This isn’t the kind of article we enjoy writing. Sadly, as the global COVID-19 pandemic wreaks havoc on our world and our institutions strain to cope with it all, scores of businesses are facing the excruciating reality that remaining in operation just isn’t feasible. As terrible as it is, there are steps you need to take to ensure that the pain of closing your business isn’t even more devastating to your employees and your finances than it needs to be.
In this article, we’re going to detail what you need to do to make sure that closing a business isn’t any worse than it needs to be.
Closing A Business Isn’t Just A Matter Of Locking Your Doors
It may seem like adding insult to injury, but closing down a business involves much more than just locking the doors and selling off your equipment. It involves taking legal and administrative steps that may vary depending on the nature of your business and the particular local, state, and federal laws that apply in your situation.
It’s a lot to handle — and it comes at a time when you’re unlikely to be prepared for the emotional toll of it all. However, we’re here to help.
The Essential Doâs & Donâts Of Closing Down A Business
Closing your business is never an easy thing to do — particularly at this moment in history. Here’s a quick rundown of what you should do — and what you shouldn’t. Don’t worry; we’ll go into more detail later.
Do: Communicate the situation with employees and customers
Do: Make arrangements with any service providers
Do: Notify the relevant government agencies as required by law
Do: Talk to a lawyer and/or an accountant
Do: Make a plan of action
As for the don’ts:
Don’t: Panic (I know — easier said than done, right?)
Don’t: Just lock up and disappear
Don’t: Ignore any bills or creditors
Give Notice That Your Business Is Closing
Emotionally, this may be the hardest part of the whole process. Nonetheless, those affected by your business’ closure deserve nothing less than your full honesty and frankness.
Of course, I should note that if yours is a solo business operation — either as a sole proprietor or as the lone LLC owner — the decision is yours alone, but if you have partners and/or investors, you’ll need to get everyone on the same page first.
As you likely realize, your employees should be the first to hear the truth, given that they will be the people most impacted by the closing. You’ll need to let your employees know what your closing date is and ensure that arrangements to give them their final paychecks are made, along with any severance pay you’re going to offer. Regarding final paychecks and severance pay, state law may dictate how you handle these arrangements, so you may need to consult an attorney for guidance.
Other important things you’ll need to hash out with your employees include the need to reimburse them for any work-related out-of-pocket expenses they may have incurred and collect the company property they may be using, such as vehicles, laptop computers, and work phones.
Have a look at the U.S. Department of Laborâs Employment and Training Administration Fact Sheet to learn more.
Your customers will also need some advanced notice of your plans. Make an announcement — a public one and one to subscribers to your customer mailing list, should you have one — and fill everyone in on such details as how long your gift cards will be honored for.
Notifying Government Agencies
This may vary depending on your industry and where your business is located, but you will likely need to notify federal, state, and/or municipal authorities about your shutdown plans. Steps you may need to take include filing dissolution notices and canceling any relevant permits, licenses, registrations, and even trademarks. Again, contact a lawyer if you’re unsure of your exact legal obligations here.
This step may be one of the trickier ones. How you deal with your creditors in this situation will depend on your type of business and the type of debt you owe. Depending on your circumstances, your creditors may have to wait a set period before attempting to collect, or they may be able to try to collect immediately. If you have a financial advisor you can contact regarding your debts, now would be the time to do so.
For more information, read our post: Canât Make Your Credit Card Payments Due To The Coronavirus? These Credit Card Issuers Are Offering Assistance
Notifying Service Vendors
The paid services you use on a continuous basis — from your cleaning service to your payment processor to everything in-between — will need to be notified of your business’ intent to close.
Some of your service cancellations will likely be quite straightforward. Others, such as your credit card processor, may be trickier. Your processor may have put an ETF (early termination fee) into your service contract. You may be on the hook for this, though some merchant accounts and processors are more generous than others in this regard.
As for contracts with your point-of-sale or eCommerce provider, if you’ve been paying per year, you won’t get a refund on the remaining portion of your agreement, but you also won’t face any additional charges. With other software contracts and services, cancellation terms may vary, so you’ll need to ask your vendors questions about anything you’re unsure about.
Close Up Shop For Real
As your business approaches its final operational day, you’ll need to do what you can to wrap things up. Depending on the stock and supplies you’ll have on hand, you should consider measures such as clearance sales to sell your remaining inventory. The quarantine policies of your area will determine whether the sale should be online-only.
Returning Leased Or Rented Equipment
If you have any hardware or other equipment that you’re renting or leasing, it will need to be returned (and you might want to monitor your tracking numbers for anything in the mail). In the case of credit card terminals, you may need to be especially careful — any free equipment needs to be shipped back in a timely manner, or you may be hit with some outrageous fees. See our article on credit card terminal leases to get a sense of the pitfalls here.
Liquidating Any Remaining Assets
You’ll need to sell off the remaining fixtures in your business as well. If, after your closing date, you have any remaining assets, you can try to sell the items online or work with a liquidation company to get back some of the value.
Luckily, you should be able to sell your remaining inventory online — and if your warehouse is still full of stock, you have the option of contacting a merchandise liquidator.
Closing Up The Property
Finally, you’ll have to take the step of dealing with your lease. Contact the property owners to come to an arrangement for doing this. If the property belongs to you, you may not need to take immediate action, though the price of real estate may go down in the months ahead.
Deal With Your Business’ Outstanding Financials
As you close up shop, you’ll have to deal with any outstanding financial concerns you have. You may have several such concerns, which is why the order of resolution is crucial.
Collecting Any Outstanding Accounts Receivable
Many businesses may have outstanding balances owed by clients. While this obviously isn’t an ideal time to try to collect on balances owed, it’s only going to get harder from here, so you’ll want to try to collect now if you have any hope of seeing that money again.
If possible, you should try to collect before your official going-out-of-business announcement so your clients don’t feel as though they can just wait for you to disappear. Offering discounts to those who pay immediately may also be wise, as it increases the likelihood that you’ll get at least some of your money back.
As it turns out, you do have another option in this situation: you could sell these balances to an invoice factoring company. Check out our explainer article on invoice factoring if you’re curious as to how it works.
Filing Income Tax
At this point, you’ll need to complete your final income tax filing. Read our complete guide to small business taxes for more information. And for additional tax tips, have a look at our tax tips for small businesses.
Remember that this process will vary depending on whether your business is an LLC, a sole proprietorship, a corporation, etc.
Filing Sales Tax
Likewise, you’ll need to do your final sales tax filing. We’ve published a small business sales tax guide for those interested.
Dealing With Payroll
This step will involve making out your final checks to your employees, completing payroll taxes, and issuing severance pay. Again, you’ll need to follow federal, state, and municipal laws regarding your workers’ final checks and severance pay.
Your final payroll should resemble your year-end payroll. To that end, here’s a guide to doing your year-end payroll.
Paying Any Outstanding Debts
Your debts will need to be paid before you can claim any of your remaining financings. Pay off your loans and all other bills to the greatest extent you can.
Monitor & Keep Records Of Your Business
So you’ve completed the closing process and your business’ shutdown is now finalized. Unfortunately, you may still have business-related matters to deal with.
The law may require you to keep your financial records and tax filings for a certain length of time. Consult a lawyer or CPA if you’re unsure what you need to keep and for how long.
You should also monitor your bank account for any suspicious deductions from companies your business has worked with in the past. Unfortunately, many business owners find themselves still being charged by service providers 1-2 years after closing, so you’ll want to nip this in the bud.
Additional Resources For Closing Your Business
The IRS provides an online guide to closing your business and the steps you need to take to do so.
Likewise, the SBA offers a published guide to closing your business.
FindLaw offers a guide to closing down your business with a particular focus on the legalities involved.
The legal site Nolo.com offers this 20-step checklist for closing your business.
Closing Down Your Business Isnât Easy, But Doing It Correctly Is Important
You may not feel highly motivated to do your due diligence at a time like this. This is entirely understandable. Nonetheless, if you don’t want to find your business running afoul of employment law — and if you don’t want creditors harassing you and asking for money at a time when you’re least equipped to deal with it — you’ll want to make a good-faith effort to close down your business the right way.
Again, the more complex your business, the greater the likelihood is that you’ll need to enlist the help of an attorney and/or a CPA.
Here is a link to our COVID-19 resource hub â we’ll be adding to our pandemic-related informational resources on a continuous basis. You may also want to check out ourÂ Small Business Outbreak & Pandemic Guide: Coronavirus Edition for more on how to deal with this unprecedented situation.
Looking for more help? Check out these resources from Merchant Maverick:
How to avoid defaulting on a business loan
Small business guide to filing for bankruptcy
Guide to business interruption insurance
The post How To Close A Business appeared first on Merchant Maverick.
Here at Merchant Maverick, weâre constantly advising you to read your contract before you sign up with a merchant account provider. Why? Because this is the most important step in the process of negotiating an agreement with a provider. No matter how much time youâve spent obtaining quotes from multiple providers, researching each company, and negotiating with an agent for the company youâve chosen, none of it will matter if the legally binding documents that define every aspect of your relationship with your merchant account provider donât match up with what you were promised by the companyâs sales agent. Failing to read contract documents and understand what youâre really agreeing to can be an extremely frustrating and expensive mistake. In fact, a poor understanding of the terms of a processing agreement is the most common cause of issues that arise between merchants and their providers.
Reading your contract safeguards you in three major ways:
It protects you from unscrupulous sales agents who fail to disclose important contract terms, or even lie about the costs or obligations contained in a contract.
It gives you a clear understanding of almost every possible cost that you will or could be responsible for as long as you maintain your account.
Most importantly, it gives you your last and best chance tocall the whole thing off and back out of the deal before youâve signed up if you find that the actual terms of your contract are simply unacceptable to you.
In this article, weâll explain what merchant agreements are, how theyâre structured, and how to identify and interpret the most important clauses youâll find in them. Weâll show you examples of common verbiage that describe the length of your contract, how to cancel your agreement, and any penalties that might apply for doing so. Weâll identify common red flags that indicate that your sales agent isnât being honest with you, and give you some strategies for dealing with this all-too-common problem. Finally, weâll show you how to get out of a bad deal if youâve already signed up for an account, and things just arenât working out between you and your provider.
What Is A Merchant Agreement?
A merchant agreement is simply a document (or, more likely, a collection of documents) that establishes a contract between you, the merchant, and your merchant services provider. A contract, in turn, is an agreement between two parties that establishes the expectations and rules of behavior governing the relationship between them. Thatâs actually the simple definition â contracts have been around for hundreds of years and there is an entire branch of the law devoted to them. Despite what you may have heard, verbal contracts can be legally valid, although theyâre extremely difficult to enforce if a dispute arises between the parties. Today, most contracts are written, and they govern practically every aspect of modern life. From obvious examples such as automobile loans to those End User License Agreements (EULAs) that pop up whenever you install a new app on your phone, contracts are everywhere.
Unfortunately, weâve become so inundated with contracts that we rarely take the time to sit down and read them. Now, you might be able to get away with this when installing the latest trendy social media app (assuming you donât mind letting the company sell your personal data to advertisers, of course), but itâs a really, really bad idea when it comes to merchant services. Why? Because the sales agents that are tasked with selling merchant accounts have learned over the years that itâs much easier to convince you to sign up for an account if they conveniently forget to mention or explain certain terms — terms you might not be comfortable with if they were brought to your attention. These terms include (among other things) early termination fees that penalize you for closing your account, liquidated damages clauses that make it even more expensive to get out of your contract, automatic renewal clauses that keep you obligated to your provider indefinitely, and the fact that your equipment lease (if you have one) is completely and utterly noncancelable. Plus, thereâs a host of âhiddenâ fees that your sales agent might have neglected to tell you about but that are spelled out â often in very, very fine print â somewhere in your contract.
Before we dive into the nuts and bolts of understanding your contract, letâs begin by explaining that every merchant services provider will have a contract that governs your relationship with them. This includes popular payment service providers (PSPs) such as Square (see our review). So, if you see a provider claiming that they have âno contractsâ on their website, be aware that what they really mean is that you wonât have a long-term contract that commits you to keeping your account open for years at a time.
Depending on which provider you sign up with, your âcontractâ may actually include agreements with more than one party. Obviously, there will be an agreement between you and your provider. However, you might also have an agreement that applies to the relationship between you and the backend processor that will be processing your transactions. If you make the mistake of signing up for an equipment lease, there will usually be a separate (and even more draconian) agreement that only covers your leased processing equipment. The leasing of credit card machines has earned such a poor reputation in the business community that most large processors have spun off subsidiaries (wholly owned by the main company, of course) to handle these leases. Lastly, your contract might also include separate agreements with third-party service providers, such as payment gateway providers, etc.
Can You Negotiate A Merchant Services Agreement?
If youâve read this far and are starting to wonder whether itâs really worth it to open a merchant account at all, we have some good news. Unlike many other vendors or service providers you deal with in your everyday life, most merchant services providers will allow you some leeway to negotiate the exact terms of your contract. In other words, you wonât necessarily have to accept the first offer you receive from a prospective provider. In fact, many providers assume that you will try to negotiate a better deal, and set their prices higher than what theyâre really willing to accept. In this case, failing to negotiate for lower rates and more favorable terms can be an expensive mistake.
Hereâs what Jeff Marcous, the Chief Evolutionary Officer of Dharma Merchant Services (see our review) had to say about merchant services agreements:
The merchant agreement issue is definitely complex and is pretty much dictated by the acquiring banks of the MSP/ISO. For our part, we have to go along with the boilerplate terms set down by either Wells Fargo or Synovus Bank, but we do have authority to delete certain clauses â like termination fees, etc. It’s kind of like clicking on the terms of agreement for an iPhone update â if you or I actually read (and understood it), we would probably gasp at what is being agreed upon, but of course, you could not continue to use their services even if you pushed back on something.
That said, probably the most important thing is for an agreement to explicitly offer the ability for the merchant to cancel at any time without penalty. Even then, the processor has the right to keep an account “open” for a period of time in order to process any chargebacks or malicious activity on the account.
