You’re starting a gutter cleaning business so you have to look at the options available to you for business registration and insurance. What’s it all mean and do you need it? Let’s get into these questions.
Note: This is for U.S. based people. If you live in a different country, you can skip over most of this section. If you are in the states, please do not take any legal advice from me as fact and do your own research for your specific state. This section is only meant to be used as a guideline to help you get on the right track.
Reasons to Register a Business
- One of the reasons why registering a business would make sense is to be able to accept and deposit checks in the name of your business. For example, let’s say your name is Ron Baker and you started a gutter cleaning business that you creatively named Amigos Gutter Cleaning. Someone calls you and you tell them “Amigos Gutter Cleaning, How can I help you?”. You sell the job and a day later you come out and get the job done. After the job is done you collect a check and head to the bank. When you get to the bank, you notice that the check is made out to “Amigos Gutter Cleaning”. You try to deposit it but they don’t let you because it’s not in your personal name. If you had registered your business, you would be able to create a business bank account for “Amigos Gutter Cleaning” and be able to deposit checks into it that are made out to your personal and and/or your company name. This adds legitimacy and trust to your business. If you call yourself “Amigos Gutter Cleaning” but ask the customer to write a check out to “Ron Baker”, your name, they might be a bit uncomfortable because they have no idea that you are the owner of the business. I have had a couple situations like this where people refused to write it out into my name and only would do it to the business. But I have also collected hundreds of checks in my name without a problem as long as I mentioned over the phone that payments would be made out to my name.
- Another reason to get your business registered is so you can get liability insurance. I will go over this in greater detail a little later in this chapter.
So let’s say you want to register your business. What are your options and what are the pros and cons of each?
- DBA (Doing Business As). This is the simplest, cheapest and quickest way to register a business. In my city to register a DBA I just have to go to the City Clerk’s Office and fill out a form, pay $50 and I’m registered in under 30 minutes. I pay them an extra $20 to get a certified business certificate that proves that I am registered which I then take to the bank to open a new business bank account. A DBA basically tells the state the name you’re doing business as. So if your name was Ron Baker, the registration would say Ron Baker DBA Amigos Gutter Cleaning.
- Pros – It’s quick and cheap.
- Cons – A DBA doesn’t offer any real business liability protection for you. This means that if you screw up in some royally huge way and someone wants to sue your business, they can come after your personal assets because in this case, the business is you.
- LLC (Limited Liability Company). There are a few different business organizational structures available for you to choose from, but I will only mention the LLC because I personally think it’s the best option if you choose to register your business. Don’t take my word for it, do your research, seek out some professional advice and choose what you think is best for you, should you decide to register your company. Most states allow you to register your LLC online and usually the approval period takes 1-3 days max. Once your business registration is approved you can look it up online for most states and print your Articles of Organization documents which you would bring to the bank to create a business account, or you can request that they mail it out to you. Note: If you decide to register an LLC online, you will first have to create an EIN (tax id number) which can also be done within a few minutes online on the IRS website – https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online . More on this below.
- Pros – A LLC offers great liability protection. This means if you royally screw up and someone decides to sue you, they can only come after your business assets and not touch your personal assets, as long as you aren’t mixing the two.
- Cons – It’s more expensive. Some states by a little, some by a lot. I personally live in Massachusetts where it is $500/year but it can be as low as under $100 depending on which state you live in.
Before you register a business, you will need to get a Tax ID number, also known as an EIN number. You will have to enter your EIN number during your business registration process and without it you will not be able to register a business or open a business bank account in your state. Here is the definition of an EIN from the IRS website:
An employer identification number (EIN) is a nine-digit number assigned by the IRS. It is used to identify the tax accounts of employers and certain others who have no employees. The IRS uses the number to identify taxpayers who are required to file various business tax returns.
Getting a Tax ID number is free and you can have one within minutes by filling out a form on the IRS website here – https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
Even if you are only registering a DBA you should still get an EIN number so that you don’t have to give out your social security number on the DBA application form. An EIN number is like your social security number but for your business. This number is given to companies like your credit card processing merchants, allowing them to properly report your income so that the responsibility falls off of them and onto you for any money you make through accepting credit card payments which we will talk about later. Also, if you do large commercial projects where you get large payments, these companies will request a W-9 form from you which basically lists out your company information and your EIN number so that they can report the income to your company and know where to send the payment. On a W-9 form you can put your social security number or your Tax ID number. You want to give out your social security number as little as possible, so it’s best to get a Tax ID number even if you don’t want to register a LLC.
