The Definitive Guide to Small Business Financial Services
March 4, 2020 | Last Updated on: March 22, 2023
March 4, 2020 | Last Updated on: March 22, 2023
Virtually every business must deal with issues related to financial services. Financial services may include: payroll processing, payment (credit-card) processing, banking, accounting and taxes and insurance.
Many entrepreneurs are motivated to open a business by their passion for the type of product or service they want to offer. But, once they get into the daily grind of owning and running their firm, these small business owners find much of their time devoted to tasks unrelated to what drew them to make the plunge into their new venture.
They have to increasingly spend more time dealing with areas that involve small business financial services such as: payroll, cash flow, purchase orders, accounting, insurance and different types of legal matters. As a result, they have less time to pursue the passion that inspired their business in the first place.
Fortunately, help is available in the form of companies that are created to deal with such financial solutions for small businesses on an affiliate basis. By delegating the most important financial services for their small or medium-sized business, entrepreneurs can devote more time to their areas of expertise, which will give the business a greater chance of success in the long run.
In a similar vein, making novice mistakes in areas that require financial expertise can cost a business tens and even hundreds of thousands of dollars, and can even cause a business to shutter its doors permanently.
Financial solutions for small business are critical when it comes to running an efficient, profitable and growing small business. But when it comes to trying to determine what do small business need, the answers may not always be obvious.
Paying your employees is a complex business and if not done correctly may result in costly fines. The majority of businesses today in the United States process payroll internally. Still, this scenario may not be cost-effective for some small-to-midsize businesses.
Internal payroll processing requires at least a dedicated computer – or manual accounting program – and extensive training to use it. Also, deadlines and personnel and tax requirements can change and it’s the responsibility of the business to keep up with such changes on an ongoing basis.
Still, companies decide to process payroll themselves for a variety of reasons, such as:
Smaller firms with a stable staff, consistent fixed salaries and minimal tax obligations may be better off managing payroll internally. But if the payroll of a business changes with each pay period, using an outside payroll service makes sense.
Companies where employees work different amounts of hours each week, have a high turnover rate or employ seasonal help, fall into this category. A payroll service can help these firms save time and money compared to trying to process their payroll internally. Such a service can also be an asset for companies that pay payroll taxes to multiple states.
It’s also important to note that payroll is an area in which it’s easy to make mistakes without a proper grasp off payroll procedure. Employees and all federal, state and local tax agencies need to be paid in full and on time. Late or incorrect payments can subject a business to monetary penalties.
In addition to a better bottom line, using a payroll service can also provide peace of mind. Costly payroll mistakes are quite common. According to the Internal Revenue Service, one out of every three employers has been fined for a payroll mistake. Furthermore, the total amount of these fines amounts to billions of dollars. Tax regulations and other rules change on a regular basis. As a result, it’s easy for a company that processes its own payroll to make a costly mistake.
For those seeking to outsource, the good news is that the price for services can be negotiable. In order to avoid overpaying, companies should know exactly what services they want. It’s also wise to avoid providers that offer low rates with expensive additional features.
When discussing rates, business owners should ask a payroll service provider to include the filing of year-end W2 forms in their first-year rate, and for how long that rate will be valid. Potential rate hikes and the length of time and cost needed to reconcile payroll data mistakes should also be part of the conversation.
In addition to basic features, it’s important to learn how quickly a provider can re-run a payroll if it makes a mistake. For tax-filing services, it should be understood upfront that a payroll provider is liable for penalties and interest charges for late filings and errors. Prospective payroll services should also be asked if they can provide filing assistance for local taxes, and what they charge to file taxes for multiple states.
With the ever-expanding impact of credit cards, debit cards and other various payment methods in today’s economy, the need for payment processing solutions has never been greater. This is one of the most important types of financial services to small businesses.
There are projected to be 2.1 billion digital buyers worldwide by 2021. By contrast, there were 1.66 billion in 2016. Of all the payment options available to these shoppers, 42 percent prefer to use their credit cards. And by 2026, mobile payments will account for more than 50 percent of all sales. Mobile payments will be mainstream in most markets at that time, reducing the physical use of credit cards and dramatically reducing cash sales.
As business owners try to stay relevant toward this growing base of online shoppers, more flexible payment solutions are needed. The majority of consumers rely on credit cards – either directly through traditional in-person transactions or indirectly through their smartphones. Just the act of accepting credit card payments can give a business a significant boost. In fact, according to one survey, 83 percent of small businesses that started accepting credit cards experienced increased sales.
Credit card solutions differ according to merchants and industries. Brick-and-mortar stores, for example, may require different solutions from what an eCommerce operation may need. Choosing a credible and trustworthy partner can help a business through this selection process. Regardless of the industry, a business needs to do the following to get started:
Companies that offer such services include: JetPay, FattMerchant, and Heartland Payment Processing.