Now, before you start salivating at the prospect of customizing your entire contract to your liking, you need to be aware that your ability to change the terms of your contract is quite limited. In fact, roughly 90% of the terms of your contract consist of standard boilerplate terminology that will be the same for every merchant, regardless of which provider youâre using. For example, you canât change the rules set forth by the credit card associations (e.g., Visa or Mastercard) that are restated in your contract. Likewise, youâre extremely unlikely to get a waiver on arbitration clauses or clauses that specify a choice of jurisdiction for disputes. However, many of the most critical aspects of your contract are, in fact, negotiable. These include the following items:
Early Termination Fee (ETF) Or Liquidated Damages Clauses:Â These clauses are the most common terms in a merchant services contract to be waived through negotiation. No one wants to be hit with a penalty for closing their account, and providers are often eager enough to get your business that theyâll waive the ETF as an inducement for you to sign up with them. A word of warning is in order, though. Never rely on a verbal waiver promised to you by your sales agent. Always get a written waiver, and keep a copy of it for your records. Weâve heard far too many complaints from merchants who were promised a waiver, but then had the ETF automatically taken out of their bank accounts later on because the sales agent never passed the waiver information along to anyone else at the company.
Contract Length:Â Although theyâre falling out of favor, the standard merchant account agreement today still usually requires an initial commitment of three years. However, you can often have this term waived if you ask for a month-to-month arrangement instead. Be aware that having a waiver to the early termination fee does not mean that your three-year term is automatically waived also. These two terms are often contained in separate clauses to your contract, and youâll want written waivers to both of them to protect against being automatically charged recurring fees after youâve closed your account early.
Processing Rate Plan:Â Although we consider tiered pricing to be the worst possible processing rate plan for merchants, itâs still the most commonly used type of pricing in the industry. Why? Because most merchants donât know the difference between tiered pricing and interchange-plus pricing, which is both more transparent and more affordable. Many merchant services providers will try to set you up with tiered pricing, even though they also offer interchange-plus plans. Donât fall for it! Always ask for an interchange-plus pricing quote, and be prepared to find a different provider if it isnât offered to you. Note that if your provider of choice offers flat-rate or subscription-based pricing, or uses a standardized interchange-plus rate based on your monthly processing volume, you might not be able to negotiate a custom pricing quote unless your processing volume is extremely high.
Some Fees:Â Donât get too excited here. Merchant account providers charge a host of recurring and incidental fees, all of which should be disclosed somewhere in your contract. While some of these fees can be reduced or eliminated through negotiation, many others cannot. For example, you can always count on having to pay chargeback fees, monthly account fees (although you can sometimes lower the amount), and any fees that your provider has to pass on to issuing banks or credit card associations (e.g., Visa FANF fees). Fees that can be waived or reduced include application fees, account setup fees, statement fees, and your monthly minimum.
Your ability to change the terms of your merchant services agreement will depend primarily on both the size of your business and your negotiating skills. Providers make more money and are exposed to less risk by working with larger businesses that have established processing histories, and so theyâre more likely to adjust their offer to get one to sign up. Small or newly-established businesses, on the other hand, donât have these advantages and often have to take what they can get. However, you can still improve your negotiating skills and use them to your advantage, regardless of the size of your business. Check out our article on negotiating your credit card processing deal for some helpful tips.
What About Square & Other Payment Service Providers (PSPs)? Do They Have A Contract?
Square (see our review) and other PSPs are very popular with small business owners because they allow you to set up an account through their website without having to submit a small mountain of information about your business and wait for an underwriting department to go through it all before approving (or denying) your account. Approval is quick and, in most cases, nearly automatic.
But do they have a contract? As weâve emphasized above, thereâs always a contract. In this case, Square has conveniently posted their standard Terms of Service right on their website. Unlike most merchant services agreements, itâs relatively short and written in plain English. We highly encourage you to read it before you decide to sign up with Square. The only downside to this approach is that you canât negotiate the terms of a one-size-fits-all contract like this. However, since Square already offers month-to-month billing, no monthly fees, and fully disclosed flat-rate pricing, there really isnât much to negotiate anyway.
The Most Important Parts Of A Merchant Agreement (For A Merchant)
As weâve mentioned above, most of the content in a merchant agreement will be nearly the same from one provider to the next. However, this wonât make the job of deciphering your contract any easier. No two merchant agreements are identical. Every provider has their own way of organizing their contract documents, and some providers even have multiple versions of their contracts, depending on which backend processor is underwriting your account.
Merchant agreements can run anywhere from as few as four pages to over 60 pages, depending on how theyâre organized and how many additional agreements are included with them. At a minimum, you can expect your agreement to include two distinct parts: a Merchant Application and a set of Terms and Conditions. You might also have one or more Third-Party Agreements as well, either incorporated into the main document or published separately. Hereâs a breakdown of what to look for in each part of your agreement:
Before you can open a credit card processing account, youâll need to fill out a Merchant Application. This document, often only one or two pages in length, collects information about you and your business. Besides obvious facts such as what industry youâre in and whether you operate out of a retail location or sell online, youâll also have to provide reasonable estimates for what percentage of your sales are in cash, by credit or debit card, or via another payment method. You might also need to provide enough financial information for the provider to run a check on your personal credit.
One word of caution is in order here: providers often ask for information about your business bank account, including account and routing numbers. While they legitimately need this information to deposit funds from your credit card sales into your account, they can also take money out as well. Unscrupulous providers can sign you up for a merchant account without your knowledge and begin extracting any number of fees immediately, even if you donât process any credit card sales. We recommend that you wait to provide this information until youâve read your contract thoroughly and are certain that you want to open an account with your chosen provider.
Merchant applications also provide a space to lay out all the information that will be unique to your account in one location. This will include all applicable processing rates and recurring fees that vary from one merchant to the next. Incidental fees, which are typically the same for everyone, will usually be found somewhere in the Terms and Conditions portion of your contract. Hereâs a sample Merchant Application from CardConnect to give you an idea of what to expect.
Merchant applications arenât as chock full of legalese as the Terms and Conditions section of your contract, but itâs still critical to review them very carefully. One particularly important thing to look for is the presence of mid-qualified and non-qualified processing rates. This is a sure sign that your sales agent has signed you up for an expensive tiered pricing rate plan. Sales agents have a bad habit of only verbally disclosing the qualified rate for your plan, without mentioning the mid-qualified or non-qualified rates. These rates are much higher, and today most of your credit card transactions will fall into one of these two types of rates instead of the lower qualified rates.
Terms & Conditions
Just as the Merchant Application contains all the information that applies specifically to your account, the Terms and Conditions section of your contract includes all the stuff that applies equally to every merchant account maintained by the provider. And itâs a lot of stuff. Terms and Conditions sections invariably run for many pages and include a tremendous number of rules and policies that govern how you use your account, all spelled out in exacting legalese that can be painfully difficult to read. Some providers have started to call this section a Program Guide, perhaps in an effort to make it sound a little less daunting. Most of the information contained here is industry-standard, with very little real variation from one provider to another. However, there are also some really important policies buried in here that can have a serious impact on your relationship with your provider. The most important things to look for in the Terms and Conditions are going to be clauses that define the length of your contract term, the automatic renewal clause (which will usually be included), early termination policies, and instructions for properly closing your account. You should also familiarize yourself with clauses that require you to submit to mandatory arbitration or specify a choice of jurisdiction in the event that you find yourself in a legal dispute with your provider.
Contract Length Clauses
How long is your contract? Your sales agent should answer this question for you in detail before you sign up, but itâs not unusual for them to conveniently âforgetâ to do so. The typical, industry-standard merchant agreement has an initial term of three years, or 36 months to align with your accountâs monthly billing cycle. While a three-year initial term is the most common, weâve seen contracts where this term is as short as one year, and occasionally as long as four (or even five) years. Automatic renewal clauses extend the term of your contract, typically for an additional twelve months at a time. Again, thereâs some variation among providers, with subsequent terms ranging from six months to two years at a time. Note that Canadian law limits contract extensions to no more than six months at a time.
Long-term contracts have always been unpopular with merchants, as they make it very difficult to get out of your contract if you want to switch providers. The trend within the industry now favors month-to-month billing, which is much more flexible. Be aware, however, that you are still under a commitment even with month-to-month contracts. Look for verbiage in your Terms and Conditions that specifies an initial term of 30 days, with automatic renewal periods of an additional 30 days at a time thereafter. With no early termination fee imposed, month-to-month contracts allow you the freedom to close your account at practically any time without penalty. At most, you might have to pay recurring fees for one additional billing cycle.
Early Termination Policies
One of the worst aspects of merchant agreements is when providers impose an expensive penalty for closing your account before the end of the current term. The most common practice is to charge a fixed early termination fee (usually between $295 and $495), regardless of how much time is remaining on your current contract term. Some providers will offer proration based on the number of years left on your contract, which lowers (but doesnât eliminate) the penalty if you stay with them for over a year or two. In some cases, providers will use a liquidated damages clause instead of a fixed fee. Liquidated damages are based on a combination of your average monthly processing volume and the length of time remaining on your contract. A liquidated damages clause can potentially be very expensive, particularly if you have a high monthly processing volume and close your account within the first few months of opening it.
When you read the early termination provisions of your contract, one aspect that will probably upset you the most is the dramatically unequal way in which early termination applies between you and your provider. While you, the merchant, are contractually obligated to keep your account open for years at a time and pay a host of recurring fees, whether you use the account or not, your provider can close your account unilaterally at any time for practically any reason. While theyâre highly unlikely to do so as long as theyâre making money off of your business, a sudden closure could leave you without the ability to accept credit or debit cards until you can line up a new provider.
Account Closure Instructions
While lengthy contract terms and automatic renewal clauses are designed to keep you on the hook indefinitely, it is possible to close your account without penalty. Every merchant agreement contains specific instructions for closing your account. Providers donât make it easy, but if you follow the directions in your contract very carefully, you can terminate your contract at the end of the current term without being charged an early termination fee or liquidated damages. Almost all providers require written notice of your intent not to renew your contract, provided within a specified number of days before the end of your current term. Unfortunately, providers often make it difficult to find out the exact date of your contract renewal, so youâll want to pin this down and send in your notice well in advance of the minimum required period. Providers typically require 30 daysâ notice, although weâve seen some contracts where the required notice period was as long as 90 days prior to termination. You should also beware of providers that require that the notice be submitted on a special written form, which they jealously guard and will only provide to you upon request.
Hereâs an extract from an old Sage Payment Solutions (now Paya) contract that includes examples of all the clauses and terms weâve discussed above:
Â Clauses Affecting Legal Disputes
Although they donât happen nearly as often as you might expect, legal disputes between merchants and their providers are always a possibility, and providers will attempt to protect themselves by including language in their contracts that makes it more difficult for you to pursue this kind of remedy. Usually located near the very end of your Terms and Conditions, youâll almost always find a few provisions that cover any type of legal action you might wish to pursue.
Mandatory arbitration clauses are the most common kind of limitation youâll find, and theyâre a standard feature of almost all merchant services agreements today. These clauses simply require you to submit to mandatory arbitration in lieu of filing a lawsuit. In most cases, courts will send you to arbitration prior to hearing your case anyway, so these clauses donât have much impact on your ability to pursue a legal remedy.
Choice of jurisdiction clauses are also included in every merchant services contract today. In almost all cases, the provider will limit jurisdiction to courts in the state where their headquarters is located. While this doesnât prevent you from pursuing legal action against them, it can throw up a significant roadblock if you donât live in the same state. Youâll be responsible for any costs you incur traveling to court appearances, depositions, etc. While we donât recommend that you choose a provider based solely on geographic proximity to your place of business, you should be aware of the impact this kind of contractual limitation can have if you end up trying to sue your provider.
If your merchant account includes a product or service provided by a third party, youâll have a separate agreement with that party included as part of your contract documents. Payment gateways and equipment leases (which you should avoid) are the most common examples of these additional agreements.
Third-party agreements may be separate documents, or they may be included within the body of your Terms and Conditions. For example, if you need a payment gateway and your provider uses Authorize.Net (see our review) exclusively, youâll have an agreement that applies between you and Authorize.Net.
With equipment leases, many providers will use a separate company to provide the equipment and administer the lease. In most cases, this âcompanyâ is actually a wholly-owned subsidiary of the provider, often located at the same physical address. Be aware that the length of your equipment lease is separate from the initial term of your merchant account agreement. In fact, itâs often longer â keeping you on the hook for monthly lease payments even if you close your merchant account at the end of the initial term.
Standard Credit Card Processing Fees: What To Look For & Where To Find Them In Your Contract
As weâve discussed above, your merchant agreement will define the type of processing rate plan you have and identify the rates that apply to your account. Rate plans can be flat-rate, tiered, interchange-plus, or subscription-based. Unfortunately, most providers donât spell out exactly which type of rate plan youâre on in their contracts (particularly if youâre on an expensive tiered plan). You will almost always find this information in the Merchant Application section of your agreement. Make sure that your agent fills this section of the agreement out completely before you sign anything. Processing rate information can get complex very quickly, with separate rates for credit cards, debit cards, ACH payments, American Express cards, etc. Youâll want to know which rates apply to your account and the circumstances under which each rate will apply to a given transaction. For help in identifying your processing rate plan type, see our article on identifying your pricing model on your processing statement.
Be aware that interchange fees will not be disclosed on your merchant agreement, even if youâre on an interchange-plus pricing plan. These fees are set by Visa, Mastercard, and other card brands, and are usually updated twice a year. See our article on interchange fees for more information.
Your Merchant Services Agreement Could Contain Hidden Fees
In addition to processing rates, your merchant account will be subject to a bewildering number of recurring and incidental fees. Rest assured that these fees are all spelled out somewhere in your contract. Finding them, however, can be a challenge. Most fee information will be filled out in the Merchant Application section of your contract documents. The Terms and Conditions section, on the other hand, rarely discloses fee information unless that amount charged is identical for all merchants using that provider. Chargeback fees, for example, are often disclosed and discussed here. Be aware that some providers will include clauses in their agreements that allow them to change or modify other fees not disclosed in the contract, at their discretion. For an in-depth discussion on merchant account fees, see our post on credit card processing rates and fees.
Seven Red Flags That A Sales Rep Is Pressuring You Into A Merchant Agreement Scam
Nowhere is the credit card processing industry sleazier and more dishonest than in the sales practices it employs to sign merchants up for accounts. Many providers lower their costs by relying on independent sales agents, who often work on a commission-only basis, and need to sell accounts to put food on the table. While there certainly are honest, experienced people working as independent sales agents, the truth is that youâre more likely to encounter an agent whoâs more than willing to take some ethical shortcuts in order to close the deal and sign you up for an account. Hereâs a rundown of the most important âred flagsâ that can help you to identify and steer clear of a dishonest agent whoâs basically scamming you:
The agent fails to disclose that the contract contains an early termination fee. This is the most common complaint from merchants whoâve had a bad sales experience. Agents know that you donât want to have to pay an ETF if you later decide to close your account, so they simply âforgetâ to mention it unless you directly ask them about it. In extreme cases, agents will outright lie, claiming that the contract doesnât include an ETF, when itâs clearly spelled out in the Terms and Conditions.
