Start-Ups

Get An Attorney Now – It’ll Save You Later

There are two professionals every business will need early on: an accountant and a lawyer. The reasons for hiring an accountant are pretty obvious, you need someone to help you set up your “chart of accounts,” review your numbers periodically, and prepare all of your necessary federal, state and local tax returns.

The reason for hiring a business attorney may not, however, be so apparent. A good business attorney will provide vital assistance in almost every aspect of your business, from basic zoning compliance and copyright and trademark advice to formal business incorporation and lawsuits and liability. First, some general rules about dealing with lawyers:

If you are being sued, it’s too late. Most small businesses put off hiring a lawyer until the sheriff is standing at the door serving them with a summons.

The time to hook up with a good business lawyer is before you are sued. Once you have been served with a summons and complaint, it’s too late–the problem has already occurred, and it’s just a question of how much you will have to pay (in court costs, attorneys’ fees, settlements and other expenses) to get the problem resolved.

America’s judicial system is a lot like a Roach Motel — it’s easy to get into court, but very difficult to get out once you’ve been “trapped.” Most lawyers agree that while nobody likes to pay attorneys’ fees for anything (heck, let’s let our hair down–nobody likes paying or dealing with lawyers, period), but the fee a lawyer will charge to keep you out of trouble is only a small fraction of the fee a lawyer will charge to get you out of trouble once it’s happened.

Selling on the Web

As with any business move or expansion, considering an online presence can raise a sometimes dizzying list of questions for an entrepreneur. Exactly what must be put in place to make it happen? How does an online presence change the market for the business? What are competitors doing? How will people shop? What kind of security is required? How will customers pay online?

Why Go Online?

The most amazing aspect of e-commerce is its ability to impact sales and marketing efforts immediately. By going online, suddenly a neighborhood bakery or a home based consulting service expands its reach to a national, or even international base of potential customers. Web-based sales know no international boundaries.

Forrester Research, which analyzes online trends and statistics, projects the online retail market for U.S. businesses to be $230 billion by the end of 2008. That’s a full 10 percent of anticipated total U.S. retail sales.

Not only is the internet increasing the number of potential customers that a company can reach, but it’s also driving profitability, according to research from IPSOS, commissioned by PayPal. The survey discovered that, far from being an extra “expense,” internet operations boosted businesses’ bottom lines. Of small businesses that sell online,:

64 percent said the internet has increased their revenues or sales
48 percent felt the internet helped to expand their geographic reach in the United States
73 percent saved money by decreasing administrative costs

Cash flow is of significant importance to a new business–online or brick and mortar. The study found that small business owners who conduct business online feel it allows them to receive payments faster and conduct business easier.

When entrepreneurs move online, they establish themselves on a level playing field with larger competitors. On the internet, even the smallest online retailer can be as attractive and as functional as the largest big box store–without the need to have a physical presence on every street corner. Often, small shops project a “boutique” feel that attracts shoppers, who perceive smaller businesses as more distinctive than larger stores.

Turning Shoppers into Buyers

Online shoppers are finicky. Those who aren’t experienced customers–who haven’t yet discovered the convenience of two-day delivery or easy returns–tend to be skittish during the entire shopping experience. A well-planned, secure shopping cart should make the checkout process easy, clear and flexible for the shopper.

Jupiter Research found that 54 percent of internet shoppers have stopped buying from certain online stores in the middle of a transaction because they have concerns about service, delivery, shipping or handling. Other estimates range as high as 60 to 90 percent abandonment of shopping carts on some e-commerce sites.

Sometimes it’s because of confusion; other times, frustration over the process or lack of information. Some shoppers just use the cart as a place to hold items they’re considering and, in the end, never buy.

When setting up an online shopping cart for a business, consider the following tips:

Don’t force the shopper to go through a lengthy process of logging in, creating passwords and filling out voluminous forms. Privacy issues and complexity of the process can lead the buyer to end the process before even registering.
Include a link to a page detailing customer service policies, such as warranties, delivery guarantees, return policy, and shipping fee structure.
Provide “help” tips, a frequently-asked-questions (FAQs) page and a toll-free phone number for consumers to use if they have problems or questions relating to checkout.
Offer assurance that credit card information is protected through encryption and a highly secure online transmission process.
Allow customers to call up information about the items being purchased without having to leave the checkout page, with links to windows that contain the product information page.
Make it easy for buyers to add or remove items, change quantities, or select different models and styles of a product once they are on the checkout page.
Indicate the progress buyers are making during the checkout process, revealing the number of steps involved, showing which step they are on at any given time and allowing them to return to earlier steps to make changes.
Show the shipping costs at the front end of the checkout process. For some products, these costs determine whether the shopper will buy online and the quantity they will buy.
Clearly indicate a button or link to move on to the next checkout step and make it more prominent than other links on the page.
Provide multiple options for payment, including credit cards, checks or an online payment service.

