At the most basic level, credit card processing fees are the cost that a business owner pays to accept payments by credit card. There are many components that are involved which determine the total cost including transaction fees, flat fees, and incidental fees. The average credit card processing fees generally range from 1.7% to 3.5% per transaction. These fees are the price your company pays to process credit cards.
It is a crucial move for business development to accept credit cards as a means of payment. However, it can be challenging learning how to accept credit cards at your point of sale, or online and learning and understanding all the credit card fees involved. Learning about these credit card processing fees may not be the most thrilling part of running a small business. But these credit card processing fees can add up and become a significant aspect of your overall finances. We have developed this complete guide to credit card processing fees to help you make the financial decisions that make the most sense for your business. We will explain what credit card processing fees are, their average cost, and how your company will be charged by different providers to accept credit cards.
What Are Transaction Fees for Credit Card Processing?
Transaction fees are fees that you will be charged per each transaction you process with a credit card. These fees are made up of interchange rates, the assessment fee, and the payment processor markup.
Flat fees are fees that you will have to pay typically on a monthly basis for working with a gateway or merchant service provider, which is the cost for using their service.
Incidental fees are fees that you are charged for a particular occurrence such as a chargeback (voided dispute or fraudulent claim) or a non-sufficient funds (NSF).
Credit Card Processing Fees/Transaction Fees
Now that you grasp the types of fees involved with the processing of credit cards, let’s break down in terms of both expense and procedure, what each means and what you should anticipate as a business owner. Every time a customer taps, dips or swipes their card these are the parties that are involved:
Issuing bank: This is the institution that has provided a credit card to your customer.
Credit Card Network: This is usually one of four main firms, Visa , Mastercard, Discover, and American Express, while foreign purchases may include others.
Receiving Bank: This is the bank that collects the funds from the issuing bank and deposits the funds in the bank account of your organization.
Payment Processor: This is the intermediary between the collecting bank and the issuing bank. Your payment processor may be a merchant service provider or a payment gateway, based on your specific company. The processor addresses problems such as authentication of the cardholder and account conflicts.. Each transaction charge consists of the exchange rate, evaluation fee, and markup of the payment processor, and each of the aforementioned parties earns a portion of this amount that you pay as the business owner.
Interchange Rate: The exchange rate is a fee paid to the receiving bank by the issuing bank when a consumer uses their credit card. That is how the issuing bank benefits from credit card transactions. You, the merchant, are going to compensate any or more of the exchange rate directly or with an exchange refund— which may be marginally cheaper than the entire exchange rate. Usually, exchange rates or returns are measured as a percentage of the gross purchase price. Each card network decides its own prices, which differ depending on factors such as:
- The card carrier
- The type of card; debit, credit, business
- How risky the card network considers the merchant’s business and industry
- The various ways the merchant can accept credit card payment
The Assessment Fee: The exchange rate is how the issuing bank gains from utilizing a credit card. What about the card network itself, what fees do they charge? This is when the appraisal charge falls into effect. The network charges a flat price on each purchase, in addition to the interchange cost or refund. The evaluation charge plus the interchange rate or rebate is also known collectively as the interchange fee. Each network sets its interexchange fees), and is modified twice a year. The measurement model is incredibly complicated and quite obscure, but the card network uses some codes to help them calculate the danger of which any particular seller is exposed— the possibility of default or theft. The appraisal charge comes straight from the card network and is part of the total conversion fee, it is a non-negotiable fee, and would be set independent of the payment method.
Payment Processor Markup
You’ll never get out of paying all of these fees, but you can negotiate the payment processor fee, this fee is charged on top of the interchange fee. The markup depends on the specific payment provider you choose, with various pricing plans. Whatever package you want, avoid long-term contracts. This way, you can compare plans and change processors at any point, as your business grows
Payment processors typically offer their services in three packages: Tiered Plans, Interchange – Plus Plans and Flat-Rate Plans. While it might be clearer to grasp tiered plans than other arrangements, the processor itself decides which category a given sale falls under. You can never be absolutely sure which tier the purchases of your client would fall into, which in the long run can prove costly. While Interchange – Plus Plans provides more transparency for future expenses, the drawback is that your statements are more complex, and you may or may not actually end up saving. For brand-new small business owners who don’t yet have the volume required to negotiate with payment suppliers, a flat-rate contract is a smart option. Additionally, since flat rates are often focused on a proportion of the larger purchase, if the purchases are on the smaller side, the added expense will not be too expensive.
Credit Card Processing Fees
Flat rate: The processing charge is shared by many separate parties. For the whole company credit card fee, the flat rates you pay to receive credit card payments come straight from the payment processor. In other words, this fee is what you pay the processor to access the multiple aspects of their service. The exact payments differ depending on the specific payment provider, they are usually periodic on a monthly or annual basis. However it is necessary to remember that with such programs, the payment provider can also charge one-time flat rates.
Recurring Flat Fees: Based on which payment processor you use, you may need to pay a variation of the following flat fees:
Monthly or annual account fees: It is a monthly cost to hold the account open with the payment processor and to operate the processing platform.
Monthly minimum processing fee: There is a recurring minimum charge for certain payment card processing firms. You will have to compensate for the variance between how much you have incurred in processing fees and their monthly minimum if you have not met the necessary minimum sum of fees per month.
Terminal lease or rental fees: Many payment processors require or encourage you to buy or lease a credit card processing machine.
Withdrawal fee: If you transfer funds from your payment processor account into your business bank account, a processor can impose a charge.
Payment gateway provider fee: Note that you’ll likely need a payment gateway provider if you offer goods or services online. If you use this feature, you may want to compare various supplier rates.
Statement fees: A processor can charge a fee for preparing your statements, in paper or online.
IRS reporting fee: Certain payment processors charge you for reporting your transactions to the IRS and for sending you the necessary tax reporting forms. You should dispute this charge on your monthly statement. Industry standards require the processor to deliver the service free of charge.
