The struggles of a business trying to survive.
I have been accepting credit cards at my business for many years. My recollection is that I first signed up to take them in 1994. During most of that time, I have used my regular business bank, PNC, to process the transactions. When I signed up for PNC’s merchant-processing services, I knew that I would be paying fees for the services, but I was wrapped up in other business issues at the time and paid little attention to the details.
Last spring, I got a phone call that prompted me to take another look at those fees. It was from the president of a small, independent credit card processing company. He told me that it was extremely likely that I was being overcharged. I was especially interested in saving money because cash was short at the time, so I faxed him a couple of my processing statements. That took a couple of minutes, but it was the opening act in what turned out to be a long, strange saga. It would take eight months and many hours of meetings and research for me to understand how I was being charged and what I could do about it. And in the end, I did find a way to save thousands of dollars, but it wasn’t easy.
First, given the expense, you might wonder why I take credit cards at all. Two reasons. One is that they offer an immediate way for us to close a deal. There is a moment during a sales call when we ask the client to commit to the project, and nothing says commitment like forking over money. Getting that card number is a big moment for the sales team.
The second reason is that we have a number of large corporate and government clients who ask us to take them. You might be surprised to learn that a midranking officer in the United States military has a credit card with a $25,000-per-transaction spending limit, but some of them do. Some big military contractors use them, as well. We did a job for one of these last year and ended up getting a single payment of $38,847.
The first time I signed on with a credit card processor was in 2005, when I switched all of my banking to PNC. Part of that process was a visit from the merchant service sales person. She asked me a few questions about my business and then filled out a form and checked boxes with my answers. The application process took maybe 30 minutes. I still have a copy of the forms.
Looking at those forms today is interesting. My annual card volume was listed as $150,000 on a total sales volume of $1,150,000. Average ticket size was $2,000. And the fees I was charged? Only the discount rate is listed, along with fixed fees per transaction and per month but no mention of an interchange fee (as I explained in the credit card primer we published Monday, for every transaction, a discount fee is paid to the bank that issued the credit card while an interchange fee goes to the bank that processes the transaction). The Visa and MasterCard discount rate is listed as 2.1 percent, American Express transactions are 3.95 percent. One would get the impression, looking at PNC’s paperwork, that I would pay 2.1 percent plus a couple of bucks on my transactions. The structure of the deal seemed O.K. to me at the time, and it was quickly approved by the bank. I got my terminal a couple of days later and started running cards.
Fast-forward to the spring of 2012. I have not, as far as I know, amended the agreement with PNC. It had a three-year term when signed and continues on a yearly basis unless either party terminates it. I have not considered reviewing the contract over the last eight years because processing fees have been pretty far down my list of worries. (If you are new to my story, you can get a recap here.)
And then, in April 2012, I took a call from Kelly Nelson, president of a company called Emerald World, which provides merchant services and specializes in companies like mine that do a lot of large ticket, business-to-business transactions. He spent some time on the phone explaining the whole concept of interchange fees and discount rates, which I had never heard of. He asked for a couple of my PNC statements, so that he could see how they were charging me. A week later he called back and told me that he could save me a substantial amount of money.
This was hard to spot without some serious detective work. My PNC statement shows the gross value of the transactions we ran that month and, separately, the discount charges from a given month along with the interchange from the previous month. The discount charges are listed by batch number, but the interchange charges are listed by card type. The fees are sorted by the payee. The statement also shows the gross value of the American Express charges, but the fees that American Express charges me end up on the American Express statement.
This is all very confusing, and it is very difficult to total up the charges and fees associated with a single transaction. The interchange fee varied depending on the type of card used, but the discount rate was fixed at 2.1 percent. It seemed I was paying a little over 4 percent on each charge, before additional fixed fees. When I checked my books, it turned out that last year we did 131 credit card transactions, totaling $639,000. Of that amount, $611,714 actually landed in my bank account. The rest — $27,286 — went to charges and fees. That’s a total processing cost of 4.27 percent — considerably more than the 2.1 percent or so that I initially signed up for.
