Keeping Your Claims History Clean
Risk Management Guide for Janitorial, Maid, & Cleaning Services

Chapter 1: Understanding Your Risks
Part 1: Do You Know Your Cleaning Business's Vulnerabilities?

The future is bright for small-business owners. According to the Small Business Administration's article "Small Business Trends," the U.S.'s 23 million small businesses account for 54 percent of all sales in the nation. And those numbers are projected to keep climbing.

But no matter the positive forecast, running any kind of business comes with risks. The SBA also reports that…

  • About 50 percent of all new establishments fail within the first five years or more.
  • Nearly two-thirds fail after 10 years or more.

If you want to be on the opposite side of that statistic, you must be prepared for twists and turns along the way.

When you're a small-business owner, losses could be hefty enough to derail your venture. While you may not be able to prevent accidents or natural disasters from happening, you can plan for these worst-case scenarios. To help you get an idea of where your risks lie, consider the following factors:

Licenses and Permits

To operate any kind of business in a legal capacity, you need to obtain the appropriate business permits or licenses from your county clerk's office. You can look up your state's business licensure requirements through the SBA's search tool, Find Business Licenses & Permits.

Most businesses also need an Employer Identification Number (EIN). You use this number for your employees' taxes. Even if you don't have employees, it's a good idea to register for an EIN in case you hire them in the future.

Finally, if your cleaning business operates under any name other than your personal name, you may be required to register your Doing Business As (DBA) name. Your DBA is the legal name of your business that you use on all federal and state forms (such as taxes and employment records).

Failure to meet your business's legal licensing and permit obligations can result in fines.

Health and Safety

If your cleaning service does have employees, know that you are responsible for ensuring their safety. If you fail to meet the safety regulations enforced by the Occupational Safety & Health Administration (OSHA), your business could be fined for every violation.

When it comes to cleaning services, OSHA typically regulates the following areas of safety:

  • Eye and face protection.
  • Hand and foot protection.
  • Toxic and hazardous substances.
  • Ventilation.

For more details on federal safety standards, check out OSHA's manual, Protecting Workers Who Use Cleaning Chemicals.

Policies and Contracts

Lawsuits can arise when clients become dissatisfied with your work. Manage your clients' expectations from the start with contracts that clearly define …

  • Your rates.
  • The services you offer.
  • The manner in which work will be completed.
  • Who is responsible for purchasing cleaning products.

The more specific you can be, the better. Get your terms in writing and remember that in order for a contract to be legally binding, there must be an exchange of value. In the case of your cleaning business, the exchange is your cleaning services for money.

Also, both you and your client must agree to the terms of the document and sign it. To ensure your standard contracts hold up in court, consider having a lawyer review your templates, which you can use over and over.

Employees

Hiring employees can be tricky work. You want to retain the top talent for your team, but you must make sure your business adheres to federal and state employment regulations. Educate yourself about basic employment laws that regulate:

  • Illegal discrimination.
  • Workers' Compensation Insurance.
  • Employment interviews / hiring practices.
  • Minimum hourly wages.
  • Child labor.
  • Documentation for legal hires.
  • Independent contractor classifications.

The last bullet point is especially relevant in the world of cleaning services. Sometimes it can be difficult to tell whether someone is legally an employee or an independent contractor. But be aware that if you classify every cleaning professional who works for your business as an independent contractor, the IRS may target you for an audit.

Certain criteria must be met in order to be an independent contractor. You can read about those rules on the IRS's Independent Contractor Defined page. If you misclassify your employees, you may be subject to penalties.

Personal Liability

Being a sole proprietor is the simplest legal structure you can have for your business. However, it is also the riskiest because there is no legal distinction between the person and her business. This setup means the owner personally receives all the profits — and debts — her business accrues.

You can run into trouble if you are ever faced with a judgment and you don't have the commercial assets or insurance to cover the loss. When that happens, your personal assets can be collected.

To prevent this from happening, consider registering your cleaning business as a limited liability company (LLC). If you'd rather keep your business structure as a sole proprietorship, carrying adequate liability insurance can safeguard you from potential losses.

Business Liability

When running a janitorial business, the potential for lawsuits is ever present. For example…

  • Your employee could accidentally damage someone's property.
  • Someone could walk into your client's building, slip on a freshly mopped floor, and break a hip.
  • You could accidently use a copyrighted image on social media.

In each of these scenarios, you could be sued for damages. With adequate insurance, you can survive these unexpected lawsuits.

And if you need more convincing about how often small-business owners are targeted by lawsuits, check out "We the Plaintiffs," an infographic by AboveTheLaw.com.

Next: Chapter 2: Understanding Cleaning and Janitorial Insurance Policies

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