Payment card industry (PCI) fees: PCI Data Security Standard (DSS) is a series of requirements for data storage that extends to all credit card authorizing institutions. While not federally mandated, most major card providers demand that certain requirements be adhered to for all companies associated with them and several states have enacted them into legislation. Failure to comply with PCI DSS leaves a corporation vulnerable to fines, civil proceedings, and even government investigations, but you may be paid a fee from the payment provider to offset the expense of enforcement. And the payment provider may offer help to guarantee that you are in line with PCI DSS should you incur this charge. But these are hidden costs much of the time that retailers don’t notice on their statements. Ask about it if you notice these charges on your statements.
One Time Flat Fee: Sometimes the above payments are subject to negotiation, and you could ask a payment provider to completely waive them. Some companies charge more flat rates than others but when searching for specific policies, you will want to remember this. The avoidance of these payments is also marketed by such providers as an advantage to their specific service. A couple of the flat payments you will find more often are:
Account setup fee: This may involve a technician who sets up the appropriate devices, or who offers customer service on the phone with the setup. There may be a fee for the setup of the merchant account.
Terminal purchase fee: You should buy a credit card terminal, which can be a decent investment relative to rented or leasing facilities, although you should try to negotiate.
Cancellation fee: This is a fine for early termination of the deal paid by the payment processor, and it may be expensive. Check if this charge can be forgiven by the processor, and be sure that the agreement you sign allows for such a waiver.
Incidental fees: Incidental fees are the last factor involved in the total cost of accepting credit cards for your company. These payments come straight from the payment processor, like the flat fees, which are a product of a single case, ensuring you may not face either of these fees for several months. The exact fee will differ from processor to processor. Here are some of the more typical incidental fees:
Card holder dispute fees: The processor might charge a fee for each time a customer disputes a charge.
Chargeback fees: If the customer conflict ends in a chargeback, which results in a credit to the cardholder, you will be required to pay a fee.
Non-sufficient funds fee (NSF): They will charge you an extra fee if you do not have sufficient funds in your business banking account to pay your payment processor.
Batch payment processing fee: Each time your company submits a batch of payment card payments, perhaps as much as once or twice a day, your processor can charge a fee.
In general, we simply worry about purchase costs while talking about average credit card fees, and not generally flat fees or incidental fees. As a company owner, the biggest challenge is calculating how much you are paying with each purchase, because this payment derives straight from the sales. The cost of processing credit cards usually falls between 1.7% and 3.5%. Of course, this number depends on the considerations we listed before, such as how the purchase is made, the market, the card form, etc.
Payment Service Provider vs Merchant Account
There are various payment processors, each with different characteristics, resources and rates. PSP (payment service providers) have been trying to simplify credit card processing transaction costs by offering flat prices for each transaction of the same nature and avoiding lengthy contracts and secret fees. You don’t have to buy pricey business computing machines to use a PSP, nor do you need to sign a long-term deal or think about undisclosed costs. While these services might have easy-to-grasp price models, they may not always be cheaper than conventional merchant account providers.
For card-presented purchases, card-not-present payments and internet payments, PSPs charge an annual fee. For example, if you accept a credit card in your retail store, you can incur a lower price. If a consumer wishes to buy electronically on the website, even if you use payment information that is saved on a register, you pay a higher price. In general, payment processing providers have improved security from chargebacks relative to commercial processors.
Credit card payment costs, as you will see, can be a bit complicated and challenging to understand. However, breaking down all the multiple elements adding to the total expense and how payment processors arrange their prices will help you overcome this. In the end, the processing of credit card payments can be important (but necessary) costs for your company, so the most important thing is to consider what types of fees you will be facing so that you are willing to budget your finances appropriately. Selecting the right payment processor will make a big difference in the reduction of credit card charges. You may want to use the particulars of your market-business, revenue amount, payment acceptability, etc.-to decide which payment processing provider or merchant services fit better for you. In order to ensure that you have a good deal, you should pay particular attention to the features and facilities provided by any provider of flat or incidental fees and to discuss your costs wherever possible. Companies like Square and PayPal have generally simplified the expense of issuing credit cards dramatically and have rendered conventional account processors inefficient. This ensures that your credit card processing costs are more manageable and simpler to understand.
As a small business owner, you already have more than enough on your plate. Handling all the moving parts to get your business off the ground is already more than a full time job. But if you let certain things slip through the cracks, you could pay a steep price for it later. Payroll is one of those important functions that can not be overlooked as you get started.
Establishing a payroll system on your own can be confusing, but the basic steps are laid out below. Every small business is different, and so each business’s payroll needs will be slightly different. Be sure to consult with a professional who is familiar with the details of your company to ensure you are properly set up. This will save you many headaches later down the line.
The first place to look is the US Department of Labor website. Make sure you are viewing the laws implemented in your specific state. There are a variety of local and state laws that come into play that must be followed to avoid fines and penalties. These include:
- Minimum Wages and Hours
- Workplace Safety and Health
- Equal Opportunity
- Employee Benefit Security
- Family and Medical Leave
The next step is to set up your payroll schedule. Many businesses have weekly, biweekly, or semi-monthly payroll procedures. For your payroll, decide what schedule works best for your company, keeping in mind that some states impose a minimum payroll schedule frequency. When deciding how much you want to pay your workers, keep cash-flow in mind–beyond the money you must pay your workers, you will also need money to run the business. There are strict laws on paying workers on time, and while the payroll schedule can be adjusted, you should not do it too often. Constantly changing payroll schedules can disrupt your cash flow.
Once you have established your payroll schedule, the next step is to establish policies for your employees. The easiest way to do this is with an employee handbook. This will ensure that everything between you and your employees is as clear as possible. You should have an attorney who specializes in employment law in your state to review or write your handbook. If you are struggling with where to begin there are a number of resources available online that can help you assemble an employee handbook.