Cash flow can make or break a company, especially in its early stages. That’s why many online businesses often encourage credit card payments, although it’s also helpful to give buyers alternative opportunities to pay with checks and money orders. Offering a variety of methods for shoppers to pay online increases the opportunity for these buyers to pay in the method they prefer.

Accepting payments online increases revenue and cash flow because money goes into the account immediately. Even more compelling is that there are more than 1.2 billion consumer credit cards worldwide. Credit card payments aren’t returned for non-sufficient funds–and credit card holders tend to do more impulse buying than those who write personal checks.

Businesses have several options when setting up an e-commerce function and accepting payments online, which include:

Processing payments through a merchant account. To accept credit cards online, a small-business owner must first apply for a bank merchant account and then find a way to process transactions. At a brick-and-mortar store, the processing takes place when a card is swiped through the card reader. At an online store, the processing is done when a shopper types in the credit card information, which is then verified by a merchant account processor.

During most online checkout flows, a shopper is asked which method of payment is preferred. If the shopper selects a form of credit card payment, he or she will be redirected to a secure page within the store to enter the credit card information. After the shopper selects “submit,” the credit card information will be sent to the correct merchant account, where it will be verified and either accepted or denied by the merchant account service provider.

Merchant accounts may have drawbacks for some small-business owners, however. Most charge set-up, monthly and per-transaction fees. Additional fees may also be involved if a business owner has a pre-existing account for a physical store, and wants to convert that account to accept payments online. Moreover, some banks won’t approve small online businesses for merchant accounts, considering them high-risk operations.

It may take 30 days or more for a merchant account to be approved and the integration process can be burdensome for business owners to do it themselves. Fortunately, the growth of online sales has given rise to an entire industry of merchant service bureaus that will grant a merchant account and everything else needed to accept online payments.

Integrating an online payment service. If a business doesn’t have access to a merchant account or the fees are just too high, one solution is an online payment service, like PayPal. PayPal allows businesses to accept credit-card transactions and payments safely and conveniently. It also allows buyers to send payments directly from a bank account.

When a buyer indicates the desire to use PayPal during checkout, that person will be directed to sign into or sign up for a PayPal account to then complete the transaction.

For merchants there may be benefits for offering PayPal. There are no setup charges, monthly charges, minimums or gateway fees. PayPal charges a per-transaction fee, which ranges from 1.9 percent to 2.9 percent plus 30 cents per transaction. PayPal also actively fights chargebacks on behalf of online merchants. If a transaction meets all of the requirements of PayPal’s Seller Protection Policy, then the merchant will not be liable to for the chargeback by the customer.

Ensuring Transaction Security

Online entrepreneurs have a responsibility to do all they can to ensure their websites offer a safe shopping experience. But they don’t need to be information technology security experts to have a secure site–the techies already have developed security measures that any online small business can adopt.

There are services in this space that bring together all the security measures that an online small business needs to have in place. PayPal enables businesses to set up a website that accepts credit cards without seeing or having to store the account numbers of its customers.

This makes buyers feel even safer because they don’t have to share their personal or financial information online. Gateway services like Authorizenet.com, CyberSource or Chase Paymentech Solutions will also handle credit card and electronic check payments securely.

Developing a Privacy Policy

Consumers’ fears of identity theft and the aggravation over spam make privacy policies essential for online businesses. Customers expect merchants to boldly exhibit their privacy policies on their stores’ sites, with links from the catalog pages and the shopping cart.

A privacy policy should describe how data, such as the customer’s personal contact information and financial details, is collected and used. Consumers should be given the opportunity to opt out of having their information sold or distributed and of receiving e-mail newsletters or other company communications.

An online business must post its privacy policy–and stick to it! This type of policy shows that the business takes customer privacy seriously and will use information it obtains in a responsible way.

Businesses can obtain a “seal of approval” for their privacy policies through a company called TRUSTe. For an annual fee, this California-based organization awards use of its seal to e-commerce sites that adhere to its privacy principles and comply with its verification and dispute-resolution processes. If a business doesn’t have a privacy policy, TRUSTe offers models that can be adapted and even a privacy policy writing “wizard” to help with the process.

Starting an online store may seem like a daunting challenge, but the reality is it’s never been easier. Today, many of the processes of moving a business online have become standardized and even automated. Business owners discover an entirely new meaning in their business lives when–through the process of building an online store–they realize they’ve optimized their new-found markets and won the trust of internet consumers.

The Internet, in fact, can work for any entrepreneurial personality. If an entrepreneur thinks life is just a bowl of cherries, we’ll find him selling cherry bowls. Never have entrepreneurs had such a clear, easy and relatively inexpensive opportunity to reach a global marketplace for so many products and services. It’s amazing how a business can thrive when its customers only need to lift a finger.