The agent offers a verbal waiver of the early termination fee, but doesnât provide it in writing. Never rely on the verbal assurances of a sales agent! Agents are quick to promise you a waiver just to get you to sign up, but unless you have written proof to back it up, you could still be liable for paying the ETF down the road. In fact, some providers explicitly state that verbal agreements are not part of your contract. While this provision is meant to protect them from false claims by merchants, it also gives sales agents complete freedom to lie to you.
The agent fails to disclose the terms of the leasing contract. Few, if any, merchants would ever agree to a lease if they understood the noncancelable nature of the leasing contract and the true cost of the lease relative to the value of the equipment provided. Our best advice is never to lease your equipment. If you find yourself short on cash and tempted by the apparently low monthly lease payments, read your leasing contract before signing up. That should be sufficient to change your mind about entering into a lease.
The agent pressures you to sign the agreement before youâve had an opportunity to review it. This is a very common tactic in the processing industry. Agents know that you might back out of the deal or attempt to renegotiate the terms if you actually read the fine print, so they apply tremendous pressure to get you to sign up right away. The latest trick weâve heard about is agents physically coming into retail locations with iPads and other tablets to collect digital signatures from merchants without giving them an opportunity to review the documents. Donât fall for it!
The agent pressures you to sign the Merchant Application without telling you that doing so can actually bind you to a contract. Because the Merchant Application is used to collect information about your business, itâs easy to fool merchants into thinking that itâs just an application. Itâs not. The Terms and Conditions section of the contract does not require a signature, so an agent can submit your signed Application to underwriting without you ever seeing the Terms and Conditions. If itâs approved (and it usually will be), youâre now stuck in a long-term contract.
The agent fails to provide a physical or digital copy of contract documents. This is becoming more of a problem as providers migrate toward using web-based signup processes and digital signatures. Often, an agent will promise to send a merchant a physical copy after the account is approved, but then fail to do so. Do not let this happen to you! As a minimum, you should keep digital copies of all your contract documents. If the agent has written anything onto a paper copy of the contract (such as crossing out the early termination clause), keep a physical copy as well.
The agent forges your signature onto your contract documents and submits them to underwriting without your knowledge or consent. Yes, this actually happens â even though itâs a violation of criminal law and the agent could end up with a felony conviction and a prison sentence if he or she gets caught. Unfortunately, these incidents are rarely reported to the proper authorities for investigation. What usually happens is that the agent gets fired, and the provider quickly releases the merchant from their contract.
What To Do When Your Credit Card Processing Agreement Has Failed
Being stuck in a long-term contract might not seem so bad when your business is humming along, but things can go south very quickly for a number of reasons. Maybe your processor has raised your rates, or youâve had a bad experience with customer service. Maybe youâve found a better provider with lower rates and no long-term contracts. Maybe you just need to close your account because youâre retiring, shutting down your business, or selling it. Whatever the reason, early termination fees and automatic renewal clauses can make it difficult to exit your agreement without paying a substantial penalty. Unfortunately, providers donât like losing customers and are rarely sympathetic to whatever legitimate reasons you might have for leaving.
Unless itâs an emergency situation where you need to get out of your contract immediately, we recommend that you wait until the end of your current contract term and close your account by following the specific instructions contained in your contract. The aim here is to give your provider sufficient notice that you wonât be renewing your contract, so it doesnât auto-renew, and you wonât be assessed an early termination fee. Providers are notorious for making this process as difficult as possible, but as long as you get the ball rolling ahead of time, you should be able to submit the proper documentation and provide the required notice to terminate your contract.
If youâre only a few months into a long-term contract and itâs obvious that things just arenât working out, closing your account without penalty will be more difficult. Providers are usually more willing to work with you in situations where the business is closing or changing hands, but if youâre just trying to switch to a competitor, theyâre not going to help you out. However, the processing industry is so competitive that some providers will offer to pay your early termination fee for you if you switch to them. Just be aware that if you do this, youâre almost certainly going to be trading one long-term contract for another. If youâre going to switch providers, we recommend that you switch to a company that will offer you true month-to-month billing with no long-term commitment at all.
Finally, if youâve had a really bad experience with your provider and they wonât let you out of your contract, you should consider filing a complaint against them with the BBB. Despite all the shady practices commonly found in the processing industry, merchant services providers are just as sensitive about their reputations with the public as any other business. Weâve seen plenty of situations where an aggrieved merchant went public with a BBB complaint, and the provider quickly released them from their contract and refunded their early termination fee.
Your Merchant Agreement Is A Contract, Not A Death Sentence
If youâve read this far, you might be starting to wonder if accepting credit cards and having a merchant account is even worth the effort. For most businesses, the answer is clearly yes. With customers increasingly relying on credit and debit cards for nearly all of their purchases, the additional sales that come with having a merchant account will usually more than make up for the hassle and expense of setting one up. The real trick, of course, is to identify and sign up with the provider that can offer you the best combination of low fees, reasonable contract terms, and high-quality customer service.
Unfortunately, the processing industry is simply not the sort of place where you can expect everyone to be honest and treat you fairly. People in this business can and will take advantage of you â if you let them. Reading your contract before you sign up is your last line of defense against being stuck in a bad deal. With that in mind, here are some practical tips for actually reading your contract without missing anything important:
Pick a time when youâre rested and alert. You should plan to devote at least an hour to this chore, although it might take as many as 3-4 hours if youâve never done it before.
A cup of coffee or tea can help you to maintain your focus while wading through all the legalese. Save any celebratory adult beverages for after youâre finished.
Highlight key sections of your contract and take notes. This advice especially applies to the termination clauses of your contract. If needed, contact your sales agent for clarification of any provisions that you donât understand.
Obtain a digital version of your contract (usually in PDF format), if at all possible. You can magnify the fine print to a size thatâs actually readable and use the search function to find important terms quickly.
Keep a physical copy of your contract if one is provided, especially if it includes changes made by your agent (such a waiver of the early termination fee). This action can protect you in case a dispute arises later regarding the terms of your contract.
First-time business owners should read every word of their contract and make sure they understand it fully. More experienced merchants can carefully skim through the boilerplate provisions and focus on the important clauses that weâve discussed above.
We highly recommend that you read your contract thoroughly regardless of which merchant services provider youâre about to sign up with. Even with the most reputable providers, youâll want to have a clear understanding of the obligations youâre undertaking when you sign your contract. At the same time, itâs important to understand that most of the problems weâve discussed above will not be an issue if you sign up with a top-notch provider. The best providers in the industry fully disclose their pricing and contract terms on their websites, rather than burying this information in the fine print of a contract. They also employ in-house sales teams who arenât under pressure to earn a commission.
Finally, our favorite providers all offer true month-to-month billing with no long-term contracts and no early termination fees. Check out our Merchant Account Comparison Chart for a side-by-side comparison of the best providers in the industry!
The post How To Read, Understand, & Successfully Negotiate A Merchant Agreement For Your Small Business appeared first on Merchant Maverick.
The first few months of your business can be critical to its longterm success. When you’re running a startup business, you’re an unknown quantity; your customer base hasn’t solidified, and many lenders may be reluctant to take a risk on you.
Still, you’ll need to find ways to get the equipment you need to make your business a success. If you’re not independently wealthy, that means getting financing. Below, I’ll walk you through some of the ways you can use loans and leases to finance your equipment and get your startup off the ground.
First: What Is A Startup?
The word “startup” is often fetishized in the business world, conjuring images of sweatshirt-wearing innovators living in pods in the Bay Area, and eventually pushing out some kind of software application.
The truth, however, is that you don’t have to be a Stanford whiz kid with shadowy angel investors to have a startup. You just have to be running a new business–typically between zero-to-two years old, sometimes three–that’s trying to capitalize on perceived market demand. Startups are usually at a stage of development where their revenue is uncertain and may not be able to sustain the company long-term without a larger clientele or a cash infusion from those venture capitalists we’re always hearing about.
Because they’re at a stage where their finances aren’t stable, startup owners often have a hard time accessing other types of lending. Equipment financing, however, has some properties that can make it accessible even to startups.
How Equipment Financing Works
Equipment financing, as you may have guessed from the name, covers financial products designed to help the borrower (or lessee) acquire physical assets for your company. This can include anything from vehicles to ovens, computers, heavy machinery, etc.
Why is there specialized financing for these types of expenses, and why should startups care? Well, because you’re dealing with a physical asset that has resale value, your lender can place a lien on the equipment you purchase, allowing it to serve as collateral for the loan. If you default, the lender can repossess the item and resell it. This mitigates some of the risk lenders take on when they’re dealing with entities that don’t have a long, stable history. Essentially, all equipment loans are secured loans. Leases have their own logic, which I’ll touch on in the next section, but they also benefit from working with a transferable product.
Equipment Loans VS Equipment Leases
One of the more confusing aspects of equipment financing is that it encompasses two very different types of financing that are, nevertheless, discussed interchangeably. These are equipment loans and equipment leases.
Let’s start with the more familiar: equipment loans are installment loans used exclusively to acquire hard assets. They use the asset as collateral for the loan, ofter resulting in better terms than you’d see for, say, a comparable working capital loan. Payments, made monthly, are usually spread out over a pretty long window (three to seven years). In most cases, you’ll be expected to make a downpayment on the equipment in the neighborhood of 15%. Equipment loans usually have better rates than comparable leases.
Equipment leases are a universe unto themselves. While they were traditionally used for renting equipment, and still are, leases encompass far more than simple rental agreements. Depending on the lease agreement either you or the financing entity (called a lessor) own the title for the equipment for the duration of the lease. This has fairly profound tax ramifications, so make sure you talk to an accountant if you’re trying to maximize your value here. Like loans, leases spread the cost of your equipment plus interest over the course of the term length. Unlike loans, some of the cost is leftover after the term length, an amount called a residual. This amount may be as little $1, or as high as the fair market value of the product. How much it is depends on the type of lease you got. Capital leases, which are meant to replace loans, typically end with a small residual and you assuming full ownership of the equipment. Operating leases, often shorter in duration, will leave a larger residual, but you’ll have the option to return the equipment as well as buy it. Leases also typically finance the full cost of your equipment, minus the first and sometimes last month’s payment, which can make them a better option if you don’t have a large sum of cash laying around.
5 Reasons Equipment Loans & Leases Are Good Options For Startups
So now you know that equipment financing is at least an option for financing your startup business costs. Here are some pros to using equipment loans and leases as a startup:
1. They’re Easy To Qualify For
I touched on this above, but equipment loans and leases carry less risk to financers than unsecured loans and don’t require you to come up with an exotic source of collateral like most other types of secured loans. The result is financial products that are more accessible to startups.
2. No Collateral Requirements
It’s not every day you can get a secured loan without actually having to put up any of your own collateral, but equipment financing allows you to do just that. With equipment financing, the equipment you’re acquiring is the collateral.
3. Equipment Vendors Want To Give You Financing
Companies that sell big-ticket items know their products are expensive and hard to buy with petty cash. Because of this, many provide captive lessors. Essentially, they’ll lend you money to buy their product. Weird, right?
4. Bigger Downpayments Can Circumvent Qualifications
Equipment loans and leases are generally easier to qualify for to begin with, but you have some additional leverage that you don’t have with many other types of financing: if you can manage a bigger downpayment (or pay for an additional month in the case of a lease), the financer may waive some of their qualifications.
5. You Can Rent Equipment That Depreciates Quickly
Some types of equipment (think computers) have much shorter effective lifespans than others. Operating leases allow businesses to use and then return equipment that may not make a good longterm investment.
5 Reasons A Startup Should Avoid Equipment Loans & Leases
Equipment loans and leases have advantages, but are they really a good idea for your business? Let’s explore some of the downsides:
1. They Can Be Expensive
Anything involving accumulated interest can potentially be a trap for the unprepared, and equipment financing is no different. Leases, in particular, can carry punishing interest rates that get hidden within their complicated terms. Calculate how much you’ll ultimately be paying above the equipment’s ticket price and decide if the investment is worthwhile.
2. If You Default, You Can Lose A Vital Piece Of Equipment
The downside to having the equipment you purchase serve as collateral is that it’ll be the first thing your financer comes for if you default on your payments. If that equipment is vital for your operations, you may have a problem.
3. Equipment Vendors Want To Give You Financing
Recognize this one? This can be a pro, for sure. But as convenient as a captive lessor can be, you should also be prepared for extremely high-pressure sales tactics from them. They lose very little by bullying you into a lease you’re not prepared for.
4. Your Startup May Not Have That Much Cash
If you had large chunks of money to throw at equipment, would you be looking for financing in the first place? While we’re talking about the difference, say, between 15% and 25%, that may be a lot for a company without steady revenue.
5. You Need To Know What You’re Doing
Leasing and returning equipment can make fiscal sense, especially once you factor in tax optimization, but this isn’t a game for beginners. You’ll need to be very familiar with the type of equipment you’re buying, tax codes, and prevailing market values to get the most out of shorter-term leasing.
What You Need To Qualify For Equipment Financing
If you think equipment financing is the right option for your startup, you’ll want to be prepared when it comes time to fill out your application. First, you’ll want to know what your credit score is. Credit scores aren’t always a make or break for equipment financing, but you’ll have a much easier time with good credit than you will with poor. You’ll also want to have the standard information financers expect for loan applications. These include things like:
Legal documents and licenses
Statement of owner’s equity
You’ll also need to provide information about the product you’re buying and who you’re buying it from. Having that information on hand will greatly speed up the application process.
The good news is that equipment financing is one of the faster forms of financing you can get, with time to funding usually measured in days rather than weeks or months.
Does equipment financing sound right for your startup? Wondering where to go from here? We’ve got many more resources available for you!
Check Out Our Favorite Equipment Financers For Small Businesses
If you’re ready to find a lender or lessor to finance some equipment for you, you’ll want to take a look at our list of favorite equipment financers.
Don’t Think An Equipment Loan Or Lease Is Right For You? Take A Look At Other Financing Options For Startups
Did we talk you out of seeking an equipment loan or lease, but you still need financing? Check out our other financing options for startups.
The post Get The Equipment You Need For Your Startup Business With A Loan Or Lease appeared first on Merchant Maverick.
Clover is a big name in small business point of sale and if you’re currently in the market for a POS system, it’s likely that Clover is on your radar. But with so many different entities selling Clover, it can be difficult to gauge how much you should pay for a Clover system or what’s a good deal (and what’s not).
