, because it gives you credibility, and when you start out, credibility is in short supply.
If you have not previously depended significantly on web-based marketing, then it may not be obvious that there is no danger of prospective customers stumbling upon your website before you have advertised it. So between steps 7 and 14, expect to get precisely zero phone calls from prospects who may have found your website. Because, until you advertise your website, it is like the billboard in the desert—nobody sees it. The value of pushing step 7 before the pause is that search engine recognition is dependent on many factors, one of which is time. So for that reason, and to allow ample time for you to refine the site and coordinate the content with your marketing material, we recommend that you create your website early on in the process of starting your company, rather than just in time for the launch.
Of course, we recommend that you lease a site from www.house-cleaning-alliance.com. You’ll find the process incredibly fast, affordable, and painless. And the sites are scaleable—you can upgrade and revise the sites continuously as your company develops.
Step 8: Choose an Insurance Agent (Day 6)
Now you’re gearing up to make some commitments and spend some real dough, so it’s time to contact your insurance agent. In the beginning you’re going to get not so good rates, so it’s best just to choose somebody you already know. We chose Allstate. They were able to offer every kind of business insurance we required, including the following:
- Worker’s Compensation – if employees ever get hurt on the job, this insurance covers it.
- Auto Insurance – Insure your own vehicle against damage (collision), damage to other vehicles or property (liability), and vehicle medical insurance.
- General liability – for burning down customer houses and other such things.
- Fidelity Bonding insurance – insures clients and yourself against employee dishonesty.
- Renter’s Insurance – for insuring the contents of our office.
Once we became established so that vendors started taking us more seriously, then we were able to shop every policy and improve rates substantially; some we moved, some we simply renegotiated with the current vendor. It wasn’t until we became established that we were able to get any bargaining power. In the beginning, we were just happy when vendors bothered to return our phone calls.
Now that you have the bank accounts, a logo, and an insurance agent, you’re ready to buy and prepare company vehicles and equipment. For the vehicles, there are a lot of reasons for buying company vehicles, and countervailing reasons for relying on employee vehicles. You need to look no further than the major franchises to understand that both operating models can work – the largest franchise, Merry Maids, does not buy cars, while most of the rest do. You can read other Articles in the House Cleaning Alliance library about this topic, if you’re still trying to decide whether you should buy company cars.
To be brief, you’ll enhance your growth by using company vehicles. We recommend buying vehicles for $3k to $5K, then painting and lettering them. At this price, you won’t have to carry collision insurance on the vehicles, which can represent a substantial savings over time, and you won’t be as disappointed when the vehicles are trashed by employees (as they ultimately will be).
If you plan to scale, you will over time realize the value of selecting a uniform vehicle model. We chose Astros / Safaris. Now we have 20 of them lettered and blue running all over Denver, and they create brand recognition with customers and prospective customers. Aside from that, having a single model simplifies parts and maintenance. Smaller vehicles are more economical, but are less safe and more likely to be totaled in an accident. We suffer between 10 and 20 collisions per year, resulting in two to four auto insurance claims against our own policies per year.
Getting the vans painted and lettered will take some time, because you need the paint to cure for at least one week before applying the vinyl lettering. Consider choosing a standard Maaco color for the vehicles, as you’re going to be returning for repairs and repainting from time to time, and matching paint will become an important issue as fenders and doors are repainted. We have found that Maaco offers good enough painting and bodywork for affordable prices.
In terms of equipment, we recommend that you buy enough for two teams from the Maid Service Shop. The prices there are the best available, and the equipment offered is precisely the same as that used by Denver Concierge. Prices in the store continue to decline as the store’s volume increases—they are set to break even for sales at member prices to our farthest customer, in Maine. The Maid Service Shop carries every part for every vacuum it sells.
If you decide to buy from the Maid Service Shop, then you should buy well in advance of your launch date, so you can sort out any details and get the chemical dispenser shipped and installed.
Step 10: Lease an Office and Get a Landline (Day 8)
The maid service franchises require their franchisees to lease an office, not operate from home. Doing so just makes good business sense, and when it comes to hiring employees, you will be competing head-to-head with the franchises, so if you intend to scale, you should get an office from the outset.
When choosing a location, we favor one near your employees versus near your customers. Some of the franchisors, like MaidPro, recommend precisely the opposite on the basis of reducing travel time, and facilitating visits by customers, but then the MaidPro franchisors are not the ones paying the higher rent and suffering the day to day difficulties of attracting and retaining employees. In our six years, we’ve had only two customers visit our office. No doubt you should be aware of the tradeoffs when selecting a location.