Interchange is an integral part of credit card processing. Interchange fees are the costs associated with interchange categories. These categories have specific requirements. If a transaction meets those requirements, it will be charged the interchange fee for that category. These fees can vary wildly between categories.
Interchange is thus an inescapable cost will be because credit card companies determine what this cost will be in exchange for allowing a business to accept their cards. Every merchant pays interchange, with the rate differing according to the card type and the way the card is processed.
As business owners attempt to select a provider for credit card processing, it’s critical to learn what types of fees they should expect. It’s not uncommon for providers for processing providers to add a multitude of fees to their clients’ monthly statements. These are in addition to the basic processing fee itself.
That’s why business owners should ask potential processing providers if they charge any fees above interchange, such as a setup fee and recurring monthly and annual fees. In addition, a business owner may want to eventually switch providers. It’s important to learn up front if the processing provider charges a termination fee should a change be warranted.
Customer service is another aspect to consider when looking for a processing provider. Hours of operation, phone support or online support with an actual person, and if the provider offers a dedicated account manager are all areas that can make a provider more valuable.
In addition to credit cards, alternate payment methods are quickly gathering momentum in the marketplace. PayPal, for instance, has approximately 250 million accounts worldwide and facilitates payments for more than 17 million businesses.
In addition to PayPal, Venmo, Google Wallet, Square and WePay are among the growing number of alternative payment methods for small businesses and their customers. Square, in fact, is already known for providing a POS system for businesses that accept credit card payments in person. Now, Square has expanded into tools for eCommerce and appointment-based businesses.
Amazon, not surprisingly, has also expanded into accepting payments. Amazon Payments gives online merchants a way to accept payments through Amazon’s online platform. This allows customers who have payment information saved on their Amazon account to simply login and use the same payment method in stores that share the Amazon platform.
Many of these alternatives to PayPal charge lower fees than PayPal’s 3.7 percent and allow quicker access to funds in a bank account. PayPal withdrawals from a bank account can take three to five days.
In a new trend known as convergence, some banks are also venturing into the world of alternative payments. Since banks traditionally offer credit cards, such a move emphasizes the growing role of alternative payments in business today.
Just as is the case with payroll, many small business owners attempt to save money by acting as their own accountant. But accountants do more than simply manage the books of a business. They can help with a wide variety of small business financial services. Accountants can help a company determine its business plan and legal structure, help with loan applications, prepare its tax documents and handle any related tax issues, such as audits.
But to get the most value out of hiring an accountant, regardless of whether the hire is part-time or full-time, it’s advisable that businesses choose an accountant who’d familiar with their type of business and industry.
Accountants can also be an asset when it comes to selecting the legal structure of a small business. Businesses can take the form of a limited liability corporation or partnership, corporation or sole proprietorship. All of these options have their own unique advantages and drawbacks, so choosing which form to take is a very important decision. An accountant can explain the business structures available and a small business owner choose the best fit.
For instance, sole proprietors working on a self-employed basis, may be able to deduct some of their living expenses on their taxes. But to do so incorrectly could trigger an audit. This is an example of where an accountant can be of great value.
Of course, managing the day-to-day finances of a small business is where an accountant can provide the owner with peace of mind, and more time to spend working on the business itself.
Delegating this function to an accountant can help small business owners keep track of who owes them money and how much, manage the ratio of salaries and other employee payments to other revenue. This can help business owners monitor the financial health of their business by tracking its cash flow.
Small business owners may not think they can afford an accountant, especially in the infancy of their business. But it’s common for accountants to work part-time for an hourly rate. This rate could prove to be a small price to pay to avoid a potentially expensive mistake.
Regardless of whether or not a business hires an accountant, it’s likely that it would need business accounting software. This software greatly reduces the chances for human error, and it can instantaneously access to information. Still, with all of the options available, finding the right software for a given business can be daunting. The choice of this software is another area in which an accountant can help.
The fact that some software packages are specifically designed for small or medium-sized businesses narrows the field somewhat. Cloud applications can also be advantageous, since the records of a business are kept at a data center far from the physical location of your business, which keeps them safe in case of a disaster.
Cloud applications can be accessed from any location with a strong internet connection, so it’s not necessary to purchase software licenses or servers to run them. Upgrades are installed on the server end, and cloud applications can be accessed using a tablet, laptop or smartphone. Some cloud-based business management software are also integrated with accounting software.
While there is business accounting software to available for any budget, including general applications that can be downloaded for free, the more specialized a software is, the pricier it gets. Specialized or customized applications can be expensive.
