For most new start-ups, the problem is not what to do with any money that comes in; rather it is actually generating an income in the first place! If you have a steady stream of customers, you have passed the first hurdle, but your next issue is how to handle all of the money your business is making. So what are your options?
As a minimum, you will need to open a business bank account. In the very early stages, it is acceptable to process money via a personal account, but it will cause complications when you have to file a tax return, so it is better to start as you mean to go on and open a business account. If you have already incorporated your business, you must open a business account from day one. Be aware, however, that you will need a tax ID number, so apply for this as soon as possible.
To be able to accept card payments, whether in person, via telephone, or online, you need to have a merchant account and a way to process the payments. This allows money to be transferred electronically from the customer’s account into your account.
Clearly, for any modern business to be successful in the global marketplace, being able to accept card payments is pretty important. However, there are several ways and means to do this and applying for a merchant account may not necessarily be the right solution for your business.
Mom and Pop Businesses
A small town business typically has a bricks and mortar store or place of business. The customer base is local and most transactions are carried out in person. You may accept payments in cash, via check, or by card. You may also accept payments over the telephone, but you are unlikely to need to worry about accepting online payments.
In this instance, a merchant account is essential. The business will need point of sale equipment, such as a cash register, card reader, or both. Merchant account providers typically offer this as part of their service, so as well as payment processing functions, you will not need to invest in hardware.
Online E-Commerce Stores
Online stores process payments via a payment gateway. Merchant account providers can offer this service, but it may not be right for a small start-up with very few transactions. To begin with, you could use a payment processing solution such as PayPal. PayPal is fairly cost effective for small e-commerce businesses, but as your business grows, it can have significant disadvantages, so a merchant account may be a better choice.
Larger businesses will need to use the services of a merchant account provider, but if you are operating in a high-risk business sector, you will need to work with a high-risk merchant account provider (click here for more information about high-risk merchant accounts).
Acceptance for a merchant account is not guaranteed, so make sure you have plenty of financial information to support your application.