Service Business: Everything You Should Know (2024)

What is a Service Business?

A service business is a service provider to customers that exchanges work performed for payment. There are three types of service businesses: business services, social services, and personal services. Entrepreneurs facilitate and enforce customer relationships through contracts when starting a service business.

This web page also describes what a service business is.

Examples of Service Businesses

Example 1. Answering Services

Here is an example of a mother and her daughters starting an answering services business:

• Sheila Mason worked as an office manager for 30 years
• She wants to launch a call answering service with her daughters
• Sheila names her company “Mason & Daughters Answering Service”
• They register the business as an LLC with the state
• Sheila works with an attorney to draft service contracts for legal protection

Example 2. Massage Therapy

The example below details how a massage therapist protects his legal rights:

• Sean Wall is a massage therapist in Kentucky
• He wants to offer his massage therapy from a guest house on his property
• Sean speaks with the city and learns he can run a business from his home
• He also registers his company as an LLC with the state to limit liability
• Sean has customers sign service agreements and health waivers

3 Main Types of Service Businesses

The three main types of service businesses are business-to-business, social, and business-to-consumer services. Let’s take a closer look at how they are different below.

Type 1. Business-to-Business Services

Business-to-business, or B2B, services help other businesses for a flat or hourly rate. These types of companies assist customers in operating their business, reducing costs, or generating more output.

Examples of business service providers include:

• Answering services
• Marketing agencies
• Graphic designers
• Business lawyers
• Security services
• Accounting services

Type 2. Social Services

Social services are those that benefit society. They are funded through taxes and charitable organizations rather than through direct sales. However, they can raise funds from sales transactions to enhance their efforts.

Examples of social services include:

• Public and private schools
• Postal services
• Human services
• Public works
• Non-profit organizations

Type 3. Business-to-Consumer Services

Most service businesses sell directly to consumers. Business-to-consumer, or B2C, service businesses help customers achieve a goal that they would not accomplish independently due to a lack of expertise, training, or resources.

Examples of personal services providers include:

• Travel agencies
• Personal shoppers
• Massage therapists
• Hair and makeup stylists
• Mechanics
• Dental and medical providers
• Personal trainers
• Psychologists
• Divorce lawyers

How to Start a Service Business

Are you getting serious about starting a service business but feel unsure about how? Below, we’ve outlined the five steps you can take right now to get started:

1. Start With an Idea. The hardest part about starting a service-based business is coming up with an idea in some cases. First, however, you’ll want to start with a solid idea, maybe even in an area you already have expertise.
2. Perform Due Diligence. After identifying a small business idea, the next step is determining whether it’s worth pursuing. Review market research and analyze your competition to determine if this will be a profitable venture. Areas to consider include targeting, audience engagement, and competitor analyses.
3. Write a Comprehensive Business Plan. A business plan is a comprehensive and strategic document that comprises smaller business unit plans in finance, technology, marketing, legal, human resources, and research and development. Your business plan also details your current and long-term objectives. Successful businesses use this as a resource to help them organize their company’s direction.
4. Register Your Service Business. After you’ve spent time researching your concept and determined that it has the potential to succeed in the market, it’s time to take your business to the next level by registering it with your secretary of state’s office. There are several entity types from which to choose, including limited liability companies (LLCs), C-Corporations (C-Corps), and S-Corporations (S-Corps). Both have different legal and financial impacts on your business, so ensure you get legal advice if you have questions about which entity to choose.
5. Obtain Start-Up Funding. Service businesses usually require less start-up funding than product-based businesses since you don’t have to deal with inventory and shipping. However, you may have to purchase materials, technology, and other resources to help you deliver on your company’s mission. Your business plan is a document that you can use to help you solicit investors and approach financial institutions to help you get started.
6. Protect Your Business With Legal Documents. Services agreements protect you if a dispute or issue arises with customers or vendors. If you do not put your customer contracts in writing, you could jeopardize your professional and financial future.

Legal Documents for Service Businesses

At a minimum, it is essential to utilize a service contract when you run a service business. Otherwise, your company could face liability in unexpected ways.

Here are five legal documents for service businesses that you may want to incorporate into your company:

Type 1. Service Contracts

Your service contracts should contain a service provider agreement (SPA) and service level agreement (SLA). The SPA facilitates the deal while the SLA enforces it. Contract lawyers can help you establish this master contract while developing other agreements and clauses as necessary.

Type 2. Confidentiality Agreements

Starting a service business requires brainstorming, creative collaboration, and sharing your business plan with potential investors to lay the groundwork for your business model. A confidentiality agreement can help you protect your ideas. It is a legally binding agreement outlining confidential material or restricted access to information while obligating the signing party to keep the proprietary information strictly confidential.

Type 3. Partnership Agreements

If you plan to take on a business partner, a partnership agreement is the proper contract for this situation. A well-written partnership agreement clearly defines the relationship and responsibilities of two or more business partners. It also establishes the tone for each partner’s obligations, capital contributions, profit & loss (P&L) distributions, ownership interests, and dissolution.

Type 4. Indemnification Agreements

An indemnity agreement holds a business or company harmless for any loss or damage caused by another party. While they are used in high-risk transactions, they are also beneficial when dealing with service contracts, especially if you plan to work with contractors.

Type 5. Employment Contracts

Hiring employees demonstrates your company’s growth and success. An employment contract clarifies the relationship between you and your employees, including compensation, benefits, duration, termination procedures, and other business-related issues.

Service Business Ideas

Are you having a hard time settling on a business idea? Sometimes, reviewing examples can jumpstart the brainstorming process.

Below, we’ve outlined 12 examples of service business ideas to help you get started:

1. Daycare provider
2. Rideshare driver
3. Personal grocery shopper
4. Housekeeping services
5. Long-term healthcare
6. Pet-sitting or walking services
7. Tutoring services
8. Virtual assistance
9. Interior design
10. Yoga instructor
11. IT help desk support
12. Lawn care and maintenance

You can also work with other professionals to help you develop your ideas, such as accountants, web developers, and corporate lawyers. They can become a tremendous resource for you as you delve into a new service business venture.

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