I looked back at the application I had filled out for PNC in 2005, and its associated merchant agreement, a multipage booklet. I could not find any mention of interchange fees in either document, but there was language to the effect that any change in the annual amount of transactions we ran would allow PNC to change the terms unilaterally, without notice. Hmmm. I don’t know when the bank started charging the interchange fees, or whether I had overlooked this from the beginning.
Kelly offered me a different pricing scheme: the interchange rate for each card our clients gave us plus a fixed percentage markup, in his case .98 percent. He also showed me the types of cards my clients had used in the preceding months, and the varying interchange fees that had been charged. And he gave me a spreadsheet with all of the current interchange fees for Visa, MasterCard and Discover, on a single page.
Running my eyes over the hundreds of card options, a few caught my eye: Visa General Services Administration large ticket, with an interchange fee of 1.2 percent, and Visa commercial electronic corporate, at 2.25 percent. We had been doing a lot of transactions in the second category, and we anticipate getting our G.S.A. contract in 2013 and doing significant business with the government. It seemed switching to Emerald World could save me 1 to 2 percent on each transaction — hundreds of dollars a month, thousands of dollars a year. He also offered me a free terminal and no long-term commitment. I could cancel the contract any time if I didn’t like it.
It sounded great! So I filled out an application, and sent it in, anticipating that I would soon be enjoying lower costs.
Kelly called me back a week later. It wasn’t going to be so simple.
TO BE CONTINUED….
Great article from Marla Tabaka, a contributing writer for Inc. Note that as a Partner with B2B CFO®, I typically know local bankers who can help. And per this article, we are also specialists in “getting your financial house in order.”
Need cash? Boost your odds of getting a business loan with these simple tips.
Commercial and industrial lending is increasing for larger companies, but according to the Thompson Reuters/Pay Net Small-Business Lending Index, the number of traditional bank loans to small businesses has fluctuated wildly over the past year.
And, let’s face it, small-business owners remain uncertain about what 2013 holds for their business and the economy. In fact, in its latest report the National Federation of Independent Business confirms that small-business optimism remains relatively low.
“The good news is banks want to make small-business loans. It’s just that many banks are not able to properly scale their resources to include all deserving borrowers, even if small-business owners do meet the stringent standards set by lenders,” says James Walter, founder and CEO of BBC Easy, a provider of automated loan management software for financial institutions. “The fact is many banks are using outdated technology, so the more organized you can be, the more quickly you can be approved.”
If your business needs credit to grow or a temporary infusion of cash, receiving a loan may be difficult in our still-recovering economy. There are important variables in play when banks evaluate your creditworthiness. Walter and BBC Easy’s co-founder, Corey Ross, offer these tips to increase your chances of securing a loan.
1. Get your financial house (and documentation) in order.
Typically, a business needs to have been profitable for the past three years in order to qualify for a bank or SBA loan. Since most lenders will look closely at your credit history prior to making a decision, keep an eye on your credit score and anything in your credit report that might be a red flag.
Remember, most banks will require that you personally guarantee the loan, but if you have sufficient collateral within your business to cover the loan principal, they shouldn’t require a lien on your home.
2. Tell your company’s story.
“In my prior experience as the co-founder of a lending company, one of the most basic errors made by loan applicants was not telling me why their company needs the money. And they wouldn’t reveal why we should approve the loan even though their company doesn’t meet our minimum standards,” says Walter.
Is your industry experiencing growth? Are you scheduled to partner with a major retailer? What’s your story?
“Don’t just say you want a loan, turn in your documentation, and expect the loan officer to rubber-stamp your request,” adds Walter. “Fine-tune your business pitch to include your future prospects–not just highlight past successes.”
3. Go local.
A national bank is less likely to hear you out if your business hasn’t been profitable for the last three years. It is also likely that your company will be passed over if you are lacking sufficient collateral to secure a loan.
“Visit a community bank and also inquire about SBA loan programs,” suggests Ross. “Since up to 80 percent of a business loan can be guaranteed by the government under the SBA program, some banks may be more lenient. The downside to this route, of course, is the lengthy paperwork and delay in securing financing due to bureaucracy.”