There are three aspects to Clover pricing: one-time hardware costs, monthly software costs, and ongoing credit card processing fees. In this article, I’ll break down how much you can expect to pay in each of these areas, and where you can find the best prices for Clover POS.
Who Sells The Clover POS System?
Many different entities sell Clover, ranging from national banks and merchant services companies to even retailers like Sam’s Club. The following are some popular Clover POS system vendors:
Bank of America Merchant Services*
Dharma Merchant Services
Leaders Merchant Services*
Sam’s Club Merchant Services*
Wells Fargo Merchant Services*
*Not a recommended Clover reseller
Generally, we recommend purchasing your Clover system directly from Clover.com or from a high-quality Clover reseller such as Payment Depot, Dharma Merchant Services, or National Processing.
How Much Does A Clover Credit Card Machine Cost?
As with the cost of POS systems in general, Clover hardware pricing depends in part on where you purchase it, as well as which pieces of hardware you want to include in your POS setup.
A Clover Station is the largest, most complete Clover POS setup, and includes 14″ swiveling POS screen, cash drawer, and receipt printer. The Clover Mini has a smaller swivel-screen and can be used by itself or with a Station. The Clover Flex is a handheld smart terminal with an even smaller screen that can also be used by itself or as part of a larger Station setup. Finally, the Clover Go is a mobile credit card reader that connects to an app on your iOS or Android device.
All Clover devices sync together so you can pretty much mix and match them however you like. For instance, you could have a Clover Mini with a cash drawer as your main terminal, while also using a Clover Go for occasional mobile sales. Or, you might just use a Clover Station and nothing else, or a Clover Flex with a Clover Mini, etc.
The following prices are what you can expect from Clover.com directly. Other Clover vendors vary in their pricing, and we recommend you do your research to compare prices to find the best options out there.
Clover Station for any business: $1,399. Includes Station, cash drawer, and receipt printer with customer-facing display and NFC. Including Clover Mini: $1,749.
Clover Station for full-service restaurants: $1,349. Includes Station, cash drawer, and standard receipt printer (kitchen printer sold separately). Including Clover Flex: $1,699.
Clover Mini: $749. Has built-in scanner and receipt printer but does not include cash drawer.
Clover Flex: $499. Has built-in scanner and receipt printer but does not include cash drawer.
Clover Go: $69. Includes Micro USB charger. Charging dock sold for an additional $29.
Additional hardware add-ons, such as scales, barcode scanners, kitchen printers, and debit PIN pads can drive the price up further.
Various vendors may offer lower prices on Clover hardware (Clover.com hardware prices are MSRP), but those lower prices may come with a catch, such as having to sign to a long-term merchant services contract for payment processing. Many Clover vendors also offer the option to lease your Clover POS, but we never recommend leasing your POS system. It’s always a much better deal to buy your system outright, or pay for it installments if the vendor offers 0%-interest financing.
To learn what each of the Clover hardware devices can do and which ones you need for your business type, I recommend reading our dedicated reviews of the Clover Station, Clover Mini, Clover Flex, and Clover Go. My post on The Best (And Worst) Companies To Get a Clover Credit Card Machine From also has more information on the different Clover hardware options and how much you can expect to pay from different vendors.
Understanding Clover Fees For POS Software
Clover charges monthly fees for its software, letting you choose from several different plans that offer different features. You can also purchase additional software features from Clover’s App Store.
Here are Clover’s monthly software plans:
Register Lite Plan: $14/month
Best for businesses with credit card sales of less than $50,000/year
Flat-rate processing at 2.7% + $0.10 (if plan is purchased directly from Clover)
Accept all credit and debit cards, including chip (EMV) cards
Accept contactless (NFC) payments
Track cash payments
Process payments when offline
Send paperless receipts
Accept on-screen signatures & tips
Ring up items, discounts, & tax
Charge taxes at the item level
Theft protection (set employee permissions)
Employee management (payroll, shifts)
Export basic reports (sales, tax, payroll)
Liability protection up to $100,000 in the event of a data breach
Access to 200+ apps and integrations on Clover app market*
Monitor activity, sales, & refunds remotely
Track sales with item-level reporting*
*Available on Flex, Mini, & Station only
Register Plan: $29/month
Best for businesses with credit card sales of more than $50,000/year
Flat-rate processing at 2.3% + $0.10 (if plan is purchased directly from Clover)
Pre-authorize credit cards (for bar tabs, reservations)
Build your mailing list automatically*
Read customer feedback, and reply with coupons*
Create a simple, custom loyalty program*
Fire orders to a kitchen printer or other stations
Add gratuity to checks
*Available on Flex, Mini, & Station only
Dining Plan: $69/month
Best for full-service restaurants
Flat-rate processing at 2.3% + $0.10 (if plan is purchased directly from Clover)
Includes everything in Register plan, plus:
Floor Plans app: Build dynamic floor plans that match your layout
Orders app: Set up order types and categories; move or transfer orders; fire orders directly to kitchen or prep stations; add items to partially paid orders
Apply service charges to large parties
Split checks in any proportion
Run reports per revenue center (patio vs. bar)
Other bundled that come pre-installed: Bar Tab Auths, Tips, Shifts, Discounts, Happy Hour
As you can see, the Register Lite plan is best for very light, low-volume users who don’t need to do things like process exchanges, manage inventory, or accept tips. For most retail or quick-serve businesses, the Register plan is best, especially considering the lower rate for payment processing. Full-service restaurants may benefit from the Dining plan, but it depends on your needs; you might be fine with just the Register plan. Note that Clover used to offer Payments Plus, which was free and more limited in features. However, that plan has been discontinued.
Still, $14/month to $29/month is pretty affordable for a POS, especially since Clover doesn’t charge extra for additional registers or devices. Of course, Clover apps might add to the cost if you need specialized features. But again, most businesses will find everything they need in the $29/month plan.
Note that while most Clover providers sell Clover software services, those companies often charge their own markup on top of Clover’s monthly fees.
How To Navigate Clover Credit Card Fees
Clover is always offered in conjunction with a merchant account, whether you buy it from Clover.com or elsewhere. Clover.com offers a flat-rate pricing structure, whereby you pay 2.7% + $0.10 or 2.3% + $0.10 for all card-present transactions (and 3.5% + $0.10 for card-not-present transactions, regardless of plan).
Clover’s flat-rate pricing scheme is straightforward and doesn’t include any extra merchant services fees. Generally, flat-rate processing works great for small, low-volume businesses. The processing fee on the Register plan (2.3% + $0.10) is quite competitive, especially compared to Square’s rate (2.6% + $0.10). (Note that Clover merchant accounts are still subject to underwriting and approval—make sure you read the fine print as you sign up.)
Not all Clover sellers offer flat-rate processing; some providers like Payment Depot offer interchange-plus rates, which might work better for higher-volume merchants processing more than $10K/month. Other less-desirable Clover vendors offer tiered pricing or enhanced billback pricing, which are both confusing and expensive. And still other vendors offer flat-rate processing, but at rates higher than what Clover.com offers. For example, Bank of America sells the Register plan with 2.7% processing.
How Much Should You Pay For Cloverâs Point Of Sale System?
All in all, most businesses can expect to pay somewhere around $1,400 for a complete Clover Station setup, with a $29/month software fee, and credit card processing fees of 2.3% + $0.10. As mentioned, Clover.com is a good place to buy your Clover devices and your system’s associated software and payment processing account. However, choosing one of the top-rated Clover providers could also be a good bet.
Whatever you do, beware of sub-par resellers offering expensive leases and tiered pricing. If you don’t buy directly from Clover.com, make sure you shop around and understand what fees are being absorbed or passed onto you in other forms.
Finally, if you’re not 100% sure whether you want to use Clover as your POS, you might also want to evaluate some of theÂ best Clover alternatives.
The post How Much Does Clover POS Cost? Everything You Need To Know About Clover Pricing appeared first on Merchant Maverick.
In the restaurant industry, business owners are constantly looking for areas where they can potentially cut overhead costs or increase their turnover rate even slightly to maximize their profits. But reaching that goal is often much easier said than done. Fortunately for these owners, technological advances in the industry might just have a practical solution. One of the more recent trends in the point of sale industry has been to offer self-ordering kiosks. What started as a novel or niche idea just a few years ago has now spread to a large number of the top restaurant POS companies, making it a feature that you may not even realize you can implement affordably.
There are different types of self-ordering kiosks as well. Some allow customers to walk through the entire purchasing experience on their own, punching in their order, walking through automated modifiers, and eventually paying. If you don’t want to lose the personal touch from your employees entirely, you can also add on-table kiosks that can simply ease the burden from a server by automating the payment process or allowing customers to browse a digital menu.
X Must-Have Features To Look For In A Good Kiosk POS
Even if your POS system does offer kiosk hardware and software, it doesn’t necessarily mean it will be a good fit for your business. You’ll want to make sure that it has all of the functionality you’re looking for to make it worth actually implementing. Here’s a few features that POS systems can offer in kiosk mode that you may want to check out.
Designing an eye-popping menu that highlights your unique or profitable items can be a difficult task. Having a kiosk can show customers appealing photos of each item and allow individuals to click on various menu options to either view a description or ingredients. This can lead to an increase in impulse sales and free up employees. It can also save you money on printing and laminating when physical menus get destroyed or when the menu simply changes. With most systems, menus can be updated quickly with a few button pushes.
Along that same vein, when a customer is filling out his or her order, the system can quickly and efficiently walk them through various options and areas for up-selling. These prompts and modifiers can be easily added in most POS software and can lead to a decrease in ordering errors and a potential uptick in sales.
How many times have you been making a purchase and, as you were ready to pay, a representative asks you if you want to enter your phone number or email address to receive promotions? By this point, most customers are usually ready to be done with their transaction and don’t feel like spelling out their information. An automated system can also make this process easier, letting customers enter their own information that is then automatically stored for future marketing. In some instances, you can also incentivize customers to sign up for loyalty by offering an immediate or future discount on a purchase.
Variety Of Payment Options
This is one of the most important aspects to consider. Today’s customers will look to pay in a variety of ways and a lack of options at your kiosk could turn them away. At a minimum, you will want a system that can process magstrip and EMV chip cards. However, many systems will also accept other methods like Google Wallet or Apple Pay. If your business also utilizes gift cards, you’ll want to make sure that your kiosks are set up to accept those as well.
This is somewhat more of a niche item but, for convenience stores or quick-service cafes, it can be a life-saver. Having a scanner that hooks up to your kiosk directly can allow customers to purchase self-serve or ready-made items by ringing them up themselves and paying for them in a matter of seconds.
Kitchen Display System Support
If you’re operating a larger full-service restaurant with a busy kitchen, having your kiosk directly sync to your KDS is a necessity. This will allow your cooks to see exactly when the orders were placed and they can view any special instructions or modifications that customers put in themselves. It also eliminates a potentially time-consuming step for your employees who would otherwise have to take down the order and then go to a separate station to send it to the kitchen.
To increase the the efficiency of your restaurant, kiosks can alert customers that their orders are ready either on an individual screen or by sending a text or email directly to a mobile device if wait times are longer. This is also a useful way to gather customer information for future marketing campaigns.
It’s a simple feature but one that can make a huge impact to your business’s bottom line. Simply being given a prompt to add gratuity is proven to increase profits across the board and is a simple, non-intrusive way to, we’ll say gently nudge, customers to reward your employees for their exemplary service.
Surprising Ways Your Restaurant Can Benefit From A Self-Ordering Kiosk Set-Up
Reduce Labor Costs
Obviously kiosks, either at the table or standing alone, can do a lot of the work that would otherwise fall to employees. Not only can this reduce the sheer number of employees you might need, it can also improve the efficiency of your employees on hand by taking some of the busy work off their plate. Kiosks can also mitigate against issues like unexpected rushes or having an employee who calls in sick at the last minute.
Increase Check Sizes
It’s easy to program in modifiers and prompts within a kiosk that will walk customers through up-sells and add-ons. This can be done in an intuitive fashion and in a way that doesn’t come across as pushy and customers feel as if they have more onus in their decisions.
Increase Overall Efficiency
While the addition of kiosks may seem impersonal, it can dramatically streamline your operations. With customers given the ability to send their orders at their own time, it eliminates those common occurrences where a server has to come back because a table hasn’t made its decision yet or stalls at one particular group of customers who take a long time to complete an order. Servers also don’t need to then make a separate trip to another station to fire an order to the kitchen. Instead, your employees can focus on making sure customers have everything they need.
Increase Order Accuracy
Along these same lines, having customers inputting their orders directly obviously eliminates the potential for server errors and will increase the likelihood that food comes out exactly to a customer’s specifications. This makes for an overall happier experience for customers who are then more likely to leave a hefty tip.
Disadvantages & Concerns When Using Restaurant Kiosks
Many restaurants pride themselves on their customer service and hands-on approach to their customers. Cutting back on the amount of face-time your hand-picked employees get with these customers might be seen as damaging to a restaurant’s brand.
If you end up with a kiosk system that isn’t extremely intuitive or has an interface that customers struggle with even slightly, it could defeat the kiosk’s purpose entirely. Having a server or other employee that is having to routinely walk customers through the ordering process can instantly eliminate any cost-saving benefits the kiosk could provide.
While the world in general seems to be trending toward automation more and more, there is still a large part of the populace that might be turned off by using kiosks to order as opposed to speaking to a human employee. A recent poll from Upserve found that 78% of customers said they would be less likely to frequent a restaurant that utilized self-serve kiosks. No doubt this current trend will take some getting used to for some customers.
While we’ve already discussed how kiosks may help your restaurant cut down on labor costs in the long term, you’ll likely need to do some math up front to determine if the investment is going to be worth it. In short, kiosks aren’t exactly cheap and, if not utilized correctly, they could end up being more trouble than they’re worth.
The 5 Best Kiosk POS Systems For Restaurants & How To Afford Them
Now let’s get to our bread and butter… telling you which point of sale systems might be the bet for you if you’re in the market for self-serving kiosks. The following systems are all among our favorites at Merchant Maverick and excel when it comes to providing kiosk functionality.
TouchBistro is a hybrid system best-suited for small to mid-sized restaurants and other food-service businesses. In many ways, TouchBistro has always been on the cutting edge of POS technology with strong mobile ordering functionality and a sleek designed catered specifically to make the lives of servers easy. It also was early on the scene with an automated kiosk system.