The next step is to to Apply for Your Federal Employer Identification Number (FEIN or EIN)
For tax reporting purposes, many sole proprietors use their Social Security number. However, it is best to use a federal employer identification number, or FEIN or EIN, for employment purposes, this is also known as your tax ID number. Your EIN is the number you will use on all business tax filings and forms once obtained. For this reason, as soon as they start their companies, many accounting professionals strongly urge business owners to get an EIN. If you don’t already have one, it’s easy to obtain an EIN. Simply go to the IRS website, and you can apply online and get your EIN immediately.
Before you leave the IRS website you should download Publication 15, it contains all the information you will need to know in order to comply with federal withholding and reporting requirements. These laws on withholding and unemployment insurance accounts can vary from state to state, so make sure you are viewing your state laws. There are many websites where you can find information pertaining to your employment situation for your tax commissions and unemployment security commission. However, these websites can be difficult to navigate, so it is best to consult with your accountant or employment lawyer regarding the laws pertaining to your state.
Next you would like to enter your payroll schedule and tax filing due dates into your work calendar. When organizing your calendar, keep in mind that state deadlines might differ from federal due dates, make sure you inserted all the important deadlines correctly into your calendar, and that you applied for your FEIN, state withholding, and unemployment insurance accounts.
Following you will decide on who will administer your payroll. Some businesses choose to handle their payroll in house while others use a service provider. There are advantages and disadvantages to both choices.
In house payroll gives you a little more leeway when it comes to processing your payroll. When working with a payroll service provider they typically demand lead time of three to five days, if payroll information is not submitted by its deadline a rush fee will be charged. Payroll service providers also take full responsibility for the timely reporting of tax payments and returns, this typically appeals to busy owners of small businesses.
In choosing to proceed with a payroll service you may be thinking “well that was a waste of time”, most payroll software programs ensure that all these steps get done and go smoothly. However, in our experience, where the company owner has no input in the process, payroll for small companies, is at times set up incorrectly. Working closely with a payroll service provider by using payroll software will streamline the ongoing payroll process, but knowing the standards and laws as they pertain to your employees is still crucial for you.
At PMF we work with ADP (Automatic Data Processing) to help provide you with best payroll software that will help enhance the efficiency in your business payroll system.
And finally, now that you have your payroll set up in place it is time to hire your first employee. After hiring the perfectly suited candidate for your business, collect their information in order to have them properly set up in your system.
It is a big move for your small company to set up a payroll for your first workers. This achievement means that your company is one step closer to operating independently. Employees enable small business owners and their businesses to grow, rather than relying on themselves to do all the work. This allows the business owner to really build the company, and focus on the growth of his business. The payroll system of a small business can do the same: take busy work off the hands of a small business owner so that they can strategize and expand their organization.
Once you’ve completed this thorough payroll setup you can move forward with growing your business with full confidence that your payroll will be properly taken care of.
Forms of Business Taxes
There are generally 3 levels of taxes your business must pay: federal, state, and local. Federal taxes apply to any business in the United States, whereas state and local taxes will vary based on the laws where your business operates. Regardless of what level the taxes are coming from, there will generally be 6 types of taxes you may be subject to: Income tax, which is tax you pay on the income earned by the business; Self-employment tax, which you pay if you are a self-employed business owner; Employment tax, which is also called Payroll tax, is the tax that you deduct from your employees paychecks that goes to things like social security and Medicare; Excise taxes, which are taxes for operating in specific types of goods or services, like airlines; Sales tax, which is the state level tax that you must collect from customers when they purchase goods and services; and property tax, which you pay for any property that your business owns.
Small Business Taxes Based on Entity Structure
Depending on the way you structure your business entity, you will pay your taxes differently. We break them down below:
A corporation owned and run by one individual is known as a sole proprietorship. For the owner of a sole proprietorship, filing taxes is reasonably simple.
As the single owner you can record corporate gains and expenses on your own income tax return instead of reporting your small business taxes on behalf of the company. Your business profits will be taxed as personal income at your normal personal income tax rate. Sole proprietors also pay self-employment taxes, which account for the owners Medicare and Social Security contributions. If you are a sole proprietor, you will file a Schedule C or a Schedule C-EZ with your Form 1040 and pay quarterly estimated taxes. These estimated taxes will account for any additional medicare and social security obligations you may have.
Partnerships are companies owned and run by two or more owners. There are several kinds of Partnerships that you can form, including General, Limited, and Limited Liability. Each have slightly different characteristics so you can choose the form that works best for your venture. . Company owners who are part of the Partnership must pay income taxes, self-employment taxes and quarterly estimated taxes, similar to the sole proprietorship.
Partnerships must file Form 1065, which is an annual report covering the details of the company’s revenue, deductions, gains, and losses, however, Partnerships does not pay any income tax as an entity. Partnerships are subject to “pass-through taxation” so the owners are taxed personally for the profits of the partnership. Therefore, in order to file small business taxes, owners of the partnership file their shares of income and losses on their personal tax returns. These amounts will be shown on a Schedule K-1 form.
If you operate a C-Corp, your company is a legally separate entity from you as the owner. C-corps are subject to what is referred to as “double taxation” the company is taxed for its profits and then when those profits are passed to the shareholders, those profits are taxed as income to the shareholder. Besides profits, other amounts are subject to taxation as well. For example employee salaries are taxed to cover social security and Medicare, and corporate dividends are taxed at a dividend-specific rate. Sometimes the owner can take a slightly lower salary and receive higher dividends to make up for it, though you should be careful with such a strategy, as the IRS requires your salary to be at least reasonable for your position.
S-Corporations are similar to C-corps in that they are legally separate entities from its shareholders. However, S-corps are taxed as pass-through entities, which allows them to avoid double-taxation. Each shareholder reports their share of the company’s profits and losses on their own tax returns and are taxed at regular personal income rates. The S-corp still has filing obligations to account for its financial state, but they do not actually pay anything along with that filing. As with C-corps, the shareholders and employees can strategically structure their profits and income in order to maximize tax benefits, within reason and subject to the regulations of the IRS.
Limited Liability Company (LLC)
LLC’s are a sort of hybrid between all of the entity structures already discussed. LLCs give their owners legal separation from the company, while also being subject to pass-through taxation like a sole proprietorship or S-corp.