4. Look at alternative financing for short-term needs.
Alternative financing is on the rise as historically profitable or growth-stage companies face shortfalls in cash flow.
“Asset-based lending and factoring are good bridge financing avenues for many small businesses,” says Ross.
With factoring, a company sells its accounts receivable to receive a short-term loan of up to 80 percent of its value. Asset-based lending is more comparable to the traditional loan process, where a lender will evaluate accounts receivable, inventory values, and fixed assets to determine creditworthiness, and issue a line of credit. If you don’t qualify for traditional bank financing, look at these alternatives, but expect interest rates on these types of loans to be at least double what you’d pay for a traditional loan.
Paying off loans with revenue from future earnings is one of the alternative financing models that small business owners are turning to so they don’t have to hand over equity to banks and other investors. Increasingly, revenue-based funding (RBF) is becoming the entrepreneur’s financing of choice.
Eric Estoos, who runs a cloud computing firm, told Fox Business that was the case when he sought financing two years ago and didn’t want to trade equity in his company, as he would have had to do with backing from venture capitalists.
Instead, Estoos landed an RBF deal that gave him as much as three years to pay back what he owed, based on a percentage of company revenue, rather than a fixed-interest payment every month as most banks require.
With $100,000 in RBF money to invest in his operation, Estoos told the news source he has see his sales increase by 260 percent.
“We’ve been able to double staff, we’ve moved into a 3,000-square foot office, we are now truly a functioning company. I’ve gone from chief doer to managing departments,” he said.
RBF getting stronger
RBF is an alternative financing method that’s been used in the pharmaceutical and entertainment industries for many years, but now start-ups and small firms are among its biggest proponents, Fox Business reports.
Most RBF loans range from $50,000 to $250,000 with revenue payments falling into the 3 to 5 percent range, according to financing firm Lighter Capital. Many clients are able to have their money in hand a week after filing their application.
“Instead of taking equity as a bank would or take a personal guarantee, we are taking a percentage of revenue for a period of time until they pay us back,” explained BJ Lackland, CEO of Lighter Capital, who likened the revenue payments to a “royalty stream to us.”
Alternative financing like RBF deals was named by Entrepreneur Magazine as one of the top trends that will be shaping the business community in 2013. Small businesses are becoming frequent clients because they are the ones that tend to have the most difficulty convincing banks to fund projects.
Reuters reports that merchant cash advances, for instance, grew from $800 million in 2011 to $1 billion last year, based on figures from the North American Merchant Advance Association. When retailers, restaurants and other businesses do a high volume in transactions made with ACH cards, prepaid debit and credit cards, they can receive a lump sum in exchange for a share of future card-based sales.
This article written by Sean Albert and shared by Ron Ybarra, aPartner with B2B CFO®, who specializes in helping owners of emerging to mid-sized companies take their business to its next level of success!
While a less common scheme, payroll fraud does affect smaller businesses (14.2%) at a larger rate than bigger organizations (7.6%). It includes any scheme in which an employee causes the employer to issue payment based on false compensation claims. This may involve an employee inflating hours or overtime on their time sheet, or an employee with payroll access manipulating wages or issuing payment to ghost employees.
While the size of the organization is certainly a factor if payroll is done in house, this type of fraud can impact both small and large businesses when it comes to employees tracking and logging their hours worked. Therefore, extra attention must be paid towards establishing a system of review to reduce the likelihood for false compensation claims.
This is an article from a partner affiliated with B2B CFO®. If you would like further information, do not hesitate to contact me.
Small business lending improved during the past 12 months, which is good news for entrepreneurs and the economy overall. Startups and growing companies create the lion’s share of the new jobs in the private sector, and growth of small firms help make the economy stronger. Several trends emerged in 2012.
SBA lending volume increased to its second highest level in history. The agency backed $30 billion in loans nationwide. Big banks and smaller, regional banks increased their activity in SBA lending.