TouchBistro’s system comes with customizable branding and an easy-to-use interface that can feature pictures and descriptions of your restaurant’s products. The kiosk supports all types of payments, including Apple Pay and Android Pay and syncs with TouchBistro’s Kitchen Display System as well for restaurants. As you would guess, the kiosk also walks customers through add-ons and combos and lays out prices and options in an easily digestible format.
Toast is an excellent POS company that is Android based and prides itself on usability and its outstanding customer service. The all-in-one system is ideal for pretty much any type of food-service establishment and has one of the better tableside ordering systems in the industry. The system is feature-rich but does charge extra for some of its services like loyalty and online ordering.
Toast’s kiosk system feature’s Toast’s trademark simple interface and offers convenient order notifications directly to phone or email, eliminating the need for buzzers. Like TouchBistro, you can also customize your screen, displaying your menu items. Toast comes with a convenient scanner integration as well for establishments with quick scan and go items and Toast kiosk also syncs directly to a KDS.
Upserve is a cloud-based system that can handle any-sized food service establishment. Upserve features extensive menu building. It has a robust feature set, including strong inventory management and reporting and a simple, customizable interface. It also has strong tableside ordering functionality and a convenient Upserve Live function that allows managers to check on sales in real time from anywhere on an iPhone.
Upserve makes Bite Kiosk available and come with a unique algorithm that takes user data to help predict future customer behavior, allowing it to make suggestions and up-sell items automatically. It integrates seamlessly with Upserve, allowing for easy menu and pricing updates. It also syncs with Upserve’s loyalty program and, when purchasing, there are discounts for orders of 10 or more units.
Revel is an extremely robust hybrid system that can fit with nearly any sized restaurant or retail establishment. The iOS based system has an extremely generous back end with inventory that can handle more than 500,000 SKUs and a wide variety of reports. It offers a wide variety of ordering options and has its own delivery management system plus a impressive array of integrations.
Revel also is available with an intuitive kiosk mode. You can easily sync your loyalty program to the kiosk, allowing customers to easily look up past orders or simply make a repeat order. It also comes with the ability to take gift cards as payment. Orders are directly sent to Revel’s KDS. The interface also make it easy to browse menu items or retail inventory.
Lightspeed Restaurant is a cloud-based system designed specifically for small to mid-sized establishments but with the capacity to handle larger businesses as well. Lightspeed has a slick interface and syncs with things like mobile ordering and ecommerce plus an excellent employee management system. It also offers a convenient pricing structure, making sure you aren’t charged for features you aren’t using.
Lightspeed makes it easy to switch on its kiosk mode and conveniently walks customers through the ordering process with potential ares for up-selling and modifiers. The menu automatically syncs up with kiosk mode, making changes simple. You can also create your own payment methods, allowing customers to either pay up front or wait until after their meal.
How Small Businesses Can Afford to Invest In Kiosk POS Systems
Whether you’re interested in large, standalone kiosks or individual table kiosks, the cost can add up quickly. There are a few payment options and most companies will allow you to lease their hardware which can bring down the initial price. However, the long-term cost of leasing these systems is almost never a good idea. Buying the hardware outright ultimately saves you money but that still doesn’t solve the problem of needing cash initially when things might be tight. Fortunately, you have some options.
As a small business owner, you have some flexibility when it comes to receiving a loan. You can apply for an alternative small business loan, which can provide you with cash quickly and can be a good option if you have less than stellar credit or aren’t bringing in much money. These loans can get you the cash you need but can also have somewhat high interest rates.
There are other small business loans that you can look into as well each with slightly different terms. Loans for fledgling restaurateurs are sometimes difficult to land as the industry is viewed as risky. However, if you have a well-designed business plan, the right documents in order, and a good sense of your finances, you can dramatically increase your chances at approval. And, if you’ve run the numbers correctly and can bring down your costs by implementing kiosks, you may be able to pay off the loan quickly.
Are You Ready To Make The Jump To A Restaurant Kiosk POS System?
So hopefully you have a good sense of what kiosk systems are and what potential benefits they could provide for your business. If used properly, self-ordering systems can dramatically bring down your labor costs, increase efficiency and keep your customers happy by speeding up orders and cutting down on errors. It’s also a trend that may become the norm in the restaurant industry sooner than later.
However, that doesn’t mean that there aren’t inherent risks in making that switch. Upfront costs need to be a heavy consideration along with your customer base and your restaurant’s brand. If you rely heavily on your servers for their unique brand of customer service or have a clientele that may be wary of a more automated ordering process, it may not be worth the risk.
As a final thought, keep in mind that, if don’t immediately have the cash on hand to purchase a handful of self-ordering kiosks, you have options there as well with numerous small business loans that may be at your disposal. As with anything, do your research, crunch your numbers, and don’t hesitate to ask questions when making this important decision.
The post Why You Should Consider A Self-Ordering Kiosk For Your Restaurant (Plus The 5 Best Kiosk POS Systems & How You Can Afford Them) appeared first on Merchant Maverick.
So, youâre all set to launch your new business and make your fortune (well, hopefully). You realize that it would be nice if your customers could pay you using their credit and debit cards. Okay, âniceâ isnât nearly a strong enough word to describe how desirable this option is. In todayâs increasingly cashless society, itâs flat-out essential for most businesses to be able to accept credit cards. Without that ability, retail companies will lose out on sales, and eCommerce businesses will have a hard time making any sales at all.
You realize that youâre going to need a merchant account to process your credit and debit card transactions. But where do you find one? Every provider you talk to wants a ton of information about your business, tells you that they have the lowest rates (without mentioning what they are), and tries to pressure you into signing a lengthy contract before youâve even had a chance to read it. Then you hear about Square (see our review). No lengthy contracts. No endless forms to fill out. No monthly fees. Rates that are published right on their website. What kind of black magic is this? It all seems too good to be true.
Square â and other companies like it â are what are known as third-party processors. Rather than giving you your own merchant account, they oversee a giant merchant account thatâs shared by all their users. In this article, weâll explain how third-party processors work and how they differ from traditional merchant account providers. Weâll also explain the advantages and disadvantages of using a third-party processor rather than signing up for a full-service merchant account. Finally, weâll give you some examples of popular third-party processors that are helping businesses just like yours every day.
How Third-Party Payment Processing Works
First, letâs discuss nomenclature for a moment. The credit card processing industry is notorious for using different, non-standardized terminology to describe the various entities youâll encounter when you set up a merchant account for your business. While there often isnât a single, âcorrectâ term that must be used, youâll find certain terms are more commonly used than others.
The most broadly-defined term you need to know is merchant services provider. This is any business entity that can help you process credit or debit card transactions â regardless of how they do it. Breaking this down a little more, there are two types of merchant services providers:
Merchant Account Providers (MAPs):Â These companies will set you up with a traditional, full-service merchant account. Your account will include a unique merchant identification number that identifies your business to the payment processing networks. There are dozens â if not hundreds â of merchant account providers on the market, many of whom are resellers for a small group of very large direct processors. Examples include Payment Depot and Fattmerchant.
Read our Review
Payment Service Providers (PSPs):Â These companies provide you with the ability to accept credit and debit card payments, but donât offer a true merchant account with a unique merchant identification number. Instead, your account will be aggregated with that of other businesses using their service. Although there are relatively few PSPs in the industry, theyâve garnered a large share of the processing market in recent years by offering a low-cost solution to small business owners. Examples include Square, PayPal, and Stripe Payments.
Read our Review
While the term merchant account provider is very commonly used, things get a little fuzzy when it comes to payment service providers (PSPs). Although both Visa and Mastercard officially use the term payment service provider, youâll also commonly hear them called third-party processors, aggregators, and even payment facilitators. You just need to understand that all these terms refer to the same thing: a company that can allow you to process credit and debit card transactions without the need for a full-service merchant account. For a more in-depth look at payment service providers and how they operate, check out our article, What Is A Payment Service Provider?.
Third-Party Processors VS Merchant Accounts
Before you decide that a third-party processor is a good choice for your business, you need to understand how they differ from traditional merchant account providers. Hereâs a rundown of the main differences youâll encounter between these two types of business entities:
Simplified Underwriting: Traditional merchant account providers need to collect an extensive amount of information about your business before they can approve you for an account. This process can take several days â or even weeks. Third-party processors already have an aggregated merchant account that you can be added to, so they donât need nearly as much information upfront. They can usually approve you in fewer than 24 hours, and in many cases, the application process can be completed entirely online. For this reason, third-party processors are often a great choice for new businesses that donât have an established processing history yet.
Account Stability:Â The downside to quick and easy approval is that itâs just as easy for your account to be shut down. Square, in particular, has a bad reputation when it comes to account stability. Account holds, freezes, and terminations can happen unexpectedly for a number of reasons. Perhaps the most common cause is when a business attempts to process a single transaction thatâs much larger than what theyâve averaged previously. Similarly, Square will shut you down quickly if they determine that youâre a high-risk merchant.
No Long-Term Contracts: While your relationship with your processor will always be governed by a contract of some type, Square and other third-party processors don’t require you to keep your account open for a specified length of time. Merchant account providers, in contrast, frequently require you to accept a long-term contract (typically for three years) with an automatic renewal clause that extends your contract for one-year periods and an early termination fee (ETF) that youâll have to pay if you break your contract by closing your account early. While these provisions are more or less the industry standard, theyâre very unpopular with merchants. As a result, there is a growing number of merchant account providers who have ditched the long-term contracts and allow you to maintain your account on a month-to-month basis.
Pay-As-You-Go Billing:Â Unlike merchant account providers, who typically charge a number of monthly and annual fees in addition to your processing charges, third-party providers usually only charge you for the cost of processing your transactions. You usually wonât have to pay a monthly account fee, an annual fee, PCI compliance fees, or gateway fees. The tradeoff is that your processing rates will usually be significantly higher overall than what youâd pay under an interchange-plus pricing plan offered by a traditional merchant account provider.
Simplified Processing Rates: Most third-party processors offer simplified,Â flat-rate pricing for processing your transactions. Everyone pays the same rates, and theyâre published right on the providerâs website. This makes it much easier to know in advance what your overall costs will be so that you wonât get hit with any sudden surprises on your monthly billing statement. However, you should be aware that flat-rate pricing rates are notably higher than most interchange-plus rates, particularly for PIN debit transactions. At higher monthly processing volumes, this can actually make using a third-party processor more expensive than a traditional merchant account.
Customer Service Options:Â Third-party processors arenât known for offering a full range of ways to contact customer service. Instead, youâll often find yourself rummaging through an FAQ on their website or trying to contact them via email. This situation is gradually getting better, with some third-party processors now offering telephone-based customer support where you can talk to an actual human being.
As weâve noted previously, both third-party processors (or payment service providers) and traditional merchant account providers fall under the term âmerchant services providers,â as theyâre both able to process your transactions and deliver the funds from those transactions to you. However, itâs essential to consider the differences between these two types of entities and to understand how those differences could affect your particular business.
Can I Really Accept Credit Card Payments Without A Merchant Account?
The upshot of the above discussion is that, yes, you can take credit and debit cards without having to sign up for a full-service merchant account. Third-party processors such as Square or PayPal give you the ability to process these types of transactions without the expense and paperwork of setting up a merchant account. For a new business thatâs just getting off the ground, this can be a great option. Youâll save money on fees, and youâll be able to start taking credit card payments much quicker than if you had to go through the full underwriting process that getting a merchant account requires.
However â and we canât emphasize this point enough â third-party processors are not the best choice for every business. Both third-party processors and full-service merchant accounts have their good and bad points, and you need to understand them and determine how they affect your business before deciding on which type of payment processor to use. Below, weâll discuss the advantages and disadvantages of third-party processors, and how you can evaluate which kind of processor is right for your business.
Advantages of Third-Party Payment Processing
Hereâs a look at the benefits of using a third-party processor for your business:
Quick Setup:Â Square and other third-party processors allow you to sign up for an account online, and youâll usually be approved in little or no time. Just download the Square app and log in, and you can start accepting cards instantly. (Note that youâll need to wait for your card reader to arrive in the mail before you can accept card-present transactions.) This feature is in marked contrast to the underwriting procedure that a merchant account requires, which can take days or even weeks to complete. The flip side is that your account wonât be as stable as a true merchant account, and youâll have to be very careful to avoid any account holds, freezes, or terminations.
Technology-Driven Platforms: In our experience, there is a fundamental cultural rift between third-party processors and traditional merchant account providers. Third-party processors tend to be established and run by people with computer science degrees and deep tech backgrounds. Merchant account providers, however, are usually run by bankers with business degrees who arenât really experts in modern computer technology. While they offer most of the same software products (such as payment gateways, virtual terminals, etc.) as third-party processors, they often rely on outside contractors to develop them, as they donât have the same level of in-house expertise that youâd find with a third-party processor. This rift is slowly closing, but for now, youâll still find that third-party processors offer products that are more automated, more integrated into cloud-based platforms, and more feature-rich than what most merchant account providers can give you.
Low (Or No) Initial Setup Costs:Â If you just need a payment gateway or a magstripe-only card reader for your smartphone, account setup with Square is essentially free. Although we highly encourage you to part with a few dollars and purchase the companyâs EMV card reader, this cost is still a fraction of what youâll pay to get started with a full-service merchant account. Application fees, account setup fees, and paying for a credit card terminal can all add up to hundreds of dollars, depending on the provider. Fortunately, competition from third-party processors is forcing merchant account providers to lower (or even eliminate) many of the costs associated with establishing a merchant account.
No Monthly Fees:Â Perhaps the most attractive feature of third-party processors to small business owners is that they (usually) donât charge any monthly fees to maintain your account. Monthly account fees, statement fees, PCI compliance fees, and annual fees are all eliminated. You also wonât have a monthly minimum hanging over your head every month. This makes third-party processors particularly affordable to very small businesses that donât have a high monthly processing volume. Also, seasonal companies wonât have to worry about being charged during the months when theyâre not operating at all.
Predictable Flat-Rate Pricing:Â Itâs nice to know in advance what it will cost you to process a transaction, and third-party processors make this easy to do with their simple flat-rate pricing plans. With this type of pricing, you can also more accurately estimate your monthly processing costs, meaning that you shouldnât have any unpleasant surprises waiting for you on your monthly processing statement.
No Long-Term Contracts:Â Third-party processors only charge you for actually using your account, and you wonât be locked into a lengthy contract. You also wonât have to worry about getting hit with an early termination fee if you close your account. Note that an increasing number of traditional merchant account providers are now beginning to offer this feature as well, so you donât necessarily have to sign up with a third-party processor to avoid getting locked into a long-term contract anymore.
