How to expand the business?

How to expand a business?

• My mom has a housecleaning business she's been running by herself for 6-7 years. I've always told her that she should expand the business by getting more clients and hiring employees. I'm planning on helping her in any way possible but I'm not really sure where to start. She works by herself at the moment. I have a few ideas on what should be done but greatly appreciate any other input as well. What does she need to do to increase her clients, hire employees and essentially make a bigger profit. Are there any legal issues involved with this? P.S. She does have her cleaning license.

• Answer:

  First, you'll want to be sure that there's enough margin to support employees. Typically, you'll need to charge clients at least double what you pay your employees. (Keep in mind that, with payroll taxes and other expenses, it costs you about 20% in addition to wages to hire an employee. If you pay them $10, your real cost is $12.) And as you have more employees, you (or your mom) will spend less time earning and more time managing, so you have to make enough to pay for your time. Get a payroll service-- the penalties for doing tax deductions wrong is steep. Quickbooks has them at reasonable prices. Don't mess around, it can cost you a lot of money. Adding employees is a matter of having the help available as you add clients. The first employee is the hardest because you start with enough work for one person (your mom) and you want to keep two people busy (your mom and the new employee). So each of you will have 1/2 the work you need. Then, as you add more business, you'll have three employees and enough work for two, which means each person has 2/3 of the work they need. With each additional employee, it gets easier. When you hire, be sure your employees understand you're paying only for the hours they work so if they're not working you don't have to pay them. As far as legal issues, the main one is liability. You'll want to get a liability policy-- talk to your insurance agent. You'll also need workers comp insurance. There are also rules about nondiscrimnation and proper hiring and firing-- you can learn about these online. You want to be especially sure you don't violate any federal discrimination laws. And following state laws can help you avoid unnecessary expenses such as higher unemployment insurance premiums. If this works well for you, after a while you may want to incorporate. This will help limit your financial liability, as well as reducing your self-employment tax. Some people recommend LLCs, but in most situations in the states I'm familiar with, a Subchapter S corporation is better for a service business. But cross that bridge when you come to it. By the way, I've never found the Yellow Pages a good place to advertise for a small service business. If you were looking for a cleaning service, would you pick someone at random out of the Yellow Pages? The clients who do are not the kind of clients you want. Besides, you have to sign a year contract that's nearly impossible to get out of if it doesn't work. Focus on flyers, face-to-face sales, and referrals. If you're good, eventually you won't need to advertise. Good luck!