When to pay
If you expect to owe more than $1,000 in income taxes for the year, you will have to pay quarterly estimated taxes, no matter what kind of entity you run. For a corporation, this threshold is lower–$500. While individuals pay taxes once a year, businesses must do so quarterly–4 times per year. This means paying more often, but also paying less each time you have to pay.
On top of that, if your business has employees, there are further obligations you must stay on top of. You must deposit federal income tax that is withheld in your employees’ paychecks, unemployment taxes, and social security and Medicare taxes on behalf of the employer and the employee. You can make these deposits on semi-weekly or monthly intervals.
Quarterly Estimated Small Business Taxes
To estimate your quarterly business tax payments, you will need to calculate four things: expected adjusted gross income; taxable income; deductions; and small business tax credits for the year. The easiest way to do this is to refer to your taxes from last year. If this is your first year filing for your business it is a good idea to seek out a tax professional to guide you through this process. After you have compiled these numbers, you simply fill out the IRS Form 1040-ES Estimated Tax Worksheet and file your taxes quarterly.
Depositing Small Business Taxes
As discussed, the various federal taxes you withhold to account for social security, medicare, and unemployment must be deposited regularly to the Government. When you do so, you must also fill out some tax forms including: Form 941 for federal income tax, social security, and Medicare; Form 944, if your employment taxes will not exceed $1,000 for the calendar year; and Form 940 for unemployment tax obligations.
The schedule of your deposits will be determined by your total tax liability indicated on your Form 941. You will deposit monthly if you report under $50,000 during the previous period, and semiweekly if you report over $50,000 during the previous period. Monthly deposits are due on the 15th of the month, whereas semiweekly deposits are due on Wednesdays and Fridays. You can make these deposits electronically through the federal government’s electronic filing system.
Preparing Your Business Tax Returns
If you take the time throughout the year to organize and prepare for your reporting deadlines you can save yourself a lot of time and stress once filing deadlines come around. If you are trying to pull things together a few days before the tax deadline, you are bound to make some mistakes and forget to include some things. Below is a list of documents that you will need in order to file your small business tax returns:
- Accounting documents
- Bank and credit card statements
- Depreciation schedules
- Partnership agreements
- Payroll documents
- Previous year’s tax returns
In addition, you should keep the following documents on record as they will help account for all of the income and expenses of the business. .
- Advertising costs
- Contractor payments
- Checking and savings account interest
- Employee salaries
- Gross receipts
- Insurance premiums
- Office rent (or portion of the rent or mortgage paid on your home)
- Office supplies and equipment
- Phones and other communication devices
- Professional fees
- Returns and allowances
- Sales records
- Transportation and travel expenses
- Unclassified income
Business Tax Deductions and Credits
Based on your business structure, you are entitled to subtract “ordinary and necessary” costs that your business incurs from simply operating. If you can show that the deduction is relevant, you can subtract the deduction from the taxable profits. Essentially, deducting expenses allows you to lower your income, and thus owe less taxes . On top of that, you may be eligible for tax credits as well. Credits are even more advantageous than deductions because the credit applies directly to the taxes you owe, rather than just reducing the taxable income. Not all deductions and credits will be applicable to your business, but it is worth familiarizing yourself with all of them so you don’t miss out on opportunities to reduce the amount of taxes you owe in the future.
Common Tax Deductions
The most common tax deductions you should be aware of are: Vehicle Expenses, such as a van or truck used for the business; Insurance, such as health and malpractice insurance; and Rent, including traditional real estate rent but also rent for equipment and machinery. Other common deductions include startup costs, inventory, and loan interest. Be sure to thoroughly research how these deductions work and consult a tax professional if necessary in order to protect yourself from and avoid an audit.
How to File Your Business Taxes
There are two ways to file your taxes: online or mail. Generally speaking, it is easier to file online, and may be required in some cases. But if you go the traditional mail route, be sure to carefully follow the instructions on the forms, they can be a bit tricky if you are doing it for the first time by yourself.
Business Taxes Accountant
Plenty of business owners undertake their taxes on their own, but there’s also no shame in seeking professional help. Hiring an accountant to help manage your finances can ensure they are handled properly as well as save the business owner a lot of time and energy. Bringing in an experienced accountant can make a huge difference in your company’s finances. They can provide you guidance and strategies to most efficiently run your business and take advantage of all of the benefits and loopholes that are scattered throughout the tax code that you may not have the time to find yourself.
Getting ready for tax season is a yearlong endeavor. Preparing in advance and staying on top of your obligations will save you a lot of time and hassle in the process. Remember to have systems in place to keep tax-relevant documents organized and safe. Keep an eye on deadlines and have a plan for getting everything filed and paid on time. The more robust your planning is, the less you will have to actually do when it comes time to file. Lastly, do not be afraid to seek the advice of a tax professional. You may be leaving money on the table if you try to handle taxes yourself without the proper experience. You may not be thrilled about paying an account to handle your taxes, but you could save yourself far more on the backend by doing so.
Everything you need to know about Business Debt Consolidation Loans
If you have existing debt from loans and are having difficulty handling your payments, it may be time to start considering a Business Debt Consolidation Loan. A Business Debt Consolidation loan could help you free up cash flow and ease your financial stress.
So How Do Business Consolidations Work?
A business debt consolidation loan will allow you to refinance your current debts by consolidating them into a single repayment plan. In addition, these loans will usually provide more optimal conditions such as less frequent payments and lower rates. Therefore, it is a great option for debt restructuring if you want to make repaying your company debt more manageable and accessible. We have created this guide to help support you through this process. Here, we will explain how business debt restructuring loans work, what your choices are, and how to properly merge your debt, so that you have all the details to determine what the best approach is for your business, and if a business loan consolidation is something to consider.