Free Hardware: When Square first launched in 2009, one of its most attractive features was that each account came with a free magstripe card reader that plugged into your smartphone or tablet. Together with the Square app (also free), you could log in and start accepting credit card payments right away. In contrast, most merchant account providers at the time would either sell you a credit card terminal for a few hundred dollars or sign you up for an expensive terminal lease that would ultimately cost you even more. While Squareâs magstripe reader is still free, itâs also obsolete. We highly recommend purchasing the companyâs EMV-capable reader, which costs far less than a standalone terminal.
Disadvantages of Third-Party Payment Processing
Okay, if third-party processors are so great, why isnât everyone using them? Why are full-service merchant account providers still in business? The answer, of course, is that third-party processors also come with some significant limitations that make them a poor choice for a lot of businesses. Before you rush out to sign up for your âfreeâ third-party account, consider some of the following disadvantages:
Account Stability Issues:Â Not having to go through the complete underwriting process makes it quicker and easier to get up and running, but it also means that your account isnât as secure as an individual merchant account. While having a full-service merchant account doesnât provide complete protection from account holds, freezes, and terminations, it does make them much less likely. Consider the potential impact of an account freeze on your business before you sign up with a third-party processor. In our experience, these unfortunate incidents usually occur because either (1) the merchant attempted to process a much larger transaction than their average ticket size, or (2) the processor discovered that the merchant was selling something thatâs expressly prohibited by their user agreement. This includes most high-risk businesses, including CBD merchants.
No Specified Processing Limits:Â With a full-service merchant account provider, youâll be required to stay within maximum monthly processing limits and maximum transaction sizes. Third-party processors, unfortunately, tend not to specify what these limits are in advance. Youâll only find out that youâve gone over a limit when you actually exceed it and suddenly have your account shut down. While the majority of merchants using third-party processors never experience this problem, itâs still important to consider it before you sign up.
Limited Acceptance For Specialized Cards:Â Third-party processors generally donât allow you to accept specialized cards such as SNAP/EBT cards or government-issued credit cards. Debit cards are generally accepted, but youâll pay much higher processing rates than you would under an interchange-plus pricing plan offered by a traditional merchant account provider.
Limited Hardware/Software Options:Â With so many credit card terminals, POS systems, payment gateways, and online shopping carts on the market, traditional merchant account providers go to great lengths to ensure that their accounts are compatible with as many of these products as possible. With a third-party processor, youâll usually be limited to using just the hardware and software products that your processor offers â and these are often pretty generic. This might not be much of an issue for a small business owner, but as your business grows, youâll eventually want to add many of the bells and whistles that are available with a full-service merchant account provider.
Expensive Flat-Rate Pricing:Â Wait a minute. Didnât we just say that third-party processors were less costly than full-service merchant accounts? Well, thatâs only true in some circumstances. For a very small business owner, youâll usually save money with a third-party processor because you wonât have to pay all the extra monthly and annual fees that come with a full-service merchant account. However, flat-rate pricing is significantly more expensive than interchange-plus pricing, at least on a per-transaction basis. Debit card transactions, in particular, are dirt cheap under interchange-plus pricing. With a flat-rate pricing plan, however, youâll pay the same high rates for debit cards as you will for credit cards. Youâll want to carefully analyze your overall costs under each type of pricing before deciding which option is best for your business.
Limited Customer Service Options: Square â like many other third-party processors â is notorious for offering limited options for customer support. For a long time, Square didnât even have a phone number that you could call for help! Customer support was often limited to email, which was slow and required a lot of back-and-forth messages to resolve an issue. Merchant account providers, however, usually offer 24/7 telephone support. Unfortunately, the quality of that support can vary widely from one provider to another.
Is Third-Party Payment Processing Right For Me?
By now, it should be quite clear that the choice between a third-party processor and a traditional merchant account will depend on the nature and size of your business. There isnât a single provider on the market that offers a true âone size fits allâ service thatâs suitable for every business. Third-party processors are usually a great choice for very small or seasonal businesses that donât process a lot of credit card transactions, donât have a high monthly processing volume, and donât need any of the fancier bells and whistles that are available with a merchant account.
Ultimately, your overall processing costs will determine whether you should sign up with a third-party processor or go all-in with your own merchant account. Whichever option meets your needs for the lowest cost will, naturally, be the best choice. Unfortunately, it isnât always easy to accurately determine which option will save you the most money. As a very general rule, we usually recommend third-party processors to small businesses and merchants who are just starting out. In contrast, larger, more established businesses will usually save money with a traditional merchant account.
Typically, the single most important factor in making this determination is your monthly processing volume. Unfortunately, there are so many variables involved that we canât provide a specific amount where it makes sense to upgrade to a full-service merchant account. Weâve seen figures from vendors ranging from as low as $1,500 per month to as high as $10,000 per month. The important thing to understand is that this number is highly variable and unique to your business. Youâll have to compare quotes from several merchant account providers and compare them against what youâre currently paying to figure out whoâs offering the best deal. To make this process as simple and accurate as possible, we recommend our Merchant Account Cost Analysis Workbook, which includes spreadsheets to help you automatically compare rate quotes.
Lastly, choosing between a third-party processor and a merchant account isnât entirely a matter of dollars and cents. Sometimes, itâs worth paying a little extra for things like better customer support or more fully featured software. While costs are always going to be important, we recommend that you consider the overall value you receive in choosing a provider. Good luck!
The post The Truth About Third-Party Payment Processing appeared first on Merchant Maverick.
You have an idea for a new product that you can’t wait to introduce to the market. Or maybe you’re ready to take your freelancing career to a new level by launching your own business. Maybe your situation is a little different, and you’re ready to trade in your 9-to-5 to become your own boss.
Whether you have the next big invention or you’re an aspiring entrepreneur, starting your own business always requires one important detail: a business plan. A business plan works as a blueprint or roadmap for the success of your business.
Does hearing the words “business plan” conjure images of a huge stack of papers filled with graphs, charts, and every single detail of your business? Don’t break out into a sweat just yet. There’s good news: your business plan can be just one page. Yes, you read that correctly.
While there are certainly more complex business plans that you may need to explore at a later time (or perhaps not at all, depending on your business structure), many businesses can get started with a single-page business plan. In this post, we’re going to take a look at why you might pursue a one-page business plan. We’ll break down what you should include in your plan, discuss situations where you may need a more detailed plan, and even share a template that can help you get started.
If creating a business plan seems intimidating, keep reading and we’ll show you how easy it is to get started.
What Is A One-Page Business Plan?
It should come as no surprise that a one-page business plan is exactly what it sounds like: an overview of your business that fits on a single page. This document is used to convey your business idea succinctly, as well as give a brief outline of your goals and how you will reach those goals.
The terms “one-page business plan” and “lean business plan” are often used interchangeably. These two types of business plans aren’t exactly the same. A lean business plan is a more condensed version of a fully detailed business plan and typically uses bullet points and short summaries. A lean business plan may be longer than just one page. On the other hand, a one-page business plan must fit on one page and be written in a legible font size. No 4 point font allowed!
An executive summary is a similar document, but it’s not exactly the same. Many detailed business plans include an executive summary, or it can stand alone. An executive summary provides key details about your business and is usually written out in sentences instead of bullet points. A well-written executive summary may also take up two to three pages.
For this post, though, we are focusing solely on the one-page business plan, when it’s appropriate to use (and when it’s not), and what should always be included. Let’s start off with the basic structure.
The Basic Structure
Remember, keep everything clear and concise to fit all relevant information on a single page. A good rule of thumb is to keep each section to one or two sentences or bullet points.
Should You Use A One-Page Business Plan?
Every business — no matter how big or small — should have a business plan, and a one-page plan is a great place to start. This plan should help provide a basic overview of your business in its early stages. A one-page business plan is one of the best ways to map out the goals for your business and how you plan to reach these goals.
A condensed business plan can also be used to pitch your business idea to potential investors, partners, or customers. While you may need a full business plan later (more on that in a minute), your one-page plan serves as an excellent introduction to your business.
Writing a one-page business plan may also help you when crafting a lengthier plan further down the road. Because a one-page plan must be concise, writing yours should assist you to clearly convey your thoughts and cut down on unnecessary and lengthy wording.
However, there are times when a one-page business plan just won’t do the job. If you have a very complicated business idea or multiple partners, for example, a condensed plan won’t work for you.
If you’re seeking capital for your business, a formal business plan is a more appropriate choice. Banks typically require a formal business plan when applying for a loan. You may also be required to submit a formal business plan for other types of business funding, including Small Business Administration loans, grants, and startup loans.
What You Need To Create A One-Page Business Plan
Ready to get started on your business plan? Before you start tapping away at your laptop, map out everything you need first to make the process quicker and easier. Remember the basic structure we discussed earlier? Let’s break down each section so you know exactly what to include.
In this section, you should first state the problem that you have identified. Then, you will give a brief description of how your business will solve that problem. In other words, what product or service do you offer that will fulfill a need in the market?
Remember, you’re limited on space, so it’s important to get directly to the point without being too generic. You want to make a statement that shows how your business stands out from the rest.
For this section, you really need to sit down and think about your objectives for your new business endeavor. These objectives should be a list of the goals you have in starting your business or selling your product or service. Every business has different objectives, so think about what’s most important for you. Do you want to be your own boss? Do you want to provide outstanding service in an industry where service is lacking? Have you set a revenue goal?
Think about short-term and long-term goals for your business and jot your ideas down. Your objectives should be clear, concise, and arranged in a bulleted list.
This section is used to outline the specific things that qualify you to be a successful business owner. This could include your educational background, industry experience, work history, or even your own experiences as a customer that led to your business idea.
Having a resume on hand can make this section easier. It’s also a good idea to have a resume ready for when you seek funding in the future, as some lenders require this as part of their documentation requirements.
In this section, you will provide information about your target market. Who will be your customers? What are the needs of these customers?
More specifically, focus on the following:
Will you sell your product/service to consumers or businesses?
What is your key demographic? Consider factors including age, income, and lifestyle.
Why do these customers need your product/service?
Why should customers buy from you?
To answer these questions, you have to do your research. There are a number of ways to do this, but the internet will be your greatest resource. You can use the internet to create surveys, check out industry studies, and do your due diligence on comparable businesses.
The only drawback is that serious market research costs money that most startups don’t have. For now, keep it simple. As your business grows and you develop a formal business plan, you can explore investing money in your research. For now, focus on free and low-cost methods for learning about your target market.
This section focuses on your competitors — who is your competition? Consider comparable products, services, and/or businesses that offer something similar to what you offer. Do they have any competitive advantages? Perhaps most importantly, what advantages do you provide? What do you offer customers that would make them choose your business, product, or service?
For this section, you can use the market research from the previous section. Again, you want to keep it simple here, but as your business expands and you create a more comprehensive business plan, you may need to invest money in additional market research.
Now, let’s talk numbers. In your financial summary, there are several important numbers that need to be listed. The first is your startup costs. If you haven’t launched your business yet, you may not have exact figures — after all, you always have to expect the unexpected — but make sure to do your research to get solid estimates.
You will also need to figure out ongoing costs to operate your business. This could include a lease or mortgage, marketing expenses, hiring and training employees, payroll, insurance, and other expenses.
Finally, the last number you need for this section is your revenue. How is your business going to be profitable? What are you going to charge for your product or service? How many customers would you need to meet your revenue goals? You may already have an idea in mind, but you can research comparable products or services to make sure your pricing remains low enough to be competitive but high enough to bring in a profit. If your business is currently in operations, you can review your bank statements and other financial documentation.
By this point, you should know how much revenue you need to be profitable. Now, it’s time to think about how to get that revenue by writing down your marketing strategy.
Remember, this is a one-page plan, so you don’t have to list out every single detail. If you plan to grow your business, this is something you will need to explore further in the future. For now, though, there are a few things to keep in mind.
The first thing to figure out is your budget. There are lots of free and paid marketing tools available. As a new business, start with free and low-cost marketing methods until you figure out what works. Once you’ve had a chance to test out different strategies, you can always invest more in the future. Don’t forget to add this estimate into your business costs.
Next, consider what your competitors or similar businesses within the industry are doing. In your eyes, which methods have been successful … and which have been total flops? You also want to think outside of the box here. While it’s certainly okay to do things your competitors are doing (such as advertising on social media), you also want to come up with unique ideas that make you stand out from the competition.
One-Page Business Plan Template [Download]
With everything involved with launching your own business, even something as simple as creating a one-page business plan can be completely overwhelming. If you don’t know where to begin, don’t worry — we have you covered. Check out our one-page business page template.
Get Our One-Page Business Plan
This easy-to-use template can help you get started on the right track. With our template and the tips in this post, you’ll be able to create a professional one-page business plan in no time!
You’ve Created Your Business Plan. Now What?
Congratulations! You’ve created your one-page business plan. Now, it’s time to put that business plan to use.
If you haven’t yet launched your business, you can use your business plan as a road map to get started. You have your goals in place, you’ve started to calculate your expenses, and you know how much money your business needs to make to be profitable and successful. It’s time to take the first step toward reaching these goals and getting your business off the ground.
You can also use your business plan to pitch your business idea to investors or partners. However, be aware that a formal business plan is often needed when seeking capital (i.e. getting a bank loan). Remember, this one-page plan is a great starting point that can give you practice in clearly and succinctly communicating your ideas.
Ready to get started? Check out the following resources for more help in launching your business:
Small Business Startup Loans: Your 8 Best Options
SBA Loans For Startups: Types, Terms & How To Apply
How Much Money Do You Need To Start A Business?
Everything You Need To Know About Small Business Payroll
How Health Insurance Works For Businesses With One Employee
The post The âHow-Toâ For One Page Business Plans appeared first on Merchant Maverick.
If you’ve been reading this website for a while, then you know that we began as a place focused on demystifying the world of credit card processing for small businesses. You might wonder, then, what we’re doing writing an article about a cash-only business. The fact is, we see both advantages and disadvantages to such a business, and we want to share some of our thoughts with you.
While most businesses do take some cash payments, some businesses are particularly suited to be cash-only. These businesses tend to be small and provide the services or sell their merchandise in person; the items sold also tend to be of smaller value. Below we have compiled a non-exclusive list of such businesses as well as a general overview of advantages and disadvantages for taking only cash payments.
Credit Card Processing Doesn’t Have To Be Expensive
Each of the above companies provides excellent customer service and fair pricing.
Why Would You Want A Cash Business, Anyway?
