Chapter 2 – Setting Up Your Handyman Business

What About Preliminary Notices and Mechanics Liens?

Here is a definition for you:  A Preliminary Notice contains language which describes the details of the contract and who the interested parties are to the transaction.  It also makes a statement to the property owner that a mechanics lien could be placed on the subject property, what the consequences of such a lien placement are, and what their remedies would be.  The placement of a Mechanics Lien helps to ensure that you receive payment for your services.  The owner of the property will not have clear title until the lien is released.

I’ve never filed a Preliminary Notice or a Mechanics Lien for work that I’ve done as a handyman.  Would I be sorry that I hadn’t?  Yes, if I’d done work for a homeowner or a contractor and never got paid!

As a handyman, we continually work under the assumption that we will be paid for the work that we do.  If payment is never received, the homeowner has great leverage against us.  It is usually impossible to repossess the work that we did.

A Mechanics Lien is our way of insuring that we receive payment.  The Preliminary Notice is the first step in the process and it lets the homeowner know that a Mechanics Lien could be filed.  This in itself is often sufficient to prompt the homeowner to pay for the work making the actual filing of the mechanics lien unnecessary.

Check your local authorities for details.  Each state has its own filing requirements, time restrictions and laws.

Should I Incorporate My Handyman Business?

What legal business structure should I choose?  The three most commonly chosen legal business structures are Sole Proprietorship, Limited Liability Company (LLC), and S Corporation.  Because I am not a lawyer or a tax attorney I am not qualified to recommend one structure over another.  I can only tell you what I have done and strongly recommend that you consult with an attorney and an accountant before making your final decision.

I chose the simplest and most basic structure you could set up, with all of its benefits and pitfalls – the Sole Proprietorship.  As a Sole Proprietor income is reported on the individual income tax return (1040, Schedule C) so there is very little additional paperwork.  If you choose this option you represent the company legally and fully and you are personally liable for all debts and actions of the company.  If something went drastically wrong with a job you completed your assets could be at risk.  This makes it very important to carry sufficient liability insurance.

I suggest you seriously consider forming an LLC, particularly if you have a lot of personal assets and/or will be hiring employees.  Since the handyman trade could be considered a high risk industry, many handymen choose this option.  This structure affords the members (owners) the liability protection of a corporation.  Unfortunately, this liability protection may not be complete as you could still be held personally liable for your actions if you have signed a personal guarantee.  Personal guarantees are often required by banking institutions if you get a business loan.

A third option, often chosen by contractors is the S Corporation (Small Business Corporation).  This structure allows the profits to be taxed in a way similar to a Sole Proprietorship avoiding the double taxation problem inherent to the corporate system.  As with the LLC, the presence of a personal guarantee would leave the owners personally responsible for debts.

For inexpensive legal advice I became a member of Pre-Paid Legal Services.  This is an extremely low cost legal service that I have found to be a great asset.  For less than $20 per month you have legal advice that is just a phone call away.  It’s a lot like having a lawyer on your payroll!  Pre-Paid Legal associates are easy to find and they will be glad to sign you up.

About Record Keeping and Taxes

Federal income taxes, state income taxes, city business license tax, sales tax, payroll taxes, wow!  Taxes and recordkeeping can be quite a load.

Your record keeping will make or break your business success.  Setting your books up correctly from the start will make everything easier when it becomes time to prepare your taxes.

Here are some keys to success:

  1. Open a separate checking and savings account for your business.
  2. Get a new visa card strictly for your business use.
  3. Keep all of your receipts, job invoices and bank statements.
  4. Purchase a box of file folders to store your receipts, invoices and bank statements.  Keep them in a file drawer or file storage box organized one folder for each month.
  5. Keep separate files for insurance, sales tax, business taxes, and licensing.
  6. Maintain mileage logs reflecting odometer readings and job names.
  7. Use a computer based bookkeeping system and set up your chart of accounts as shown below.
  8. Keep on top of your bookkeeping.  Don’t let it pile up!
  9. Be aware of the different sales tax rates you may have in your area.  In my immediate vicinity there are four different sales tax rates.  Because of this, I keep track of my sales by area. This helps tremendously when the time comes to complete the sales tax return!

I do all my own bookkeeping and file the returns myself.  I use Quicken® because it is inexpensive and easy to use.  Any bookkeeping system should help you successfully track income and expenses and easily complete your taxes.

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