Business Terms You Should Be Knowledgable About

As business owners, we're bombarded with different terms and knowing what's what if very important to the success of your business. I've seen an uptick in incorrect posts on different groups and this post is inspired as a catch-all for different terms to look out for.

Sole-Proprietors

Sole-Proprietors are business owners who have income and offset that income through expenses. Regardless if you have an LLC or corporation, or have neither, you have to pay taxes on income earned as a cleaning business owner. I see a lot of poster who get paid through sources like Cash App or Zelle and feel they don't have to declare their income because they aren't licensed or have a LLC in place. All income is taxable. Schedule C on your personal tax for is what you use, and if you see a loss in income, this is a great way to get a bigger refund and people aren't capitalizing on it. 

DBAs (Doing Business As)

Some states (not all) have a DBA designation, and some states actually require you to register as a DBA if you forego a LLC or corporation. Check with your state's laws. This is just a state-level term for sole-proprietors. 

LLC (Limited Liability Company)

An LLC is a state-recognized legal entity that protects the owner(s) from the company's debts and obligations. It's an important designation to have for your business, or if not that then a corporation (defined below).

I give this fictitious example all the time. Let's say you don't have any protections, insurance aside. Let's say one of your cleaners accidentally leaves behind a spray bottle of cleaning chemicals and the homeowner's little cupcake finds the bottle and sprays his eyes. This child goes blind, permanently. The family sues you for $2M and wins. Your insurance only covered up to $1M. You're on the hook for the balance and now your home, cars, personal savings, assets, and more are at jeopardy because you didn't have a LLC in place.

Let's repeat the scenario but this time you have the LLC in place. Your cleaner leaves the spray bottle. Little Timmy sprays his eyes. He goes blind. And you're sued. After insurance, you're still on the hook for $1M. But because you have the LLC, the buck stops there. Your personal assets, like your home and life savings, could be safe.

There are two types of LLCs: Single Member and Multi-Member LLCs. If you have more than one owner, then you cannot be a single member LLC and your taxes will change. Single Member LLCs pay income taxes in the exact same way as a sole-proprietor, in the eyes of the IRS. 

Your state issues LLCs. Rates vary from free to hundreds of dollars depending on the state and your status. I'm in Virginia and I paid $100 for mine. Generally you have to renew your LLC annually, depending on your state.

Corporations

Corporations are created through your state. This is another form of protection, like in LLCs. Aside from protections, a corporation makes it much easier to transfer ownership from one party to another. Generally you have stock and that makes it easier to take on new owners, set you up for succession, and comes in handy if you're growing through funding. In VA, the cost isn't that much different than a LLC but the process is a little more involved and a good accountant or attorney would be recommended.

For tax purposes, the IRS recognizes two types of corporations: S-Corp and C-Corp (well, there are others too like a B-Corp, but I won't cover that here). An S-corp is a pass-through entity where the expenses of the corporation, as well as income, is pass-through and is shared with the owners of that corporation. A C-Corp is where everyone, owners included, are considered employees of the corporation and the corporation pays taxes in one return (Form 1120) and the owners pay their own taxes as employees (Form 1040). Side note, LLCs (see above) can elect to be taxed as a S-Corporation through the IRS via form 2553. 

Business License

This is a big one. I've seen so many people say that an LLC or DBA (described above) is a business license. It's completely unrelated. Every state has their own laws with this. Generally, the states relegate licensing to the local level and that locality, where you are based as a cleaner, can decide whether or not to require licensing. 

For example, I'm in Virginia. Virginia leaves licensing up to the city/county. I'm in Fairfax County and licensing is required for every single business regardless of size. However, the tax associated with that license varies based on the size of the business and type of business. On the flip size, if I move my business down two counties, I don't have to file for a business license at all, or until my business hits $2M in revenue. It's different everywhere. 

If in doubt, contact your local county office or city hall and ask if there are any business licenses required to do business in your area. 

Special Use Permits

Vague term here, but some states or localities require a special permit to do business. Generally, this doesn't apply to cleaning companies. For example, a city may want to require a special permit for building contractors so they can keep tabs on any projects that require a building permit, to keep the community safe. Or maybe there's a permit to operate an accounting business. You wouldn't want someone opening a CPA business who lacks education in doing taxes or bookkeeping. 

But some localities do require permits to do business, and this is an aside from generic business licensing listed above. For example, in my county I have to have a solicitor's license to go door to door. This license requires a fee and they do a background check to make sure I'm not a career criminal going door to door. Or in the cleaning sense, our state requires a special license if I want to clean medical facilities' medical waste, like sharps containers or soiled linens. I have to have one license to collect it. I have to have a 2nd license to transport it. And there's a third license if I want to dispose of it in one of 6 authorized areas within this state. Aside from medical, within California, for example, you have to have a special license to do most types of janitorial work. Check with your local laws for clarity. 


Trademark (TM)

OK, so you put together a really cool business name. You register it in your state. It's not taken. You create an LLC or DBA. Is your name safe? No. You can have a registered name in your state but if someone owns that name (or even logo), you could be forced to change it. Trademarks are issued by the US Patent and Trademark Office (USPTO), as well as copyrights (to secure that written sales copy on your website, a blog, book, etc.) or registered marks (applies to TMs and Service Marks on unregistered products and services respectively). The USPTO also does patents. Let's say you have a new cleaning process that nobody else has and you want to protect that process. You can apply for a patent and then you and only you can use that process. 

I recall a legal case involving McDonald's in the early 80s. They sued an Irish pub for trademark infringement. The pub had opened over 100 years before McDonald's, and was called McDonald's but it was McDonald's fast food who registered the name first. I don't recall the suit's outcome but subsequent and future cases didn't end up so well for the fast food giant. Similarly my hometown growing up had a restaurant called "Dogs R Us". It was a family hot dog joint. Toys R Us sued them for trademark infringement and lost that case too.

To get a trademark on your business name, you'd want to hire a patent attorney to help you out. I helped another business owner I worked with in Trademark and Patents for his business but it didn't go so well in doing it on my own. Definitely technical and you need an attorney to help navigate the searches. If starting out in your own business, and you have a name, make sure it isn't registered in your state and make sure there isn't a trademark on that name. You can search your state and the USPTO respectively. 

Business Ownership Information (BOI)

BOI is a filing requirement through the Department of Treasury that links business owners by name with companies by name. No more shell games hiding this company under that. I did a recent blog post talking about BOI and went into depth on it. In essence, effective in 2025, you have 30 days after you file for your corporation, LLC, or partnership to file for a BOI. For those of you who are sole-props and not yet a LLC, ignore this. It doesn't apply. BOI reports are mandatory but it cost nothing and only takes about 5 minutes of your time to file.

Employer Identification Number (EIN)

An EIN is a number used by the government to assign a numerical value via a 9-digit number to your business. EINs are free to apply for. It takes minutes. But you need an EIN number if you ever file for a LLC or Corporation (in most states), or if you want to hire employees. It's not mandatory (you can use your SSN) but without it your options for some things are limited. 

Well, these are the common terms people get wrong. If you feel I left some off the list, reply in the comments below and I'll be sure to add to this list.

Next on Deck: Winning Through Marketing - Door to Door (Coming 12/18/24)