It is first important to understand how business debt and consolidations function, before delving into the best solutions for business debt consolidation loans. Company debt is not necessarily a negative thing, and debt funding is still one of the most popular and best ways to finance company growth. Three-quarters of all small business financing comes from debt, according to the Small Business Administration. However, whether you require funding immediately, undergo an emergency, or any number of various other situations, you can sometimes end up with financing that is very expensive. Taking on this debt at the present time may resolve the current turbulences the business is experiencing, however, the rates will be costly in the long run and can be detrimental to the general finances of the company. It is in these circumstances that you may want to consider a business debt consolidation (restructuring the company’s debt).
If you are dealing with various repayment plans on multiple company loans, it is feasible to turn such different accounts and obligations into a single credit plan with a stable interest rate and a standard payment plan through receiving a small business debt reduction loan.
Consolidations Vs. Refinancing
Now that we have a fundamental understanding of what debt consolidation is and why it might be worth contemplating, let’s take a peek at a major difference between that and refinancing. Often, individuals interchangeably use the words debt consolidation and debt refinancing. While refinancing and debt consolidation do resemble each other, understanding that they are not the same is important.
In debt consolidation, you take all the current loans or goods for lending and merge them into an independent loan. On the other hand, when you refinance a business loan, you take out a new loan at a reduced interest rate in order to pay down a higher-rate loans. To clarify, refinancing is simply exchanging one loan with a new loan at a lower interest rate, whereas debt consolidations would be taking multiple loans and consolidating or converting them into one loan.
Furthermore, consolidation of debt does not always lead to a lower interest rate. Ideally, a company debt consolidation loan would save you cash, however by going from many lenders to one, the focus of debt consolidation is to make payments more manageable. As such, you do not always get a lower interest rate. If consolidating your small business debts, you will want to make sure you are working with a reliable and reputable lender, so make sure to research and some calculations to decide if consolidating your business loans actually makes sense for your business.
Let’s discuss the best choices for company debt consolidation loans with all of this in mind. Ultimately, you would want to search for long-term loans as you compare your alternatives, so you can consolidate your debt and pay it down in reduced sums over a longer period of time than your existing lenders provide.
Apart from this overall criteria, the business loan opportunities for consolidation would rely primarily on your individual case. Factors such as credit score, revenue of the business, and the lifespan of your firm can also influence the business restructuring loans that are available to you, as in other business lending items.
So now you might be wondering what do you have to do to consolidate your business debt?
Identify Existing Business Debts: You will want to look through your current business loans and the details of each, including the sum owing, the lender, the interest rate, the repayment date, and the payment plan.
Next you will…
Search Prepayment Penalties: You will want to remember that when taking a business consolidation loan you are taking a larger loan to pay off several smaller loans. Keep in account that by paying off the smaller loans before their maturity date you may set off some prepayment penalties for paying off your loan before its maturity date. This is because the lenders are losing on interest payments they would have collected from you, if the loan had not been paid off early. Before consolidating business debt you will want to see if your existing loan includes these fees.
Assessing Overall Business Debt: Now that you have assessed all of your companies debt, and have the specifics of each of your loans and the prepayments penalties, you should decide which loans you would like to consolidate into a single loan.
Calculate the APR Average: First you’ll want to consider your current loans’ average annual percentage rate (APR). It is important to note that an APR is not the same as an interest rate. APR, including all expenses, is the annualized interest of a loan which offers you an accurate estimate of the loan’s expense.
Search for the best Business Consolidation Loan and compare APR fees: At this stage you will want to really search for the best company debt restructuring loan for you. When you have acquired the loan choices for company debt restructuring, you may want to compare the APR of your old loans with that of the potential new loan. Hopefully, with the upcoming loan, you would be eligible to get a lower APR than you have with your present loans.
Although receiving a lower APR on your new debt consolidation loan would be nice, there are still other considerations to remember. For example, there will still be a much longer period for the new loan, which means you may wind up paying more interest over time.
Decide whether to consolidate: In addition, consolidating your business loans into one loan often means that you will pay interest on interest, on top of the original interest you owe, you can pay accrued interest on the current loan. On the other side, a debt restructuring loan will of course, preserve cash flow and encourage rehabilitation.
Ultimately, with your particular finances and goals, you’ll need to decide whether the new loan makes sense for your company. You may want to contact your corporate accountant or other financial advisor for guidance if you have difficulty going through the numerous company loan interest rates and conditions.
Pay Off Existing Debt: If you decide to follow through with a debt consolidation loan that you qualify for and it is beneficial towards your business. In most circumstances, the capital that goes to pay off the former small business loans will never really be seen. The new lender is going to pay the money to your current creditors, not you. Now you will have just one lender now and this lender will start delivering statements to you. You will want to stay on good terms with the lender now that you have your new consolidated loan, to avoid penalties by keeping the loan payments on schedule.
When attempting to determine whether a business consolidation loan is the best option to pay off the current loans, there are a range of specifics to remember. If you are still unsure if a debt restructuring loan is best for your business, here are a few points you can take into account:
If the existing debts already have low interest rates, it is unlikely that your business would profit from business debt restructuring. Generally, the higher the interest rates on your current debts, the more effective the restructuring of small business debt would be. You could be able to merge your company debt into one multi-year term loan, or at least a loan of longer duration than your existing contracts have allowed, if you have several short-term loans that you would need more time to pay off.
Bear in mind, though, that this debt consolidation goal could quickly produce an expensive and risky cycle. Be sure that the income you depend on is adequate to fund the entire cost of the new debt over the business period, plus additional interest that may accrue.
Additionally, if you’re trying to consolidate company debt, you will likely be required to have a good personal credit. In addition, once you have reached the one-year mark from when you obtained the initial loan and the business and personal finances have improved, you would be qualified to obtain better, more affordable rates.
With all of this in mind, it will inevitably be up to you to decide what is best for your business. If you believe that a business debt consolidation loan is the route to go, you would want to be sure that you consult with lenders closely, weigh all the choices, and pick the approach that would be most effective in the long term for your finances.
Managing a business can be very overwhelming, especially if you have limited experience in the private sector, or have not gotten an MBA. This guide will help you comprehend the main steps of managing and operating your small business.
