Business Owner

Open a bank account

  • Use your chosen a name and register your business
  • Open a commercial bank account
    • Start by selecting the bank you want to work with--think small-business-friendly--and call to arrange an appointment to open an account
    • You’ll need personal identification
    • Business name registration papers
    • If your credit is sound, also ask the bank to attach a line of credit to your account, which can prove very useful when making purchases for the business or during slow sales periods to cover overhead until business increases. Also be sure to ask about a credit card merchant account, debit account, and other small business services.

Bookkeeping

When it comes time to set up your financial books, you have options:

  • do it yourself
  • hire an accountant or bookkeeper
  • you might want to do both by keeping your own books and hiring an accountant to prepare year-end financial statements and tax forms

Most accounting software programs allow you to create invoices, track bank account balances and merchant account information, and keep track of accounts payable and receivable.

If you're unsure about your bookkeeping abilities even with the aid of accounting software, you may wish to hire a bookkeeper to do your books on a monthly basis and a chartered accountant to audit the books quarterly and prepare year-end business statements and tax returns. To find an accountant or bookkeeper in your area, you can contact the U.S. Association of Chartered Accountants or the American Institute of Professional Bookkeepers . In Canada, you can contact the Chartered Accountants of Canada or the Canadian Bookkeepers Association .

If you're only washing windows on weekends to earn a few extra bucks, there's little need for accounting software or accountant services. Simply invest in a basic ledger and record all business costs and sales. Since you are doing it on your own, be sure to use a commonsense approach when calculating how much to invest in your business vs. expected revenues and profits. Also remember to keep all business and tax records in a dry and secure place for up to seven years. This is the maximum amount of time the IRS and Revenue Canada can request past business revenue and expense information.

Accepting cash, checks and debit cards

In today's competitive business environment, you must provide customers with many ways to pay, including:

  • cash
  • debit card
  • credit card
  • electronic cash

There is a cost to provide these payment options:

  • account fees
  • transaction fees
  • equipment rental
  • merchant fees based on a percentage of the total sales value

But these expenses must be viewed as a cost of doing business in the 21st century. You can, however, reduce fees by shopping for the best service with the best prices. Not all banks, merchant accounts and payment processing services are the same, and fees vary widely. You can also check with small business associations such as the chamber of commerce to see if they offer member discounts; it's not uncommon to save as much as 2 percent on credit card merchant fees.

Opening a credit card merchant account

Many consumers have replaced paper money altogether in favor of plastic for buying goods and services. In fact, giving your customers the option to pay for purchases with a credit card is often crucial to success. This is especially true if you plan to do business on the web because credit cards and electronic cash are used to complete almost all web sales and financial transactions. To offer customers credit card payment options, you will need to open a credit card merchant account. Get started by visiting your bank or credit union or by contacting a merchant account broker to inquire about opening an account. Providing your credit is sound, you will run into few obstacles. If your credit is poor, you may have difficulties opening a merchant account or have to provide a substantial security deposit. If you are still unsuccessful, the next best option is to open an account with an online payment service provider.

Online payment services

Online payment services allow people and businesses to exchange currency electronically over the internet. These services are very popular with consumers and merchants. PayPal is one of the more popular online payment services with more than 40 million members in 45 countries, offering personal and business account services. Both types of accounts allow funds to be transferred electronically among members, but only the business account enables merchants to accept credit card payments for goods and services. The advantages of online payment services are that they're quick, easy and cheap to open, regardless of your credit rating or anticipated sales volumes, and you can receive payment from any customer with an e-mail account. You can have the funds deposited directly into your account, have a check issued and mailed, or leave funds in your account to draw on using your debit card. The only real disadvantage is that most services redirect your customers to their website to complete the transaction. This can confuse people who in some cases will abandon the purchase. Nonetheless, the advantages of online payment services far outweigh any disadvantages.

Establishing payment term

Every small-business owner also needs to establish a payment-terms policy. Although you certainly want to standardize the way you get paid, at the same time you will also have to be flexible enough to meet clients' needs on an individual basis. Setting payment terms covers deposits, progress payments and extending credit. It's important to establish clear, written payment terms with clients prior to providing services or delivering product. Your payment terms should be printed on your estimate forms, included in formal contracts and work orders, and printed on your final invoices and monthly account statements.

Securing deposits

If you're run a service business, you have to get in the habit of asking clients for a deposit prior to providing services, especially if the work also involves product sales that have to be paid for by you in advance. In this case, the deposit should be for at least the value of the materials. If you're supplying labor only, try to secure a deposit of at least one-third to one-half of the total value of the contract in advance of providing any services. Your order form or contract should have the deposit information clearly stated. Information on canceled orders or contracts and your refund policy should also be on your forms. Securing a deposit is your best way of ensuring that, at minimum, basic out-of-pocket costs are covered should the customer cancel the job or contract.

Progress payments

Progress payments are also a way to ensure that you do not leave yourself open to financial risk. The key to successfully securing progress payments is to prearrange your contract and payment terms. Agree on the amount that will be due at various stages of the project. You can use percentages to calculate the progress payments, such as 25 percent deposit, 25 percent upon delivery of any materials, 25 percent upon substantial completion, and the balance at completion or within 30 days of substantial completion. Or you may arrange for more concrete progress payments based on indicators that are relevant to the specific scope of work, the job or the services provided. Regardless of the system you use, progress payments on larger jobs can dramatically lessen your exposure to financial risk.

Extending credit

In most cases there's no need to extend credit to consumers unless you deliver a service such as pest control that's billed monthly or a major contract that is completed in stages. As a general rule, when a transaction is complete you should be paid in full. However, in the case of business-to-business sales, commercial clients will generally want some type of credit on a revolving-account basis, such as 30, 60, 90 or sometimes 120 days after delivery of the product or completion of the service. Ideally, you want to be paid as quickly as possible, so you might want to offer a 2-percent discount if invoices are paid within one week. And if you do extend credit, make sure to conduct a credit check first, especially when large sums of money are at stake. There are three major credit-reporting agencies serving the United States and Canada: Trans Union, Equifax and Experian. All three credit bureaus compile and maintain credit files on just about every person, business and organization that has ever applied for credit.

Debt collection

No matter how careful you are when it comes to extending credit privileges to customers, once in a while you will not be paid on time or at all. What can you do to get paid? The first rule of getting paid is to keep the lines of communication open with your delinquent client, and keep the pressure on to get paid through the use of nonthreatening telephone calls, letters and personal visits. Nonpayment can affect their credit rating or you may sue them if they do not pay.

Another option is to hire a collection agency to collect the outstanding debt. Collection agencies generally charge a percentage of the total amount owed as their fee, which can range up to as much as 50 percent. The Association of Credit and Collection Professionals is a good starting point for finding a collection agency to work with.

Your final option is to take the delinquent account to small-claims court, but remember that small-claims courts have limits as to how much you can sue for in your state or province, ranging from $1,500 to $25,000. Filing fees vary by state and province as well, and these must be paid upfront. But if you win, the fees are added to your award. As a rule of thumb, small-business owners that take people to court for nonpayment generally represent themselves, as the amount of the potential award is usually small and doesn't justify lawyers' fees and expenses. Even if you win, you will not necessarily be paid the amount you're awarded. You may win a judgment, but still have to chase the defendant through garnishment of income or seizure of assets to get paid. You can learn more about the small-claims court process and filing fees by contacting your local courthouse.

Content derived from Entrepreneur Coaching

Written by dvdscttbckr on Tuesday October 20, 2015
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