Use of Technology in Small Business Lending
Throughout 2012, increasing numbers of entrepreneurs applied for business loans through Biz2Credit and other online platforms specializing in small business finance. Technology eliminates the need to walk into a bank or other lender and fill out paperwork during regular business hours. Entrepreneurs can now apply for funding late at night or on weekends.
Meanwhile, banks and other lenders get pre-qualified leads at no cost, and the whole funding process becomes faster and more efficient. Further, small banks are able to make loans to small businesses outside their local area. Borrowers and lenders both benefit from the use of technology.
“Crowdsourcing” became a fundraising phenomenon during 2012. Young, tech-savvy entrepreneurs used this form of capital raising from friends and acquaintances through social media. It proved effective for artists, filmmakers and other creative types, non-profits, and startup businesses requiring smaller sums of money. However, companies looking for more than $50,000 likely should go a more traditional route for the funding they need.
The Rise of Alternative Lenders
Although large banks increased the percentage of small business loans they approved this year, they still typically grant less than one out of five applications on average. Credit unions were a reliable source of small business funding during the first half of the year before slowing down. Meanwhile, merchant cash advance companies, accounts receivable financers, factors, and micro lenders all have increased their lending significantly. They offer flexible, increasingly affordable terms, and most importantly, quick decision-making.
During the Presidential Election, Democrats and Republicans repeatedly focused on small business growth. As President Obama begins his second term, small business owners are examining the impact of Obamacare regulations and the potential of tax increases for people who earn greater than $250,000 annually.
Additionally, the “Fiscal Cliff” has caused uncertainty in the credit markets.
Despite these concerns, there are numerous signs that the economy is improving, and lenders appear increasingly willing to provide capital to small businesses in 2013.
This blog was authored by Rohit Arora of Small Business Trends. Contact a B2B CFO® Partner if you would like to chat further about funding alternatives. Here’s to a great 2013!
Very good article from Brock Blake from Lendio:
In preparation for 2012, Greg Butterfield taught me some incredibly important lessons on how to create a strategic operating plan that shaped what we did and how we executed during 2012 at Lendio. Going through the process helped us to meet our major strategic goals — including doubling our monthly revenue (from last year til now). If you want to kick butt in 2013, you’ll want to nail the following 5 steps:
1. Define the Company’s Vision / Three Year North Star: Prior to working on the 2013 strategy plan, make sure to understand and articulate the long-term vision of the organization. This is your opportunity to look up from the day-to-day operations to study industry trends, macro conditions, customer data, competitor data, partner initiatives, and company strengths/weaknesses. As the leader of the organization, your team will be looking to you to steer the ship in the right direction.
If you don’t have the answers to the following questions, then it’s obvious that your organization is in need of a clearly defined vision or ’Three Year North Star’.
Who do you want to be in three years from now? What does the organization look like? What products/services are you offering? How many customers do you have? What problems will you be solving? What will your financial performance look like?
2. Plan a two-day offsite with your team: Prior to the meeting, provide all attendees with a copy of the clearly-defined Three Year North Star so that they can come to the off-site prepared. In addition, I like to recommend other information that I believe is relevant to our planning session that might include: 1-2 books, white papers, competitive analysis, etc.
At the off-site, each team member needs to come prepared with two presentations: 1) a review of strengths / weaknesses of the prior year and, 2) the department’s proposed top three to five initiatives for 2013. Don’t spend too much time looking back, but use this opportunity to celebrate “wins” and learn from mistakes.
This year, our team tried something a little bit new and went skeet-shooting. I have to admit, I’m not a hunter or an avid gun lover. But, as a team, we had a lot of fun getting outside the workplace and enjoying a little friendly competition.
3. Communication to stakeholders: Once the top three to five initiatives have been decided, it’ll be important to get everyone else within the organization on board. Before presenting the plan to the employees, make sure that you meet with and present the plan to the Board or Key Stakeholders. They can provide critical feedback to help refine the plan and ensure that it is realistic and achievable. Once the Board has approved the plan, schedule an all-hands meeting with all of the employees and present the strategic plan. Every employee should know the organization’s vision and the top three to five initiatives that the organization is focused on during 2013. The type of transparency will create buy-in and excitement. You also might want to consider handing out company SWAG with the year’s theme somehow tied in.