Steps to managing the finances of a small business
- You Should Have Separate Accounts for your Business and Personal Finances
There are two important advantages to separating your business and personal finances. First, filing taxes is significantly simpler when everything is separate. Otherwise when it comes time to file taxes you will have to go line by line through your expenses for the year and categorize every line. This can be extremely time consuming and it is not always so easy to remember every single personal and business expense over the course of a year. The second is Legal. By keeping your finances separate, your personal finances will be protected from any liability or legal issues that arise in connection with the business.
- Open a Business Bank Account
Setting up a Business Bank Account is the easiest and most common way to separate your finances. There are several factors you should be aware of as you choose which bank to work with. You should understand the difference between a checking and a savings account, and whether you need just one or both. Learn about the fees that you will be subject to and how to avoid them. Factors like wiring allowances, ATM availability, Mobile or online banking apps should be kept in mind as well. It is important to research multiple options before making a decision to get the best banking solution for you and your business.
- Get a Business Credit Card
Having a separate credit card will help you keep your business purchases separate from your personal and build your business credit. There are various different business credit cards available, review the benefits and fees that come with the card and make sure you choose one that is best for you and your business.
- Business Accounting
In order to manage the financials of your business it is important to understand the basics of small business accounting. A good place to start is the terminology, such as gross revenue, expenses, net profit, cash flow, and more. If necessary you should consult a professional to learn how your accounting impacts your business finances. It may be easiest to use an accounting software program to start or you may find it beneficial to hire an accountant, especially in the early stages of your business.
- Keep Your Documents Organized
Keeping documents organized will help you run your business more efficiently. It will allow for your accountant to easily file your business taxes, apply for business financing, and enable you to follow your company’s revenue, expenses and profit. The four main documents that every small business should be familiar with are a balance sheet, income statement, cash flow statement and revenue forecast. There are multiple software programs you can use to organize and keep track and file your business documents.
- Pay Business Taxes
Calculating your business taxes can be a daunting undertaking, but properly paying them is one of the most crucial things you need to do as a business owner. Failure to do so can result in fines and penalties, all the way up to losing your business or facing criminal charges.
This is what you need to know about filing your business taxes: You will first need to obtain a federal tax identification number. This is known and referred to as EIN (employer identification number). This number is what the IRS uses to keep track of your business. It is also important to understand your federal business taxes. Depending on the entity, type of business you operate, and revenue you bring in that will determine your tax responsibilities. Taxes that fall under the federal business taxes are; income tax, self-employment tax, estimated tax, and excise tax. Additionally most states require additional state taxes, which will require you to pay income and employment taxes for your business. You should consult with a tax professional before you start operating your business to ensure that you are fully aware of all the different taxes you will be subject to and when and how to pay them.
- Managing Your Credit Score
Almost all companies at some point require good credit to qualify for things like business credit cards and financing, as well as some one-off investments like equipment, property, or inventory. In order to maintain your credit score it is important to follow these steps:
- Pay bills on time
- Avoid loan defaults, bankruptcy, judgments, collections, foreclosures, and other actions that will lead to negative marks on your credit
- Use your credit cards wisely, keep your balance under 30% of your limit, lower if you can, and definitely do not max it out
- Monitor credit reports regularly and notify the credit bureaus if you see anything that you do not recognize
- Managing Your Business Credit Score
As a business owner, on top of having a solid personal credit score, you will also want to establish and maintain a good business credit score. Once obtaining an EIN, you will be able to establish a business credit score, which will show lenders and other potential creditors that your business can responsibly handle its debt and overall finances. If you already have a bad credit score and want to improve it, Premium Merchant Funding offers credit counseling services by experienced credit repair analysts who can help you develop a plan to improve your business credit score.
- Understand Your Business Loan and Financing Options
Based on the type of loan you are looking for and the lender you apply with, there will be slightly different requirements, but generally they include fundamental financial metrics of your company, like credit score and revenue. Since the 2008 financial crisis, lending options from traditional banks have been harder to get, but are still available to companies with great financial metrics.
Regardless of your background or experience, business finances are one of the more stressful aspects of running a business. Keep in mind that you can learn as you go, and you do not have to be an expert from day one. As long as you follow the tips we have given here, and are not afraid to consult an expert when you are unsure, you will be well on your way to success!
What is ADP?
ADP Payroll is a cloud-based payroll framework that helps you to handle payroll, HR, recruiting, and benefits. For small companies, they sell two plans: ADP Run, a four-tiered package tailored for up to 49 employees, and ADP Workforces Now human capital management (HCM) software for businesses with 50 or more employees. Pricing differs by package, but ADP provides two free months of service to new customers.
You might be asking yourself, why would you need ADP, you can process payroll yourself?
As a small business owner, accounting can be a daunting challenge. There are hours to calculate, taxes to deduct, and laws and regulations that must be complied with. Plus, if you make a mistake, you could find yourself paying a hefty fine.
And for those reasons, it now makes a lot of sense to find a reliable small business payroll service provider to support you handle the payroll. Payroll software is capable of automating all of the payroll tasks required, including estimating salaries, withholding taxes, and depositing wages into the bank accounts of the workers.
If you are in the market for payroll software you have likely come across Automated Data Processing (ADP). It is one of the oldest, best known payroll softwares available. Starting out in 1949, as a manual payroll processing company. There are now over 860,000 businesses in a140 countries that rely on ADP’s payroll software to distribute payroll to their employees.
So how does ADP work?
ADP Payroll is cloud-hosted, ensuring it can be accessed from anywhere and does not need any applications to be enabled or managed. You will be required to connect the ADP website to your account after you sign up for ADP’s Payroll and pick your schedule. You will then be led to the Business Setup Wizard. You can now have your simple business details here, manage your payroll schedule, insert tax, wages, rewards, deductions, and salary information for jobs, and link your business bank account to the software.