10 Steps to Move a Business Online

Competitor landscape review. Look at competitors online and decide how you will differentiate yourself from them.
URL. Register a domain name.
Web development. Hire a web site developer or buy web development software, then determine site design and navigation.
Technology. Buy a server or find an outsourced Internet service provider.
Payment. Find a secure online order solution, including shopping cart and payment service.
Protection. Fight viruses and protect the site and computers with anti-virus software.
Marketing. Develop a marketing plan, which includes determining and publishing customer service policies.
Contracts. Establish alliances with crucial partners, such as product suppliers, search engine optimizers, fulfillment services, shippers, web technicians, marketing or public relations firms.
Product. Create an online catalog or listings.
Maintenance. Keep inventory, catalogs and listings up to date for your customers.

The Right Way to Manage Your Money

Money management is tricky business. In addition to customers, cash flow and managing your accounts properly is what keeps your business humming along. Consequently, getting paid in full and on time, as well as understanding money management, has to become a priority, even if you elect to hire an accountant or bookkeeper to manage the books.

You will still need to familiarize yourself with basic bookkeeping and money management principles and activities such as understanding credit, reading bank statements and tax forms, and making sense of accounts receivable and payable. You also have to give careful consideration to the purchase payment options you offer customers, including cash, checks, debit cards, credit cards and online payment options, as well as establishing payment terms and debt collection in the event of nonpayment.

Opening a Bank Account

Once you’ve chosen a name and registered your business, you will need to open a commercial bank account. Setting up a business bank account is easy. Start by selecting the bank you want to work with–think small-business-friendly–and call to arrange an appointment to open an account. There’s not much more required than that.

However, when you go, make sure you take personal identification as well as your business name registration papers and business license, because these are usually required to open a commercial bank account. The next step will be to deposit funds into your new account (even $100 is okay). 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 two options–do it yourself or 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.

If you opt to keep your own books, make sure you invest in accounting software such as Quickbooksor Quickenbecause they’re easy to use and makes bookkeeping almost enjoyable. 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 Accountantsor the American Institute of Professional Bookkeepers. In Canada, you can contact the Chartered Accountants of Canadaor 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.

In today’s super-competitive business environment, you must provide customers with many ways to pay, including cash, debit card, credit card and electronic cash. There is a cost to provide these payment options–account fees, transaction fees, equipment rental and 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. Just remember, consumers expect choices when it comes time to pay for their purchases, and if you elect not to provide these choices, expect fewer sales.

Cash is the first way to get paid, which is great because it’s liquid and there’s no processing time required. As fast as the cash comes in, you can use it to pay bills and invest in business-building activities to increase revenues and profits. The major downside is that cash is risky because you could get robbed or lose it.

In cases like that, collecting from your insurance company could prove difficult if there’s no paper transaction as proof. Even if you prefer not to receive cash, there are people who will pay in cash, so get in the habit of making daily bank deposits during daylight hours. Also invest in a good-quality safe for cash storage for times when you cannot get to the bank.

If you’re running a service business, one the most popular way people still pay for services is with a check. You have to take a few precautions to ensure you don’t get left holding a rubber check, especially when dealing with new clients. Ask to see a photo ID and write the customer’s driver’s license number on the check.

If the amount of the check exceeds a few hundred dollars, ask the buyer to get the check certified or pay with a bank draft instead, especially if the client is new to your business. Also get in the habit of checking dates and dollar amounts to make sure they are right. I have been caught a few times with wrong dates and dollar amounts and it can be time-consuming to have to get a new check because of a simple error.

Debit cards are another option, but to accept them, you will need to buy or rent a debit card terminal. Most banks and credit unions offer business clients debit card equipment and services. The processing equipment will set you back about $40 per month for a terminal connected to a conventional telephone line and about $100 per month for a cellular terminal, plus the cost of the telephone line or cellular service.

There is also a transaction fee charged by the bank and payable by you every time there is a debit card transaction, which ranges from 10 cents to 50 cents per transaction, based on variables such as dollar value and frequency of use.

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 such as 1st American Card Service, Cardservice International or Merchant Account Express 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, which is discussed in the next section.

The advantages of opening a credit card merchant account enabling you to accept credit card payments are numerous. In fact, studies have proven that merchants who accept credit cards can increase sales by up to 50 percent. Not to mention that you can accept credit card payments online, over the telephone, by mail and in person, as well as sell services on an installment basis by obtaining permission to charge your customer’s credit card monthly or per agreement.

Of course, all these benefits come at a cost, especially when you consider that you’ll have to pay an application fee, setup fee, purchase or rent processing equipment and software, pay administration and statement fees, and pay processing and transaction fees ranging from 2 to 8 percent on total sales volume. Once again, these fees must be viewed as the cost of doing business.

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. PayPalis 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.

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, Equifaxand 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.

You cannot legally intimidate clients into paying you, but you can explain why it is in their best interest to pay you–namely, to keep your business relationship intact, that nonpayment can hurt their credit rating or that 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.