Last year’s meeting to present the 2012 Strategic Plan was one of my favorite meetings of the year. Prior to the meeting, I asked each employee to read the plan and come prepared with relevant questions, ideas, and suggestions. Throughout the meeting, we had an open discussion where new ideas were shared and plans were created. Everyone walked out of the meeting with a clear understanding of our goals for 2012 and how their specific role contributed to the overall success of the company.
4. Execute: The planning was the easy part. Now, it’s time to roll up your sleeves and get to work. Financial forecasts and budgets will need to be created. Resources will need to be allocated. Key Performance Indicator’s (KPIs) will need to be established. Execution plans will need to communicated. And projects will need to be completed. The good news is that each department and employee will now know how their day-to-day tasks are contributing to the success of the overall organization.
5. Follow-Up: Hold monthly meetings to maintain the energy throughout the year. Use the meetings to report on company, department, and individual accomplishments. Track the goals for each month/quarter and adjust as needed.
By executing these five steps, you’ll have a kick butt plan for 2013!
Working with B2B CFO® Partner can definitely provide an advantage to your company with meetings its goals, with such initiatives as benchmarking competitor financial ratios, providing greater visibility into cash flow, and tracking of KPI’s through Dashboard Reporting. Contact me if you’d like to chat further…
An excellent infographic by Bankrate.com that shows some key provisions that, without further legislative action, will change dramatically next year. Click on the image below to increase the image size or click here to link to an instantly larger image.
If you have any questions about this will impact your business, I would welcome an opportunity to talk further…
On Nov. 26, 2012, the IRS issued IRS Notice 2012-72, which announces the 2013 optional standard mileage reimbursement rates that employees, self-employed individuals and other taxpayers may use to calculate deductible costs of operating automobiles for business, medical, moving and charitable purposes. Importantly for benefits purposes, the notice includes mileage reimbursement for medical purposes, which may constitute an eligible expense for purposes of FSA, HRA and HSA reimbursements.
Beginning on Jan. 1, 2013, the standard mileage rate for cars, vans, pickups or panel trucks will be:
IRS Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to the basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under fixed- and variable-rate plans. Additional information about using the standard mileage rate may be found in Revenue Procedure 2010-51.
Finally, use of the standard mileage rate is not mandatory, and taxpayers always have the option of calculating the actual cost of using a vehicle rather than using the standard mileage rates.
There are numerous reasons why organizations, particularly small businesses, lack a system of internal controls. A common culprit is limited resources, which can complicate even the simplest of safeguards, such as separation of duties.
While many growth-oriented businesses overlook the importance of implementing systems and strategies designed to reduce their risk, it’s certainly a valuable investment when considering the impact of occupational fraud – the typical surveyed organization lost 5% of its annual revenue to fraud, at a median loss of $140,000 per case.
In addition to mitigating fraud risks, proper internal controls ensure that the flow of information into an accounting system is valid, timely and classified in the right period. High standards net high quality information, from which businesses can make informed decisions and take strategic actions. The overall goal is to make it harder to steal and easier to uncover, however, no system has the power to prevent 100% of crime.
A system of internal controls for fraud prevention is only valuable if it is universally known, universally understood and universally endorsed. Tribal knowledge is not sufficient for ensuring all employees understand policies and procedures. Once a system is adopted, it must be documented in the employee handbook, incorporated into training through standardized procedure manuals, and reinforced through continuing education and appropriate modeling by management. A Fraud Prevention Checklist is a good tool to measure the effectiveness or weaknesses of your current prevention strategies.
While this fraud prevention checklist provides guidance for implementing best practices within your organizational workforce, strategic measures must also be taken to identify gaps and minimize weaknesses in your company’s internal controls. We will continue this blog series with additional checklists on how to handle the most common forms of embezzlement and occupational fraud.