The next step is entering your employees’ profile into the system which must contain: their legal name, date of employment, social security number, birthday, gender, and contact details. Next, you will also insert their pay scale (hourly or salary) and the forms and percentages of wages and deductions. You must also obtain their bank name, transaction form (savings or checking), and account and routing number if the worker opts for direct deposit. Last, for tax purposes, the employee’s withholding status (gathered from their W-2), allowances, and exemptions must be entered. When all this data is entered, you will be able to continue onto payroll processing. Log into your account dashboard when the next pay cycle begins and select the “Run Payroll” option. You will be able to view your employees timesheets from here and make any manual corrections as necessary. The salary of each employee could generally be calculated on the details in their profile.The app also estimates deductions for products such as income, health care, and employer payments. Click “Approve” to operate the payroll if everything looks good.
Three payment delivery options are offered by ADP Payroll. Employees can request a direct deposit at the end of each pay cycle to collect their funds. ADP can print and send the checks to the office if workers want to be paid by paper check, so they can be delivered on payday. Lastly, if desired employees may choose to have their funds transferred into a prepaid Visa debit card.
ADP’s Payroll Features
Most payroll software companies contain everything discussed here. So what separates ADP from other payroll companies? ADP comes with a selection of extra functionality that can assist you in handling payroll, remaining compliant with applicable laws, and maintaining your books.
ADP Payroll would automatically fill out and submit the necessary paperwork along with the estimate of the proper withholdings and make the required payments to city, state and federal entities. ADP can also handle any tax issues related to the payroll taxes of the company. ADP can supply W-2 and 1099 documents to the staff by the end of the year.
ADP Payroll integrates with QuickBooks and most major accounting software.
Hiring New Employees
ADP can fill out and file all the new recruit documents once you develop a new job profile, and send it to the relevant state and federal agencies.
Reports on Payroll
ADP Payroll provides robust functionality for monitoring. Reports on payroll summaries, earnings records, timecard comparisons, retirement payments and more can be created from the dashboard. You may also sort these files by date range or by employee, and export them to Excel for more customization.
The more sophisticated programs include security functions, including registration in the Labor Law Poster Compliance Update Program of ADP and assistance with wage garnishment. ADP will also administer unemployment benefits for your jurisdiction, including auditing the premiums to guarantee that you receive the best offer available.
Services for HR
ADP is a Professional Employer Organization (PEO), which ensures that it does far more than merely payroll services. If you opt to use ADP for payroll, you can also activate any of those other functions, based on the package you choose.
All Payroll users have access to human resource software, including a library of key government documents and information, advice on how to strengthen your HR procedures, support in choosing employee health insurance and designing a retirement package, and details to help you keep on track of improvements in the Affordable Care Act.
Depending on how advanced your plan is you may also receive access to ZipRecruiter, an employee handbook wizard, onboarding services, and links to an online library of HR forms, best practice manuals, and enforcement details if you subscribe to a more comprehensive package. You will also be given access to do up to five background checks yearly, and get one-on-one support from the HR team at ADP.
ADP’s time and attendance log is another ADP function that payroll customers have access to. For quicker processing, this method syncs directly with the payroll functions. Employees can clock in and out with a smartphone application with ADP’s time and attendance service, request PTO, and report overtime. The method may be used by employers to monitor the PTO, authorize timetables, and build schedules.
ADP provides assistance on a 24/7 basis by phone and email for both employers and employees. On the platform, there are also help pages that address a large variety of different questions relating to payroll, HR, and other subjects
ADP Mobile App
All the above functions, including payroll management, time monitoring, and HR software, can also be accessed through the ADP mobile app.
A Review of ADP’s Plans
For small enterprises, ADP provides two separate payroll products: one package for firms of up to 49 workers and another for 50 to 1,000 employees. Once the company expands, ADP offers two additional enterprise solutions: ADP Mega HCM is designed for organizations with more than 1,000 employees, and ADP Streamline is designed for multinational corporations.
- ADP Run
There are four plans inside ADP Run, each having a different collection of functions and capabilities. For companies employing up to 49 employees, ADP Run is the route to go with. The Enhanced Plan is the most popular plan. All the features from Essential Plan (lower level package) are included in the Enhanced Plan, which includes the main payroll processing features, tax filing, withholdings, and filings. You can also receive access to a check delivery option, access to reporting features, integration choices, new-hire reporting software, regular delivery of W-2 and 1099 documents, and account access to display your employees paychecks and updated tax records. HR advice, access to essential government documents and data, and support with job benefits, employment programs, and welfare are other advantages. In addition The Enhance Plan includes more payment delivery options, you will receive assistance with state unemployment insurance, and garnish payment service. You will also receive access to secure check signing, ZipRecruiter, background checks and ADP’s Labor Law Poster Compliance Update Service.
- Workforce Now
This package supports larger businesses, employing 50+ employees. Hiring Advantage is the most sought after package, which includes all the benefits from the lower level packages (Payroll Essential and HR Plus). This package includes the payroll processing features, tax filing, HR tools, features tools for hiring and onboarding new employees, digital records keeping and keeps track of employee performance. There are options to add-on other benefits that are able to be added to the package such as workforce management, HR assistance, benefits administration and enhanced analytics.
Pricing of ADP Payrolls
ADP customizes their pricing and focuses on the needs of each particular consumer. The pricing is influenced by the business need and personal package selected. In addition there is a base fee charge and a fee per-employee each time a payroll run is done. Keep in mind that ADP offers two free months of service to new clients.
Pros of ADP Payroll
Being that ADP is such a large company with a large number of clients servicing an estimated 1 in every 6 people in the workforce. ADP has built up robust features that set them apart from all other rivals. It is very likely that ADP will have everything you need to handle accounting, HR, recruiting, and benefits. In addition, they are ready to grow with your business and they give you the ability to mix and match products to be closely tailored to your company’s needs.
Is ADP Payroll the best option for your company?
ADP is versatile enough to adapt its services to suit the specifications of every business, and has the ability to support the company throughout their growth. However, it is important to do your research, as there may be better alternatives on the market if you are only searching for a basic and simple payroll solution.