It is no secret that we are moving towards a cashless society, where customers carry little to no cash and make purchases through credit, debit, or cash cards. However, if you look carefully, you’ll notice that cash-based businesses are still lurking everywhere. Any kid can set up a lemonade stand or mow a neighbor’s lawn. Typically, you would pay them in cash. Same with a street musician or a hotdog stand by the sidewalk. Most likely, you will pay cash to your babysitter and maybe your dog walker too.
Cash-only businesses are typically new or “temporary” or side hustles, and they take only cash because they want to minimize start-up costs, they do not accept returns, and they do not have the time or desire to listen to pushy salespeople to learn the ins and outs of payment processing or buy any related equipment. In other words, they take only cash because cash is easy.
The Best Cash Businesses
Some businesses are especially suited as cash-only business. Below is a non-exclusive list to give some examples of such businesses.
Coffee, food cart, or food truck operator
Bakery, deli, or lunch stand
Lawn mowing service
Vending machine operator
Farm stand/farmer’s market vendor
Arts and crafts show vendor
Street artist (face painter, caricature artist, street musician, or similar)
Pet services (pet sitting, pet grooming, pet training, dog walking. etc.)
Personal trainer or fitness instructor
Hair/nail salon or barbershop
Note that these businesses tend to be single-person operations that can be set up easily and quickly. With some notable exceptions like a laundromat, they tend to be mobile, with no physical business address. The goods or services they sell are usually lower priced, and customers do not usually demand refunds after purchase.
Advantages of Going Cash Only for Payments
Most businesses take cash in addition to other forms of payments. For this article, though, we truly mean cash only. This means no credit or debit cards, cash cards, gift cards, cash transfers (Venmo, Zelle), or personal checks. The business takes paper bills or coins, and that’s it.
We start below by discussing some advantages of going cash only.
Lower Costs & Overhead (No Processing Fees)
Compared with taking credit cards, taking cash saves your business money. In order to process credit cards, you would need to buy or lease the equipment to read the cards. After you get the equipment, you would have to spend time (or money to hire someone) to maintain the equipment.
In addition to needing equipment, each swipe/dip/tap of a payment card costs you money to process. The cost is percentage-based, so it’s difficult to know ahead of time how much each use of a payment card would cost you. As well, some processors charge additional monthly or per incidence fees. These charges can add up and affect your profitability, especially if you operate a small business with narrow margins.
When you take only cash, all of the above issues go away. You won’t need any equipment except a cash register or maybe just an old fashioned calculator. You won’t have to deal with recurring monthly charges for services you may or may not need. Best of all, you won’t have to pay a processing fee every time a customer pays you, so your profit margin stays intact.
No Risk Of Funding Holds
When you take cash, you get your money right away. With payment cards, your account won’t be funded until 24 or maybe up to 72 hours later. Even after that, with card payments, you are at risk for chargebacks. A customer could reach back several months after a purchase to demand their money back so that your sales are not always final until many months after the purchase. Your processor could freeze your account if you have too many chargebacks or even terminate your account altogether. With frozen or terminated accounts, you might not get back the charges in those accounts at all.
With cash, you’ll never have to worry about any of these issues. You get your money right away, and, unless a customer complains and you decide to refund their purchase, you’re never obligated to pay back what you have already taken in.
If you take cash, you can simplify your business’s accounting needs.
There are two ways to keep your books: the cash method and the accrual method. The cash method doesn’t have anything to do with taking incoming payments only in cash. It merely means that you book a sale or expense when you actually receive or pay for the goods or services.
For instance, if you receive an order for widgets on August 31, send the order out, and receive your payment on September 15, then you book the sale on September 15. If you purchase office supplies on August 31 and pay the invoice on September 15, you book the expenditure on September 15. The cash method is considered the simpler of the two accounting methods. It gives you a realistic understanding of how much you have in the bank but does not take into account future income or expenditures.
With the accrual method, you book the sale or expense when you make the sale or incur the expenditure, even if you don’t receive the payment or don’t pay out the money until later. For example, if you receive an order of widgets on August 31, you will book this sale for August 31, even though you give your customer 30 days to pay so that they won’t have to pay until September 30. Likewise, for a purchase you make on August 31, you will book the expenditure on August 31 instead of waiting for when you actually pay, possibly 30 days later. With the accrual method, you must track your business’s finances with accounts receivables and payables.
If you take cash payments only, no matter which accounting method you use, you can simplify your accounting. With the accrual method, your accounts receivables are always up to date because you have already received the money and won’t have to keep track of them after that. If you use the cash method, you won’t have to deal with money you expect to receive in the future because, even though the method doesn’t require you to book the sale until you actually receive the money, you do, in fact, receive the money right away because you are paid in cash at time of sale.
Disadvantages Of Going Cash-Only for Payments
Even though becoming a cash-only business can reduce certain overhead and administrative headaches, they create inconveniences as well.
Most customers today no longer carry a large amount of cash and prefer instead to pay with a credit or debit card. Going cashless means that these customers won’t be able to make purchases at your business unless they either have the cash on them or can access a nearby ATM. Even assuming these customers heed the cash-only sign at the door and manage to get the cash to complete the purchase on their first visit to your store, they might not come back because they might not want to deal with the inconvenience of paying with cash again.
Few Growth Opportunities
Taking only cash can reduce your business’s growth opportunities. Cash might make sense when your customer must physically be present to get that cup of coffee or get their pet groomed, but if you have the type of business where you can sell online or even take phone orders, then taking only cash could limit your business’s growth opportunities. Many customers today prefer the convenience of shopping online. In addition, online sales can reach customers who live far from your store. Going cash-only means you might be missing these customers who can help your business grow.
Need For Stringent Cash Handling Policies
When it comes to money, some people cheat.
Handling cash means you will have to deal with counterfeits. Despite security features such as colored ink, raised printing, watermarks, and similar, counterfeit currency are still in circulation. In fact, the US Department of Treasury estimates that $70-200 million dollars in counterfeits could be in circulation today. If you take cash only, you and your employees who handle cash payments should be trained on how to spot counterfeits.
Like it or not, while we would like to think that our employees are honest and law-abiding, some do steal, and having a drawer full of cash can fatally tempt these unscrupulous employees. So, if you have a cash-only business, you would have to have strict cash handling policies that are enforced regularly and stringently. You might even have to invest in surveillance equipment to catch those employees who steal.
Limited Automation/More Potential For Errors
Sometimes, cash shortages are caused by inaccurate counting instead of theft. With a cash-only business, the person at the cash register must count carefully, both when taking in cash and counting back cash to give change. While this might not be difficult under normal circumstances, if you operate a business with rush times like lunch periods, having to count cash for every customer could make you more error-prone.
In contrast, if you take payment cards, only the exact amount would be processed, and you would eliminate a source of counting error.
Potential For IRS Audits
Like it or not, the IRS knows that it’s easier for cash-only businesses to underreport earnings and avoid paying taxes. Of course, not every cash-only business tries to avoid paying taxes, but enough have done so that the IRS typically audit cash businesses more often. Even if you report all your cash earnings honestly, you must carefully document all your transactions. Otherwise, it could be difficult to establish a pattern of honesty to convince the IRS that you haven’t underreported.
Other Considerations If You Want To Go Cash Only
So far, this article has focused on how going cash-only may affect the way you take in payments, but there are other considerations to take into account before you jump into a cash-only business.
Inventory & Employee Tim-Tracking Software: Even though you might only need an old fashioned cash register for a cash-only business, you might be missing out on the other conveniences of a modern point of sale system. For instance, some modern point of sale systems include inventory management software that automatically deducts items from your inventory as you make a sale. Other systems allow an employee to punch in and out to track their hours for payroll. If you use an old-fashioned cash register, these software systems would not be available to you.
Not Exempt From Paying Taxes: It is, of course, perfectly legal for you to pay your employees in cash. However, you must still deduct your employees’ income, social security, and Medicare taxes. Failure to do so will subject you to fines by the IRS.
Difficulty Obtaining Bank Loans: If you wish to borrow money to expand your cash-only business, you might have trouble borrowing from a bank. Unless you have excellent accounting records, it would be difficult for you to show a bank that you have adequate cash flow to repay the loan.Â Under those circumstances, they might decline to lend to your business.
Inability To Obtain A Merchant Cash Advance:Â In the same vein as getting a loan, some financial services companies offer something called a merchant cash advance. The advance is paid back by deducting a percentage from future credit card charges. For instance, PayPal has something called PayPal Working Capital and Square has Square Capital. If you do not process credit cards, then you cannot avail yourself of these programs. While getting a merchant cash advance is not the cheapest way to finance a business, it might be crucial to providing cash flow in a pinch.
Newer Tech Allows Coin-Operated Machines To Take Payment Cards: Finally, just because you run a traditionally coin-operated business like a laundromat or vending machines doesn’t mean that you are stuck in a cash-only world. Payment card readers designed for laundromats now exist. The newer vending machines can also take payment cards. In other words, while coin-operated businesses are traditionally cash only, you won’t have to settle for that if you wish to take payment cards as well.
Is A Cash Business Right For You?
Though we are transforming into a cashless society, for certain types of business, going cash-only might still make sense. While there will be inconveniences to you and your customers, an all-cash business is still the fastest and the easiest type of business to set up because it requires zero setup cost. For small businesses that sell items of lower cost to customers who visit in person, accepting only cash might make a lot of sense.
However, even if you prefer to take only cash, you might wish to consider adding payment cards as a convenient option to your customers. You can require that every use of the card be in excess of a certain amount, and, with mobile processors like Square, as long as you have a cell phone, you can quickly set up an account to take credit card sales even if you operate a seasonal, low volume business like a farm stand by the side of the road.
At the end of the day, with the different types of credit card payment processors available today, going cash-only is merely a choice, not a necessity. Is going cash-only a viable option for your business? If you are currently operating a cash-only business, how is your experience so far?
Are you ready to launch a new business, but don’t know to fund your idea? Or are you a small business owner ready for expansion who lacks the capital you need to grow?
Sure, small business loans are an option, but simply owning a business — or hoping to start your own business — doesn’t automatically qualify you for this type of financing. A lack of business credit history, a short time in business, or low revenue may prevent you from getting a small business loan. Even if you do qualify, you might get stuck with short terms and high fees and interest rates.
Don’t give up hope just yet, though. If you own your own home, there could be another funding option you’ve not yet considered: obtaining a home equity loan for business purposes. You can leverage the equity in your home to get lower rates, longer repayment terms, and higher borrowing limits than you might with small business lenders.
Sounds great, doesn’t it? Unfortunately, not everyone will qualify for a home equity loan. Others may find that a small business loan, personal line of credit, or another form of funding is better suited for their capital needs. However, if you’re looking for a creative way to finance your startup or expansion plans, read on to learn more about home equity loans and if one is right for you.
What Is A Home Equity Loan?
A home equity loan is also known as a second mortgage. To understand a home equity loan, let’s first take a look at equity. As you pay down the balance of your mortgage, you build up equity. Equity is the difference between what is owed on the home and the value of the property. For example, let’s say your home is valued at $500,000. If your first mortgage has a remaining balance of $200,000, then the equity in your home would be $300,000.
Another way to look at equity is that it is the portion of the home that you own. With a home equity loan, you can use your equity as collateral for an additional loan. If you don’t have equity in your home — that is, the value of your home doesn’t surpass the amount owed on your first mortgage — you will not qualify for this type of loan. Generally, you can expect to receive about 80% to 85% of the value of your home as a lump sum, less the amount still owed on your first mortgage. This money can be used to fund large purchases for your business, including startup costs, new equipment, facility upgrades, or purchasing commercial property.
After receiving your funds, you’ll repay the loan over a longer period of time — usually 5 to 15 years. Home equity loans come with fixed rates and are repaid on a monthly basis.
Equity Loans VS HELOCs
Another type of funding that uses the equity in your home is a home equity line of credit, or HELOC. Similar to an equity loan, a HELOC uses the equity in your home as collateral. However, instead of receiving a lump sum, you get access to a line of credit that you can use for business purposes.
After being approved for a HELOC, you’ll be able to withdraw funds up to and including the credit limit set by your lender for a set period of time — typically a year. When this draw period is over, you’ll enter the repayment phase. At that time, you’ll begin to repay the amount of money borrowed (plus interest). Once you’ve repaid borrowed funds, you’ll be able to borrow funds again.
Most HELOCs come with variable interest rates, whereas most home equity loans have fixed rates. While this provides stability, often you’ll find that home equity loans have a higher interest rate than HELOCs.
If you have a larger purchase to make, such as buying equipment or purchasing real estate, the lump sum offered through a home equity loan is the wiser choice. If you want a more flexible funding option for working capital, hiring new employees, or purchasing inventory, a HELOC may be the better option for your business.
Equity Loans VS Business Loans
A home equity loan is similar to a business loan in a few ways. With both types of funding, you receive a lump sum that can be used to fund your business purchases. Many small business lenders also offer low, fixed rates, long repayment terms, and monthly repayment schedules.
However, there are also a few distinct differences. With a home equity loan, the equity in your home serves as the collateral for the loan. For business loans, other forms of collateral may be used, including business equipment or real estate. You may also be required to sign a personal guarantee or agree to a blanket lien.
Borrower requirements also differ. When you apply for an equity loan, the lender will consider factors including your personal credit profile, your debt-to-income ratio, and the amount of equity in your home. Small business lenders may consider factors including personal credit, business credit, annual revenues, and time in business.
When Should Merchants Use A Home Equity Loan?
Each business is unique, which is why one source of funding doesn’t work for everyone. However, there are many small business owners that will find that a home equity loan is a viable way to access capital.
If you haven’t yet opened the doors to your business because of startup costs, a home equity loan may work for you. No time in business, business revenue, or business credit history is required to qualify.
A home equity loan may be a good choice for you if you want a low-cost loan option. If you’ve shopped around for other financial products and aren’t satisfied with short terms, high interest rates, excessive fees, or repayment schedules, a home equity loan could give you the affordable capital you’re looking for. You’ll receive a low fixed rate and a longer period of time to repay your loan. You may even qualify for additional savings if you work with the lender of your first mortgage.
However, there are also times when maybe a home equity loan isn’t the best fit. If you have an established business and a solid personal credit profile, you could qualify for other types of funding such as Small Business Administration loans. These loans come with low interest rates, repayment terms up to 25 years, and are easier to qualify for than traditional bank loans.
You may also explore additional funding options if you need more specialized financing. For example, if your business needs new equipment, equipment financing may be a better option. You could potentially qualify for low rates and favorable terms without putting your personal assets on the line. With equipment leases, you can even turn in your equipment and enter another lease for new equipment — a smart idea if you need to upgrade frequently.
