Should I Start an LLC for My Dry Cleaning Business?

Starting a limited liability company (LLC) for your dry cleaning business can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a dry cleaning business, lawsuits can arise from things like customers’ clothes going missing or being irrevocably damaged as a result of an employee’s negligent behavior.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your dry cleaning business seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for a Dry Cleaning Business?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should start an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Dry Cleaning Business

By starting an LLC for your dry cleaning business, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Dry cleaning businesses will benefit from liability protection because of the risk of product liability, burns and scalds, trademark infringement, property damage, workplace accidents, and even financial data breaches.

Example 1: A customer brings an expensive suit to your dry cleaning business to have it cleaned ahead of an important event. However, an employee accidentally spilled coffee on the suit, leaving it completely ruined. As a consequence, the customer sued your business for this property damage on the basis that your business’s negligence caused it. In the ensuing court case, your personal assets would be protected from any liability to pay damages.

Example 2: After an employee at your dry cleaning business bumped into a customer in the shop, the customer suffered a broken collarbone. If the customer were to sue your business for the bodily harm they suffered on your premises, limited liability would ensure any damages can only be levied against the business’s assets.

Example 3: After taking out a substantial loan in order to inject some initial capital into your dry cleaning business, a downturn in the economy causes it to greatly underperform. You soon realize this means you won’t be able to repay your business loan on time and notify your creditor of this. This prompts the creditor to sue your business for defaulting on this debt, though your personal assets would be protected from any liability imposed on your business to pay damages.

Example 4: A customer’s clothing items are badly damaged by a malfunctioning dryer, costing her thousands in replacement expenses. She sues your business for the damages.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Dry Cleaning Business

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a dry cleaning business owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Dry cleaning businesses rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

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How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a dependable LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

All LLCs, like other businesses, require insurance because they possess assets they need to protect from liabilities. For dry cleaning businesses, the value of their stores and equipment makes this insurance even more pertinent.

Limited liability provides a similar form of protection for an LLC owner’s personal assets as business insurance can for a business’s assets.

Common Situations Business Insurance May Cover for a Dry Cleaning Business

Example 1: Some children are playing inside your building, and one of them climbs into a clothing conveyor, which ends up starting with the child inside. In the event your business is found liable for injuries to the child, general liability insurance would likely help to cover whatever you owed or any settlement reached regarding the accident.

Example 2: A malfunctioning machine leaks cleaning chemicals onto the floor, leaving a pool in the middle of the front walkway. A customer slips on the liquid and sustains a serious injury. If found liable, your company would probably be covered through general liability insurance for damages owed or settlements reached.

Example 3: A customer’s expensive collection of professional outfits is badly damaged by a malfunctioning press, costing her thousands in replacement expenses as well as compromising her appearance in an upcoming business event that afternoon. If liable for damages, general liability insurance could probably assist in covering anything you owed per a court’s ruling or a settlement between your business and the plaintiff.

Other Types of Coverage Dry Cleaning Businesses Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all dry cleaning companies should obtain.

Commercial Property Insurance

Unquestionably, dry cleaning businesses require coverage for their expensive and hard-to-replace/repair commercial property. Dry cleaning businesses are stocked with machinery for the efficient cleaning and drying of clothing, and disasters like fire or violent weather could compromise a business’s assets, leaving it with massive replacement or repair costs. You can protect your equipment and any owned real estate with a commercial property policy. When covered disasters strike, a policy like this can be the difference between bankruptcy and a challenging hurdle.

Professional Liability Insurance

Professional liability policies are suited for businesses that perform careful, professional services with potentially significant consequences. When all goes well, customers are grateful and satisfied. But if your services are provided without the proper care or an employee suffers a lapse in professional judgment, some serious issues can arise. If your process renders a customer’s garments unusable through poor professional decision-making, this policy will help to cover expensive damages and help prevent your business from going under.

Business Interruption Insurance

What can a business do against catastrophes like fires and tornadoes? Forces of nature come and go as they please, leveling businesses in a fraction of the time it took to build them. Fortunately, business interruption insurance can assist companies in recouping estimated profit losses during times of hardship.

When disaster stops your business operations, this policy may even cover the costs involved in temporarily relocating or training new employees to use complex machinery. Together with a commercial property policy, this insurance can keep a business afloat during hard times.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance and commercial property insurance.

Read our Business Insurance for Dry Cleaners article for more info.

Starting a dry cleaning business requires significant upfront capital, primarily due to the cost required for renting or purchasing commercial space. Outside of these expenses, you will also require laundry and dry cleaning equipment, coat hangers, and a cash register.

Visit our How to Start a Dry Cleaning Business guide to learn more about the costs of starting and maintaining this business.

Operating expenses for a dry cleaning business include rent, utilities, machine maintenance, and potentially payroll.

Learn more about running a dry cleaning business.

A dry cleaning business makes money by providing laundry services to customers.

Learn more about starting a dry cleaning business.

Dry cleaning businesses provide laundry services for clothes that need special attention. Many also offer drop-off and pick-up service for normal laundry to people that don’t have the time or desire to do it themselves, which increases the potential for profit.

Startup costs for a dry cleaning business can be substantial due to the need for expensive equipment and commercial space. A small dry cleaning business can make more than $30,000 after expenses.

Learn more about starting a dry cleaning business.