One of the most important aspects of financial planning, analysis and resource allocation for you as a business owner is the ability to generate cash flow.
This is important because the ability to generate cash flow will determine whether you have the required funds to pay creditors, employees and for supplies for the business.
Successful business owners will engage in prudently planning their cash flow, ensuring that they will derive enough profits from their sales to generate the necessary cash to operate the business.
They should also consider the expenses in processing credit cards when planning for cash flow. Knowing the fees and other charges in advance will help to determine the amount of sales necessary to raise the capital needed to sustain the business.
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Planning Cash Flow Management
The ideal time to plan for generating the cash flow is before the inception of the business. You should strive to acquire as much knowledge about the merchant account in advance of starting the business and should become acquainted with the fees, rates, fraud and types of accounts required for processing credit cards at the business.
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Understanding this ahead of time will mitigate costly mistakes and enable you to anticipate and plan for sufficient cash flow to operate the business with profits instead of losses.
In order for the stream of cash flow generated from credit card sales to have value, the cost in acquiring credit cards proceeds must exceed the cost to process those credit card sales and to convert them to cash. As such, you would have to devise a plan for the timing of the cash flows with the size of the anticipated returns.
This is best achieved with a business plan which would include Pro Forma Forms with the anticipated profits and losses predetermined. An accountant could help in the calculation of the numbers.
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Controlling Banking Fees
It is important for you as a business owner to limit banking fees when accepting credit cards for purchases, so that you will have ample cash to pay for the things your business needs. This will be crucial as more and more people engage in shopping over the Internet.
Just as you will be seeking to increase their cash flow through credit card proceeds and cash paid, banks will be seeking ways to increase their cash flows through providing their services to business owners in the collection of credit card proceeds and converting them to cash as a service for the business owner. It's the circle of financial life.
If you believe the fees are excessive or they seem to be increasing as the cost of products or services remains the same, then you should schedule a review of their merchant account and determine if any of the fees can be lowered.
The review would have to be timely, as the longer the operating costs increase, the more risk this may pose to a business owner in meeting their financial obligations or in responding to customers in an opportune and lucrative way.
Accounting Reports to Assess Company Performance
Each company should have a Statement of Cash Flows at their disposal prepared by an accountant or other qualified person at the business owner’s company at the end of each year. You should analyze it carefully to determine the sources and the utilization of your cash flow.
A balance sheet and income statement should also be included with the Statement of Cash Flow. The balance sheet would show a list of the company’s assets, liabilities, and stockholders’ equity and the Income Statement would show the company’s performance. All should be prepared based on the same period of time, for example, at the end of the year.
These three statements will reveal much your company's overall financial status including the cash flow it generated and the expenses incurred for the year, including credit card processing fees.
Upon careful examination of these statements, you can better determine the changes he may need to enact for the coming year. This may include a review of credit card processing fees with a merchant services representative to determine if fees and/or rates could be lowered.
For example, you may have received a higher rating because of risk factors when he/she initially acquired the merchant services account, and may be in a position to have the rate lowered because the risk has been addressed and eliminated.
High Risk Accounts
Some of the reasons an account may be considered high risk are:
- Unlimited sales volume
- Low discount rate
- Transaction fees and reserves
- Multi-currency options
You will pay a higher rate when the account is considered high risk. You may or may not be aware of it at the time that you applied for the merchant services account, or may not have clearly understood the circumstances under which the rate would be increased.
In the above instances, you could have his rates reduced if the risk was eliminated.
Unlimited sales volume will incur a higher transaction fee if the merchant does not meet the sales goal for which was indicated as the average sale. When a you apply for credit card processing, the answers to some questions will unknowingly give you a higher transaction fee, if the answer to the question was unknown.
This occurs when you guess at an answer to a question without taking the time to investigate the meaning of the question, nor to ask for clarification. An incorrect answer to the given question can jeopardize your account. It is best to consider the sales volume for which they planned before the inception of the business and even to err more on a conservative side rather than choose a more aggressive number.
This is especially true for a startup business.
For this reason, it is imperative that the business owner conducts due diligence and becomes knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider.
In conclusion, the business owner should undertake steps to plan cash flow generation in order to derive maximum profits from accepting credit cards for products and services.