Statistical Source: ACFE 2012 Report to the Nations on Occupational Fraud and Abuse http://www.acfe.com/rttn.aspx
From Seeking Alpha Contributor John M. Mason:
Consistent with previous Federal Reserve releases, loans at the largest twenty-five banks in the country continue to increase fairly rapidly. This is not true of loans at the other 6200 domestically chartered banks in the banking system.
The largest domestically chartered banks in the United States increased business loans over the past thirteen week period by more than $22 billion. Most of this increase came in the last five-week period when these commercial and industrial (C&I) loans rose by more than $17 billion.
Year-over-year, C&I loans at the largest banks rose by almost 15 percent.
This would seem to indicate that economic activity is picking up. The information that we don’t have is how the borrowers used the funds they borrowed. There is still indication that these loans are not going into productive uses or to hire more workers. Some evidence exists that these funds are being used to retire other, more expensive debt, to buy back the company’s own stock, and to prepare for acquisitions.
This is something we need to continue to watch. The good news is that these banks are lending more aggressively.
The more interesting piece of information is that the data show that the largest twenty-five banks have stepped up their lending on residential mortgages.
Over the past thirteen week period, the residential loans on the books of these large banks rose by the same amount as did their holding of C&I loans: they rose by more than $22 billion. This is consistent with the information I reported last week about the creation and packaging of the mortgages by the biggest banks, like Wells Fargo (WFC) and JPMorgan Chase (JPM).
Over the past thirteen week period, residential mortgages in the rest of the banking system declined by almost $5 billion, with most of the decline coming in the past month.
For a change there was not too much change in the area of commercial real estate loans. These loans have been declining in recent periods particularly at the smaller banks, but this last thirteen-week period saw commercial real estate loans actually rise a bit.
The banking data on total loans was impacted by the impacts of Hurricane Sandy for several major brokers of federal funds were closed for business on October 30. As a consequence of the disruption, federal funds at the largest twenty-five commercial banks in the country shot up by about $60 billion during the banking week ending October 31.
On another note, a sign of the reduced financial pressures in Europe is noted in the data from the foreign-related institutions. Over the past thirteen-week period, cash assets at these foreign-related financial institutions dropped by almost $280 billion!
The most impacted account on the liability side of the balance sheet of these institutions was the account labeled “Net Due to Related Foreign Offices.” As reported in earlier posts this is where we can pick up some information as to how these foreign-related organizations obtained funds in the United States and directed them off shore.
The totals of this account went from slightly more than a negative $400 billion in November 2010, meaning that these financial institutions were bringing funds into the United States rather than shipping them off shore, to more than a positive $300 billion April and May of 2012, a swing of more than $700 billion. Over the past thirteen week period “net balances” dropped by almost $160 billion.
These data are an indication of how much the situation in Europe has eased up…at least, for the time being.
So, the banking statistics continue to improve. The biggest twenty-five banks seem to be picking up their lending activity and this is good.
The other 6,200 banks, in aggregate, are still dragging. Obviously, there are many commercial banks in this category that are doing very well. But, given this, it just indicates that there are a large number of “smaller” commercial banks that are just not in the best of condition.
Absolute bank failures are increasing at a relatively slow pace. There have been only 47 bank failures reported by the FDIC this year. However, there were 70 fewer banks in the banking system on June 30, 2012 than existed at the end of 2011. The preferred choice of the FDIC is now to merge banks rather than to just see the “sicker” organizations fail. This is all well and good and it is the less expensive way for the FDIC to shrink the number of banks in the banking system.
Note that the largest twenty-five domestically chartered banks in the United States hold 57 percent of the banking assets of the country. Foreign-related financial institutions hold 13.5 percent of the banking assets, and this is after their total assets declined by $285 billion over the last fifteen weeks. Thus, the 6,200 “smaller” domestically chartered banks in the United States hold less than 30 percent of the banking assets in the country.
Contact your B2B CFO® Partner, Ron Ybarra, for more information to ensure you have accurate financials before applying for a loan or line of credit.