Requirements to Open a Business Bank Account
It is important for the growth of your business to open a business bank account. Getting a corporate bank account makes you appear trustworthy to your investors, holds your organization and personal funds apart, and when the time comes, will help you apply for loans. The conditions for opening a business bank account will differ, as you may have expected, depending on the sort of business you have the type of bank account you choose to establish, and which bank you use. Let’s see some of the basic stuff that you will need to open a business bank account.
Benefits of opening a bank account for your business
The main reason to open a business bank account would be in order to keep your personal and business financials separate. Mixing the two accounts will make it more complicated to pay your taxes and keep the books. If you combine corporate and personal money, you may also subject yourself to further legal scrutiny. Whether you operate a corporation or limited liability company (LLC), if you do not keep your financial accounts separate you may risk the possibility of becoming personally liable for corporate losses. That means if your organization acquires a loan, creditors could come after your personal belongings. In addition, in front of consumers, a company checking account helps you appear more legitimate. You will also receive personalized business checks, a dedicated company debit card. Opening a business bank account is also one step to building the company’s business credit, something that will help you apply down the road for support and favorable supplier terms. When you start a company bank account, the rewards you get well outweigh the headaches, and you will be glad you did.
Types of accounts for Business Banking
Now that you realize the advantages of opening a business bank account, it is time to consider what sort of checking account you require. There are three major kinds of bank accounts for business:
- Business checking account
- Business savings account
- Merchant services account
Think of how your personal accounts are used by you. You use regular cost verification, and accept contributions from friends and others. To hold your extra cash, you use investments, and accrue a little interest on the capital you do not really have to access fast. Business bank accounts operate in exactly the same manner. First you would actually need a business bank account that helps you do the basics: pay for stuff, receive invoices, and control your cash flow. Then once you have an accumulated amount of excess funds (that you do not need access to for your monthly expenses) you can deposit it into a business investment account, and build interest on it. This account helps you to maintain funds while generating interest over the long run.
If your company accepts credit cards payments, merchant accounts are compensated before the consumer pays their credit card bill for their purchases. In order to open a merchant account you will need to have a business checking account. You will need a merchant account so that your company can accept the credit card purchases, and have a place to deposit the funds. Before the buyer pays their credit card firm, retailer service companies reimburse you for the transactions. Traditional banks do offer merchant service accounts but there are various banks that offer different types of accounts.
What You Need to Open a Business Bank Account
Social security number (SSN) or Employer identification number (EIN): You would need to include your EIN, as well as the documentation that the IRS sent you while issuing your EIN, to prove the identification of your organization. Some banks encourage sole proprietors to use a social security number instead of an EIN, but even if it is not necessary, there are many advantages of having an EIN. Applying for an EIN for your organization on the website of the IRS is easy and convenient. It makes a tax profile for your corporation separate from your social security number. You must have a legitimate Social Security number to receive an EIN to be enrolled on behalf of a corporation based in the United States. An EIN online request should take around a half-hour, once it is in order, make sure to save the confirmation letter of your EIN, which you will need to display to the bank.
Personal Identification: In order to show that you are affiliated with the firm, most banks may often ask you for one or two types of personal identification. You must be an officer or the company’s owner in order to establish a business bank account. A driver’s license, state-issued id, or passport provide legitimate means of personal identification.
Business License: A business license is a document provided by a state department where it is appropriate to register some kinds of business organizations. It verifies that the state is legally licensed with a corporate agency and is allowed to do business there. The procedures for securing a business license for each state or locality can vary from state to state, so it is wise to check with the bank to see what they require.
Fictitious Names/”Doing Business As”: Many firms work under a trade name which is separate from their legal name. If you find that this applies to your business, you would need to register with the Secretary of State of your state a fictitious business name, often known as a “doing business as” name (DBA). As evidence of your business’s trading mark, the bank will inquire for a copy of your DBA filing papers.
Partnership Agreement: A partnership agreement is a contract entered into by partners when they create a business, that dictates how the business will operate. This might be labeled bylaws for corporations, and for LLCs, it could be called an operating arrangement. The contract addresses pressing matters that the corporation will encounter, the privileges and obligations of each owner, and how it will do business.
Accurate Documentation: The criteria for assembling records differ slightly by jurisdiction, but they set out a few main components of your business at its core: corporate name, address, shareholders, registered agent , management configuration (who will be responsible for operating the company), and the operations with which it will be active in. The articles of incorporation are considered the key organizational text for a company, and is called the articles of association for an LLC. These cornerstone papers should be kept in a secure location and ready to be shown to a bank.
Monthly Credit Card Revenue: This final piece of info is for companies who are applying for a merchant services account. If you have a merchant account, you would need to inform them of your processing history and your total amount of monthly credit card revenue. However, if you are a startup, you most probably will not have any processing history, but will need to provide estimates of your monthly credit card income. Any merchant account suppliers, such as accounting statements and bank account statements, call for extra documents as well.
-Social security number (okay for sole proprietorships only) or EIN
-Business license with the name of the business and the owner’s name(s)
-Certificate of assumed name/DBA
-Monthly credit card revenue (for merchant accounts)
-Certificate of assumed name/DBA
-Partnership agreement with the name of the business and its partners
-Organizing document filed with the state (for limited partnerships or limited liability partnerships)
-Monthly credit card revenue (for merchant accounts)
Limited Liability Companies
-Certificate of assumed name/DBA
-LLC operating agreement with the name of the business and its partners
-Articles of organization
-Monthly credit card revenue (for merchant accounts)
-Certificate of assumed name/DBA
-Articles of incorporation
-Monthly credit card revenue (for merchant accounts)
As complicated as opening a business bank account for your business might be, it is the kind of process that you only have to experience once. Meet all the criteria for registration in your state, and have all the state and federal documents ready to go. You should also understand what the requirements of your business are, such as, if you need a checking account’s flexibility compared to a savings account’s interest rate.
The documentation needed to have your company set up with a bank account is not insignificant, but much of it will have been completed in the process of setting up your business. And later on, whether it is at tax time or as the company expands, the process of assembling these documents will come in handy.