Business Setup

Do I Need to Have a Catchy Name for My Handyman Business?

If you’re interested in selling your business down the road you will want to have a catchy name.  It would be pretty tough to sell Jim Smith’s Handyman Service to Jenny Jones!

But there are some downsides.  Using a fictitious name (any name that isn’t your given name) will cost you some extra money.  Once you’ve chosen the name you’ll be required to register that name with the local authorities and to pay to publish the announcement of the name.  You’ll probably want to have a logo to go along with your new name too and that could mean additional expenses.

This is the route that I chose to take, but in retrospect I could have just used my given name and added “Handyman” as my title.  Besides saving on the cost of the filings and the extra time involved getting the paperwork together, I wouldn’t be on every credit card company’s mailing list under my business name!

Regardless of the name you choose, business cards are a must.  There are some great online print sources for professional looking cards listed on the Resources and Helpful Links section my website: SensibleHandyman.com.  You can lay out the cards online to save on graphics fees.

Order plenty of cards and give them out to everyone you know.  When someone asks for my card I always give them three so they have one to keep and two to pass on.

Who is Required to Have a City Business Tax Certificate?

If you do work within the city limits, where ever you are, there is probably a business license requirement.

Here is a quote from the City of Santa Rosa’s website:

 “Any person whose business is located in the city or conducts business in the city must apply for a business tax certificate within 30-days of the date the business commences. Conducting business in Santa Rosa without a business tax certificate can result in penalties, violation notices, citations and court action.  Whether you’re operating from home or a storefront, office or industrial park, you’ll need a Business Tax Certificate.”

As you can see, cities are anxious to register your business and collect a business tax!  Is your city the same?  Fortunately these taxes are usually very small but they do require some extra paperwork.

Go to your city’s website or call your city hall.  If you’re required to have one, bite the bullet and get it for every city in which you will be doing business.

Should I Specialize in One Type of Work?

After viewing the long list of projects above, you might be motivated to specialize in one particular type of work. I have been tempted to specialize because it is challenging to do so many different types of work.  On some jobs I find myself learning as I go and having to excessively focus on avoiding mistakes or wasting materials.

When you specialize in a particular area you gain economies of scale on your materials purchases. This improves your profit margins.  At the same time you minimize the cost of tools and equipment needed.  The work that you do becomes second nature and the learning curve for your helpers shortens.

Choose a specialty that has high demand and that you enjoy.  Your biggest challenges and your best earnings come when tackling the most demanding jobs in your area of expertise.  These are the jobs that only you, the expert, can do. Pest repairs, pressure washing, painting, landscaping, disaster preparedness, alternative energy, light carpentry, fence repairs, telephone and network wiring or home theater wiring are just a few examples.

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.

Do I Need an Accountant and a Bookkeeper?

Unless you’ve had a lot of experience with taxes, you may want to have a tax preparer complete your first year’s tax returns.  In subsequent years you can often prepare your own taxes by following last year’s example.

I have found that after the chart of accounts has been set up properly your bookkeeping system simply requires maintenance. Bookkeeping software has greatly simplified this once difficult task and has made it possible for someone like myself, who has moderate bookkeeping and tax experience, to do it myself.

Alternatively, you may have a spouse or partner available to do the bookkeeping.  If their time permits, in addition to preparing the deposits and paying the bills, they could answer incoming phone calls, contact clients regarding scheduling and make follow-up calls.  Your time would be freed up to make estimates and complete more jobs.  This arrangement could ultimately translate into better customer service for your clients and more income for you both.

The most important thing is that the bookkeeping and taxes be prepared accurately and on time.  Accountants and tax preparers are called experts for a reason, bring them in if you need advice and to save yourself time and aggravation.

What Should My Chart of Accounts Look Like?

Since the 1040 Schedule C is your basic profit and loss statement, I set up my chart of accounts to match the Schedule C as closely as possible.  You should need very few categories that aren’t listed on the Schedule C.  If your state has a sales tax and you have differing tax rates in your area you should break down your sales by tax region.  Also, keep track of tax paid on materials purchases by tax region.

Chart of Accounts

Income Accounts

Labor Sales (Broken down by sales tax region)
Materials Sales (Broken down by sales tax region)
Sales Tax Collected (Broken down by sales tax region)

Expense Accounts

Advertising
Car and Truck
Contract Labor
Entertainment
Equipment Rental
Insurance
Interest
Legal and Professional
Non-Tax Paid Purchases  (Broken down by sales tax region)
Office Expense
Purchases: (Cost of Goods Sold)
Repairs
Supplies (Not Cost of Goods Sold)
Tax Paid Purchases  (Broken down by sales tax region)
Taxes and Licenses

Employee Wages (If you have workers)

Wages
Federal Tax Withholding
FICA
Medicare
SDI (State Disability Insurance)
State Tax Withholding

Do I Need to Keep a Mileage Log?

Yes.  At the time of this writing, IRS Form 2106 instructions (for 2008 returns) had this to say about record keeping for your vehicle: “You cannot deduct expenses for travel…unless you keep records to prove the time, place, (and) business purpose…of these expenses.”

I keep a small spiral notebook in the visor of my truck.  Each morning I list the names of the jobs I’ll be doing and the current odometer reading.  As I go from job to job, I record the odometer reading.  At the end of the month, this page is torn from the book and added to the file that I keep for each month’s receipts.  (Every month has its own folder.)  When matched with invoices these logs serve as my written record of mileage and business purpose.

In the same spiral notebook; record the money you spend for gas, insurance, registration, maintenance and repairs of the vehicle.  Save your receipts.  At year end you will decide whether to take the standard mileage rate or actual expenses on your taxes.  Check the tax codes for limitations and for the current mileage deduction rates.

Can I Open a SEP-IRA Retirement Account?

According to the IRS; businesses, corporations and self-employed individuals can open retirement accounts including the SEP-IRA.  As a self-employed handyman the amount you can contribute is dependent on your profit for the year.

It is not easy to calculate your allowable contribution.  Always looking for a bargain, I opened a SEP-IRA at one of the large discount mutual fund families.  Their retirement planning department was great about answering my questions, they calculated my allowable contribution and all of their advice was free! Check with a tax professional or a financial planner to see if you qualify.

About Invoicing and Billing for Handyman Work

To promote a professional image and set yourself apart from your competition, you must use a professional looking invoice.  Customers appreciate having a paid invoice and you will find that all commercial work will require it.  The invoice that I use carries my logo, name and address, and has a place for the customer to sign that they have accepted the job as completed.  I leave a copy with the customer and keep the signed top copy for my files.

You can find handyman invoice templates here.  Print out the template; paste your logo at the top left and your name and address into the top right box and take it to your local full service copy store.  Have them create 2 part NCR (no carbon required) forms.  You should end up with 200 invoices for around $50. This is a real bargain when you consider the level of professionalism you just added.  If you will be doing commercial work, you should consider having the invoices printed with sequential numbering.  The numbering can be done at the time the NCR forms are printed.  Aluminum invoice boxes can be purchased at office supply stores to hold your invoices.

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