Insurance. Do I need it?
General Liability Insurance was created to protect both you, the business and your customer. Let me give you an example. Let’s say that you show up to the customer’s home to clean their gutters and you end up dropping the ladder which knocks out a giant bay window. Normally you would be held responsible to pay for it to be fixed. With insurance, you can file a claim and your insurance company will pay for the window to be fixed. Now let’s look at the home owner’s angle. Obviously the homeowner wants to feel secure in knowing that if anything goes wrong that someone (the insurance company) will be able to quickly come up with the required cash to fix any issue. More importantly if you or an employee of yours gets hurt on the customer’s property due to some sort of negligence or carelessness on the customer’s side, the customer could be held legally responsible. Not only that, but the customer can also be held responsible if someone working on their property injures someone else or causes damage to someone else’s property. The insurance protects them from these situations. General Liability Insurance is optional.
You’ll also come across the term “Workman’s Comp Insurance”. This insurance is non-negotiable if you have employees. It protects your employees if they get injured.
So, back to the question. Do you need it? Well let’s look at a few ways outside the ones mentioned above where it might hurt you to not have it.
#1. Homeowners are getting more educated and are starting to ask if you have insurance and if you don’t, they move onto another company. Normally, when someone requests your insurance proof, they are asking for an insurance certificate. An insurance certificate is a document that shows your insurance details and lists their address as being covered. Normally the process works like this:
- Homeowner asks if you have insurance.
- You say yes.
- Homeowner requests proof/certificate of insurance.
- You contact your insurance company and ask them for a certificate for the customer’s name and address.
- Your insurance company emails or faxes you the certificate.
- You forward the certificate to your customer and the customer keeps it on file in case anything goes wrong that requires contacting the insurance company.
- You schedule the customer.
Now if I had to tell you the number of homeowners that ask if I have insurance, I would say that it is about 1 out of 7. I always respond the same way by giving them my actual insurance numbers. “Yes, we have general liability insurance coverage for up to $2 Million dollars.” Of the average 1 out of 7 people that ask if I have insurance and I respond with that one liner, I would say almost zero ever request an actual certificate. Out of 1000 customers I have probably only requested 4 certificates for homeowners. I know of someone that has had no insurance for years and simply says that line and gets away with it every time. I wouldn’t recommend it as it’s deceiving the customer, but that all comes down to your morality and your confidence with the fact that you think nothing will ever go wrong.
The above stats are for residential jobs which account for 95% of all the jobs I do. Commercial is a whole different story. Commercial jobs don’t come by often, but when they do, and if you actually win the job, you can be looking at one job that pays the same as 10-40 residential jobs with a quarter of the work. With residential jobs the numbers are different. 90% will ask about insurance and follow up by asking for an insurance certificate. If you find that you are getting a few commercial requests a month that you think you can win, that alone is more than worth getting insurance.
When I first started, I didn’t have any insurance. At first I just did jobs for people that didn’t ask for insurance, which was the majority. For the ones that did, I just didn’t close the jobs. Then I started to get commercial leads and began to bid on them. Eventually I won one and needed to provide insurance documents. I didn’t have any so what I did was asked a friends father who had a construction company if I could use his insurance for this job and pay him a percentage of the job. He agreed and the payment from that job allowed me to finally sign up for my own insurance plan.
If you’re a one man show, you won’t be charged for Workman’s Comp insurance and general liability insurance isn’t too expensive. You can probably get a plan that costs between $100 and $200 a month. That’s relatively inexpensive if you consider the fact that it can be paid off in one gutter cleaning job and it opens the door to commercial jobs.
If you are considering getting insurance, I would recommend getting multiple quotes from multiple insurance agents before deciding. You will be surprised at how much the quotes will fluctuate. Also, mention that you work off of ladders and never get on the actual roof because that will get you a cheaper rate.