Any discussion of types of services for small businesses has to include the nuances of business checking accounts. Any small business needs a checking account to pay its bills and employees, deposit payments and withdraw cash. Putting a reserve of cash into a savings account has value, too. A savings account can help ensure that a business meets minimum balance requirements and earns interest. But a checking account handles the cash flow of the business.
As with all financial services to small businesses, there are differences to look for in business checking accounts. For starters, not all accounts advertised as “free” are completely free. They may require a minimum daily or monthly balance, or make a limited number of transactions to avoid a fee. But some business checking accounts are completely free, so due diligence is required.
Most business checking accounts will limit the number of transactions a business can make, but these limits can vary wildly from 50 to 300 transactions per month. Knowing what their business can expect transaction-wise per month can help small business owners make the right call on what account works best for them.
The same applies to minimum account balances. A business checking account can be opened with as little as $100. But not only can keeping their account balance near a certain level help business owners avoid a fee, it could also help them earn a higher rate of interest.
Higher rates may also be available at internet-based banks that don’t have physical locations. These banks work well for businesses that conduct the bulk of their transactions online. Businesses that deal with cash or checks, of course, need a bank with actual branches. This relationship with a personal banker can be advantageous if a business eventually needs a loan or any other special treatment, such as waiving a fee.
Small business insurance can be an important part of the financial health of a small business, helping to protect its assets, property and income. A business owners policy (BOP), is the most common policy for small businesses. A BOP commonly includes three types of coverage: business property coverage, general liability coverage and business interruption coverage.
Small business owners can also buy additional insurance coverages to customize your policy based on your specific operation and needs. Worker’s Compensation, which may be useful to a small business that has employees, is an example of this type of additional coverage.
Small business insurance, which is also known as commercial insurance, protects a business from situations such as financial losses and perils. Theft, fire, wind, falling objects, lightning are examples of the types of perils that are covered.
As with personal insurance, each coverage in a BOP has a limit and can also have a deductible. It’s important to note that having insufficient policy limits can result in a fine for not buying enough insurance. Such a fine, coupled with having to pay for repairs and replacement out of pocket, make it essential to have appropriate coverage.
The property coverage in a BOP can help replace business property such as furniture, computers and machinery in the event of a fire or a similar event. It can also help pay for building repairs if the small business owner owns the damaged building.
General liability coverage is also typically included in a BOP. If a customer or visitor is injured at a business and the owner is found liable, this coverage can help pay the medical expenses of the injured. It can also help pay for legal expenses if necessary.
A third typical component of a BOP is business interruption coverage, which is sometimes called business income coverage. This coverage may help pay for the rent of a temporary office while repairs are made to the damaged permanent location. It may also help replace lost business income due to a covered peril.
Other examples of additional business insurance, along with Worker’s Compensation, are Errors and Omission insurance (also known as professional liability insurance), Data Compromise coverage, Business Auto insurance, Employment Practices liability coverage, Equipment Breakdown coverage and Outdoor Property coverage.
While legal assistance is not a financial service, there are times when a small business may need an attorney. Starting a business can be of those occasions. Depending on the legal structure of a business, an attorney can help incorporate the business or form a limited liability corporation (LLC). Sole proprietorships are simple to start so normally don’t require an attorney.
Tax issues, buy-sell agreements, contract disputes and trademark registration are among the situations in which an attorney can be valuable. For some issues, legal advice can be found online. RocketLawyer.com, for instance, offers online legal advice. FreeAdvice.com has an “Ask a Lawyer” page on which visitors can get questions answered by an attorney for free.
Whether a company is in the startup phase or the growth phase, at some point in time, the business owner may need capital. The firms with the best credit history will likely secure the best funding rates, often via traditional bank loans. SBA loans are designed to help companies that might not qualify for regular bank loans because the Small Business Administration, a federal agency, provides a government backing that helps mitigate exposure to risk for the lender, which encourages loan-making to small business owners.
Companies that have been in business for less than two years or that have mediocre credit history (or worse) can look to alternative (non-bank) lenders that charge higher interest rates than banks do (because they are assuming more risk in providing capital).
What do you do if you have little credit history? Apply for a business credit card. One of the most popular cards is the Capital One Spark Cash card, which offers 2% cash back on purchases and is consistently ranked among the best business rewards credit cards available.
Once you receive the card, use it to make purchases that you know that you will be able to afford and then pay the balance off on time and in full each month. This will help build a history of timely payments. At the end of the day, a bank or a credit card company that extends credit to your company is interested only in whether or not you will be able to repay the debt. Starting small with a business credit card is a good start.
For companies that have good credit (scores of 690 or above), the Chase Ink Business Preferred℠ Credit Card offers 80,000 points as an introductory enticement and has a rewards rate of 1X to 3X on purchase.