Finally, a home equity loan won’t work for borrowers with a poor credit score or a spotty credit history. Most lenders look for a good credit score in the 700s, although some may work with fair credit borrowers. However, borrowers with lower scores frequently need more equity, a lower DTI, and must meet other requirements to qualify. Your application may also be declined if you have a recent bankruptcy or foreclosure, defaults on past loans, or other negative items on your credit report.
Home Equity Loans For Business: Pros & Cons
By now, you should have a good understanding of what a home equity loan is, how it can help your business, and what you need to qualify. If you’re still on the fence about submitting an application, consider these pros and cons before making your decision.
Low Interest Rates: Low interest rates mean that your cost of borrowing is lower. You could save thousands of dollars in interest by taking out a home equity loan versus other types of funding.
Long Repayment Terms: Most home equity loans have repayment terms of 5 to 15 years, although this varies by lender. With a longer repayment term, you can stretch out the cost of your business expenses through easy, manageable payments.
Startup-Friendly: Since factors like time in business aren’t a consideration for approval, startups and new business owners may qualify when other lenders turn them down.
Flexibility: You aren’t restricted in how you use the funds from your home equity loan.
High Borrowing Amount: Depending on the amount of equity you’ve built up in your home, you could qualify for a larger sum of money than other lenders offer you.
Risk Of Losing Your Home: If you pay your home equity loan as agreed, you won’t have any problems. However, if you default on your loan, you risk losing your home.
Fees: There are associated costs and fees with taking out a home equity loan, so be prepared. This may include application fees, closing costs, and prepayment penalties for paying your loan off early.
Going “Upside Down”: If the value of your property drops after taking out a home equity loan, you risk being “upside-down” on your loan. This means that you owe more than the property is worth.
Alternatives To Home Equity Loans
Still undecided if a home equity loan is right for you? This funding certainly isn’t for everyone, and you may find that another financial product is better suited for your needs. Before taking the leap into a home equity loan, consider these alternatives and whether one may be right for you.
Business Lines Of Credit
With a business line of credit, you’ll have access to funds that you can use as needed. Your lender will set a credit limit, and you can make draws up to this credit limit. As a form of revolving credit, your funds become available to use as you pay off the borrowed amount, giving you continuous access to cash when you need it.
If you need access to cash on-demand, a business line of credit may be a more suitable choice than the lump sum offered through a home equity loan. You may also consider a business line of credit if you don’t own your own home or don’t have enough equity.
This may also be an option for borrowers with a poor credit profile, as some lenders may consider the performance of your business when approving your application. However, if you don’t meet time in business or revenue requirements, your application will be declined. You’ll also find that many business lines of credit have higher rates and fees and shorter terms than home equity loans.
If unpaid invoices are causing cash flow issues, consider invoice financing. With this service, you’ll receive a portion of the outstanding funds upfront — usually 80% to 90% of the invoice total. Once the invoice is paid, you’ll receive the remaining funds, less any fees charged by the lender. Your invoices serve as the collateral.
This is an option typically available to B2B and B2G businesses. You may also have to meet other requirements in terms of revenue, time in business, and the quality and quantity of invoices. Invoice financing is a great way to get access to cash. However, be aware that this can be an expensive form of borrowing depending on the factor rate assigned by your lender. This is also a short-term solution, so if you need longer repayment terms, consider applying for a home equity loan or another financial product.
Business Credit Cards
If you have recurring expenses that require a more flexible form of funding, consider applying for a business credit card. With a business credit card, you can make as many purchases as you need up to your assigned credit limit. Qualifying for a business credit card is fast, and you can begin using your card immediately without waiting for further approval from the lender.
You may even consider applying for a rewards card, which scores you cash back or points to apply toward rewards like travel, shopping, and more.
High interest rates are a drawback of some business credit cards. For larger purchases, another form of funding may be more affordable.
Small Business Administration (SBA) Loans
Small Business Administration (SBA) loans offer high borrowing limits and low interest rates to fund business expenses. SBA loans have similar rates and terms to traditional bank term loans. However, these loans are backed by the government, making it easier for small business owners to qualify.
There are many different types of SBA loans, from smaller microloans to the popular SBA 7(a) loans that provide up to $5 million repaid over a period of up to 25 years.
In order to receive an SBA loan, factors including time in business and personal credit history will be considered. The process for receiving an SBA loan is lengthy and can take 30 days or longer from application to funding. However, this may be a great alternative if you don’t own your own home or don’t have enough equity to qualify for a home equity loan.
A home equity loan certainly has its benefits — startups can qualify, interest rates are low, and terms are favorable. However, there may be other options that make sense for your business. As with any other loan, shop around your options, compare lenders, and understand the terms of your loan before signing a contract.
The post The Complete Guide To Home Equity Loans For Business Purposes appeared first on Merchant Maverick.
Startup capital is a necessity for virtually all businesses. However, the cost to start a business varies widely depending on what kind of business you are starting. For example, a home-based endeavor such as a dropshipping company or an Amazon business can cost less than $1,000 to get off the ground; the same goes for a business that doesn’t require an office or much equipment, such as a pet sitting business. On the other hand, opening a business that requires more equipment and office space—such as an autobody shop or a coffee shop—could cost $100,000 or more.
In this post, I’ll go over the main costs associated with starting a business and what you can expect to pay for each of them.
Surprisingly, there aren’t too many official statistics available on how much it costs to start a business, probably because the costs vary so much. There was a study conducted by the Ewing Marion Kauffman Foundation way back in 2009 that found the average cost to start a business at that time was $30,000.
Below, we’ve put together our own startup business cost figures, but keep in mind that the amount you’ll spend will vary greatly depending on various factors, such as your industry and location.
Common Small Business Expenses
Business Licenses & Permits
Equipment & Supplies
Office Space & Utilities
$5,000 initially, then $2,000 monthly
$700 initially, then $200 monthly
Professional Services (e.g., legal services)
Total estimated cost: $28,200
Business Licenses & Permits
As a new business owner, you will need to register your business in your state and apply for a local business license/permit in your city or county. Depending on your industry, you may also need to obtain an industry-specific business permit. These initial business registration costs are usually minimal (less than $500).
There are several types of business insurance for startups and which type(s) you need depends on various factors. Insurance is a significant, ongoing business cost. Most businesses will need general liability insurance and business property insurance, and if you have employees, you will also need to pay for workers compensation insurance and health insurance. Commercial vehicle insurance and product liability insurance are some other business types you may or not need.
Equipment & Supplies
All businesses require some sort of equipment or supplies, but these costs vary significantly depending on what type of business you have. Examples of equipment and supplies include:
Restaurant kitchen equipment
Medical equipment & supplies
Product manufacturing equipment
Point of sale equipment (cash register, credit card reader, etc.)
The type of equipment and other materials you need to run your business really depends on your industry—for example, if you’re starting a wedding planner business, you’ll probably just need a computer and office supplies, whereas a trucking company will need commercial vehicles, etc.
Office Space & Utilities
If you need to rent or buy an office space, this will be a significant ongoing expense, and a big startup cost too, as you will need to pay a security deposit, first and last month’s rent, etc. Internet, gas and electricity, a business phone, and data plans will also factor into the infrastructure costs of your office space. Most businesses start out as home-based or rent a business space initially, instead of purchasing or building property.
If you sell a physical product, you need a certain amount of inventory to start out with (and have on-hand on an ongoing basis). Retail stores need a certain number of finished products on hand, while food-based businesses such as food trucks, for example, need to stock up on raw ingredients before they can open up shop. This, of course, does not apply to information-based businesses, such as consulting businesses or various other service-based businesses.
You may or may not start your business with any employees. If you do have employees, you need to factor in payroll costs, payroll taxes, insurance costs (workers comp. and health insurance), and training costs.
Modern business marketing includes not only business cards, advertisements, signage, etc., but also digital marketing costs such as SEO, social media marketing, and website maintenance costs. As far as your digital marketing, at the very least you will need a website and social media presence. Tip: Be sure you register your domain early on in the process of starting your business, as your website will be the foundation of your online marketing.
Some different types of business software you might need to launch and run your business include:
eCommerce/shopping cart software
Website builder software
Project management software
Email marketing software
Industry-specific business software (for example, specialized software for dentists, auto mechanics, etc.)
Some small business software programs combine multiple functions. For example, a restaurant management software system might include POS functionality as well as accounting, inventory, employee management, and maybe even email marketing functions. An accounting program like QuickBooks combines accounting, payroll, and invoicing functions, with POS functionality as an add-on.
Generally, most business software apps are no longer large programs that you install onto a computer as a one-time expense; rather, today’s business software is usually app/cloud-based, meaning you can sign in from any internet-connected device. And rather than paying for the software as a large, one-time expense, today’s software-as-a-service (SaaS) model is based on monthly payments with no down payment or long-term commitment. So, initial investment for business software will likely be much less than you would have paid for a comparable program 15 or 20 years ago. Some business software is even free to use.
In addition to software, don’t forget to factor in the cost of the associated hardware you’ll need to run the software into your equipment costs. For example, most businesses will need point of sale equipment, a laptop or iPad, a wireless router, etc. For very small businesses requiring only a basic app to take payments, it’s possible that the only hardware you might need is your smartphone.
This category can include legal fees, consultancy fees, accountant fees, and fees for any other professional services you use to help launch your business. While some businesses require minimal professional services, most businesses should at least consult a lawyer and/or professional accountant during the startup phase.
You’ll more than likely find out that there are more startup costs than you initially anticipated. Thus, it’s important to have a certain amount of your budget set aside for miscellaneous expenses that will inevitably come up. Some various costs you’ll need to include in your budget may include:
Credit card processing fees (once you start making sales)
Of course, you’ll also need to make sure you have enough money to support yourself before your business becomes profitable, so make sure this cost is included as well.
How To Calculate Startup Costs
The SBA has a very useful startup cost worksheet that outlines common business startup costs with sample figures that you can personalize to calculate the true cost of starting your business. Simply enter the estimated cost for each category (rent, utilities, inventory, employees, etc.) and you’ll be able to get a rough estimate of how much money you might need for your initial investment.
It’s also a good idea to make a sales forecast, in which you estimate how much you will sell in the first 6â12 months of opening your business. How long will it take for your business to make a profit? How long ’til you can pay off your startup expenses? With your prospective revenue in mind, you’ll have a better idea of how much you can afford to spend on ongoing expenses such as payroll and inventory.
If the total seems unaffordably high, look for areas you might be able to cut costs. For example, could you operate your business out of your home for the first six months? Could you subcontract workers instead of hiring employees? Could you use dropshipping to deliver goods to customers directly from the manufacturer, instead of buying inventory upfront?
Once you have a good idea of how much startup capital you might need for your first 6â12 months in business, you can decide how you will finance your venture.
What To Do If You Donât Have The Money
Startup funding can be difficult to procure from a traditional bank, especially if you don’t have any significant assets or previous experience owning a business. However, that doesn’t mean you don’t have any options. Online technology has actually made it a lot easier to find small business funding. Here are some options you might try to finance your business.
Online Loan: This category includes both online business loans and online personal loans. Generally, online business loans for startups are limited to short-term, high-interest loans; you won’t qualify for better terms unless you’ve been in business at least two years. Still, it’s definitely worth looking into to see what kind of loans and rates you might qualify for. Some online lenders might even offer access to SBA loans for entrepreneurs, such as SBA microloans. Look at our startup business loan comparison chart to find some startup-friendly loan options.
Business Credit Cards: If you just need a few thousand dollars to get started, a business credit card can be a smart choice. You can use a business credit card to charge startup expenses, and/or to get a cash advance (though make sure you check the terms on the advance because they usually charge high interest). You could also use a personal credit card, though business credit cards typically have more business-specific benefits, such as cash-back for common business expenses. Look at our best small business credit cards comparison to see some of the top business cards’ requirements and perks.
Equipment Financing: If your main startup expense is the equipment you’ll need to run your business — for example, restaurant kitchen equipment, manufacturing equipment, office equipment, etc. — then you can simply finance the equipment itself, in the form of an equipment loan or lease. Similar to automotive financing, equipment financing involves monthly payments (either to lease or own), and does not typically require good credit or any collateral other than the equipment itself. Check out our equipment financing comparison chart to see your best options.
Line Of Credit: A business line of credit is similar to a credit card in the sense that you can have it on hand to pay for expenses, but you only have to repay what you use. Like a business loan, you can get a line of credit from an online lender or a traditional bank. However, startups will have better luck finding a line of credit online; there are several online line of credit providers that only require only 6 or fewer months in business, whereas banks typically will not extend a line of credit to startups. Check out our line of credit comparison page to find some startup-friendly LOC options.
Other startup financing ideas:
Loan from friends/family
Personal retirement savings— rollover a retirement account using a ROBS (rollovers as business startups) plan
Our team at Merchant Maverick has also written many informative articles about startup financing that can help you on your journey:
Crowdfunding For Startups: 8 Tips For Launching
Don’t Let Bad Credit Stop You From Getting A Startup Loan
The Best Business Cards For Startups And Entrepreneurs
SBA Loans For Startups
How To Find A Startup Grant
14 Types Of Alternative Financing For Small Businesses
The Best Business Credit Cards For People With Bad Credit
Tax-Deductible Startup Costs
If your total startup costs are $50K or less, you can write off up to $10,000 of startup costs on your taxes in the year that you start the business, including up to $5,000 in business startup costs and another $5,000 in organizational expenses (legal fees, state incorporation fees, etc.). If your startup costs exceed $50,000, the amount of your allowable deduction will be reduced by that dollar amount, and if your startup costs are more than $55,000, you are not eligible for the deduction.
Certain startup expenses are not tax-deductible—for example, the costs to qualify for doing business in your industry, such as real estate licensing costs, are not deductible as a startup expense. Additionally,Â business assets (one-time business expenditures such as vehicles and equipment) are not deductible as startup expenses, but may be deductible in a different category (amortization).
(In case you were wondering, business loan interest is, indeed, tax-deductible.)
It may be a cliche, but it is also true that “it takes money to make money.” Startup business costs can range from under $10K to over $100K, depending on a number of factors. It’s okay if you don’t have all the money right now: the important thing is to put together an accurate estimate of how much you will need, what you will spend the money on, and how/when you’ll be able to repay any borrowed monies with your revenue. You can then incorporate this estimate into your business plan and the loan proposal you will use to demonstrate to lenders that you are a good candidate for financing.
With the numerous financing options available to entrepreneurs these days, there is a great chance that if you have a sound business plan and accurate, reasonable startup cost estimate, you will be able to find a lender that can meet your startup financing needs.
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