Try to sign a lease of only two or three years. That will allow you to get a small cheap place in the beginning and then grow out of it. We find purchasing a property for use as an office hard to justify, since you should plan on moving every several years. Aside from that, an error in choosing a location might be only mildly painful if you have a three-year lease, but could prove fatal for a newly-minted entrepreneur purchasing the wrong site.
Don’t underestimate the amount of time it will take to get a land line installed, and don’t trust the phone company to give you the numbers they promise. Get the number, make sure it works, and only then finalize your marketing material and business cards.
Some companies skip a landline altogether. We don’t recommend this approach, considering the importance search engines seem to placing on landlines.
Why day fourteen? Spend some time researching local competition. You’ll need a couple of weeks to get in-home quotes from 20 competitors, and have your house actually cleaned professionally by several of them. With your competitors’ marketing material, and your own original ideas, you will have established the standard scope for your own company and be set to create some fantastic marketing material.
Step 12: Hire Four Cleaning Professionals (Day 16)
We’ve started only one house cleaning company, but we’ve also seen dozens of others being started, and from those experiences we make two observations: 1) hiring employees before you need them allows for better training, better service, and contributes to higher initial growth rates; and 2) hiring employees before you need them is darn expensive.
It’s not an all or nothing proposition, but we have noticed a correlation regarding how entrepreneurs approach this. Fundamentally it comes down to what value a new entrepreneur puts on his own time. Someone who has been cleaning houses for a living won’t tolerate even one hour of un-chargeable employee wages. Conversely, someone accustomed to a six figure income, won’t tolerate any factor which might slow growth initially. Hiring extra employees in the beginning can get a company to $250K revenue per year so much faster, but doing so is undeniably very expensive.
Step 13: Train and Sort Employees (Day 17)
If you’ve read the Articles in the House Cleaning Alliance about the Training Designer and Employee Performance Evaluations Designer, then you’ll understand what we mean by training and sorting employees. If you haven’t then, we encourage to do so at once.
In our first year, we didn’t try so hard to balance our labor force with our level of work. If we had, we would never have hired anyone, because when you start with zero employees and zero customers, you have a textbook case of the chicken and egg. So we started by hiring only full-time employees and then found work for them. When they weren’t chargeable, we found them non-chargeable work which contributed to their training or our marketing, like cleaning a friend’s home for free or running door hanger fliers.
We never said, “No.” By industry standards, our growth in the first year was phenomenal, and we considered the losses we incurred during our initial eighteen months as an investment. In our first year, we earned a fantastic reputation and loads of referrals, and much of this we attributed to carrying extra employees, something which we continue to do to some extent, even still today.
Aside from that, especially when you first start out, you have to plan for hiring duds, and in the beginning one dud out of four represents an unacceptable ratio. You have to sort, eject, clean with one team of three, hire another, clean with one team of four, suffer a quitter, back to three, keep training, hire another, up to four again, hire another, suffer another quitter, promote one to a team leader to lead a new team of three, and so on and so forth.
Until you get to four teams of twelve employees, then it pays to be flexible with team size. And especially in the beginning, your reputation will be determined primarily on the basis of how well you sort and train employees.
Step 14: Advertise like a Maniac (Day 18)
Web-based advertising is flexible. So when the time comes, step on the gas with both feet by using Google Adwords and Yahoo banner ads. The amount you spend should be determined by the size of your market and competition for ad spots, because prices for the ad spots are set via auctions.
And other forms of advertising might work too, but don’t lock yourself into any long-term advertising commitments. For us, advertising in publications and phone books has proven to be particularly wasteful. We get about ten offers per week to advertise in various mediums. In the beginning, if your phone isn’t ringing and you have a team sitting on the bench, it’s easy to be lured into accepting. Most of them will require you to sign an advertising contract. And the lamest of them will require a minimum advertising period of a full year or even longer. You will regret signing almost immediately. Once you get started, you’ll see what we mean.
Step 15: Get Your First Customer Referral (Day 21)
When I hear of those mediocre-sized house cleaning companies which consider themselves industry leaders just because they have managed to stay in business for fifteen or twenty years, I can’t help but think of how many customers those companies must have churned in all those years for them to still be smaller than Denver Concierge was after only two or three years. Think of it in those terms and you come to realize that for a house cleaning company, customer churn is the number one factor determining growth.
Denver Concierge has blown their doors off in terms of growth by KEEPING customers. The company now has revenue of $38K / week, after six years. Based on its current growth rate, we expect Denver Concierge to have about $45K / week after another year, with about half the increase falling straight to the bottom line.
If you manage to keep customers happy, you’ll manage to KEEP customers. You’ll also earn a valuable bonus—client referrals. If you are performing exceptional service, then client referrals will represent a significant source of new customers. Get the first one, and it’s official: you’re in business.