Getting an EIN: the Easiest Part of Starting a Business January 12, 2008

If you’re a sole proprietorship, you need an EIN.  Well, legally you don’t need one, but in a world full of identity thieves, isn’t it nice to be able to keep you social security number to yourself?  As a new business owner, an enormous number of people are asking for it these days. I find it really disconcerting to have to write it on every bank, credit, shipping and merchant service application I fill out.

An EIN, or Employer Identification Number, otherwise known as a Federal Tax ID, does not actually require you to employ anyone to get it. In fact, it’s so easy to get, you’d be a fool not to do it right now.  All you have to do is visit the EIN page on the IRS’s website.  You can apply in five minutes online (though only during certain hours–I have no idea why), and be instantly approved.  You just print your identification page at the end of the process and you can start using it immediately for almost anything (you have to wait two weeks before using it to file your taxes).  The best part?  It doesn’t cost a dime.

One small note: an EIN is not what will allow you buy things wholesale, at least not in the state of California.  For that you need a seller’s permit, which is a whole other kettle of fish, and is the same document that you need to collect sales tax.  This requires more time and money than getting an EIN.

Advertisement

Merchant Services Chosen January 11, 2008

Well, it happened about a week later than I wanted it to, but I have finally chosen Thompson Merchant Services to process my credit cards. They were neck and neck for a while with WaMu’s TransFirst merchant services, who cost a little more but provided excellent service and assistance during the sales process. They both offer competitive rates on a package that includes a gateway, a merchant account and a virtual terminal. They both respond to questions and submissions quickly. The deal-breaker was the SSL certificate.

Thomas’ NexCommerce gateway, run by Authorize.net, comes with SSL encryption built in. For those of you who did not read the previous merchant services posts, an SSL certificate is a safety wrapper you buy for your web site so that identity thieves can’t steal your customers’ personal info when they buy things from you online. TransFirst’s Transaction Central requires that you purchase your own SSL certificate, which is pretty standard. Normally, this is not a big deal. GoDaddy can provide you with one for $20 a year or less, depending on how many years you buy up front (and their 24/7 customer service is second to none). The problem is that my web site is just one subdomain in a web hosting package my fiance and I use for all of our various web projects. In other words, our main domain is my fiance’s design business, www.burning-house.com, and my Sweet Meats web site is actually located at meat.burning-house.com. The domain name http://www.sweet-meats.com just points you to that meat folder on the burning-house web site.

So, back to my gateway issue: an SSL certificate can only be added to the main domain of a hosting package (the burning-house.com one), which means that I would have buy another web hosting package and move all of my Sweet Meats files over to a new server. I just don’t have the time or the money for that right now.

NexCommerce will not set up their gateway for you unless you have a few things on your web site first:

1. Customer Service number or email.
2. Return/Refund Policy (including “no refunds” if this is the case).
3. Merchant Privacy Statement (a sample privacy policy may be found on the Better Business Bureau’s website at: http://www.bbbonline.org/privacy/sample_privacy.asp).
4. Website Secure Order Page along w/shopping cart (order page doesn’t need to be functional yet but must be present)
5. Delivery Method and timing are clearly stated (like “Products are shipped 24-48 hours after receiving your order via UPS Ground, Fedex 2nd Day”, etc.)

Some of these things are links on every page of my wholesale site and some are found in pages like “Terms of Use” and “FAQs.” I’m also a little confused about what they mean by “Secure Order Page.” We’ll see what they have to say about that tomorrow and if they’ll actually give me the gateway. Only one week left before the CGS in which to get everything working. Yikes!

Comparing Merchant Services January 9, 2008

In order to properly compare merchant service providers, you need to know exactly which services you need. Here are some possibilities:

Merchant account: a place to put the credit card money you earn until it is approved and transfered to your bank. If you accept credit cards at all, you need this. There’s a link to a great diagram of this process in the previous merchant services post.

Virtual terminal: a web site where you key in credit card info your customers provide to you by phone, mail, or in person using a credit card imprinter and carbon receipt. If you don’t need to process your customers’ cards right away, either in person or online, this is a good option for you.

MOTO processing: “Mail order/Telephone order” processing is like a virtual terminal, but you dial in the information on a telephone rather than enter it online. Very often you can use a cell phone for this to get instant approval, though it may cost you extra.

Payment gateway: software that allows customers to enter their credit card info directly on your web site. Using a gateway requires a shopping cart as well.

P.O.S. processing: “Point of Sale” processing requires a swipe-able terminal (usually costs extra to rent or buy) that processes credit cards instantly. This is what you would use if you had your own brick-and-mortar store. It requires its own phone or wireless connection to operate but your per-transaction fees will be a lot lower than if you process cards later using a virtual terminal or MOTO processing.

Shopping cart: software that allows people to find, choose and submit products to order. This, on its own, cannot process payments.

SSL certificate: “Secure Socket Layer” protection for your web site. Puts a protective shield around your web site so people cannot see your customers’ sensitive information as it is transmitted. Some payment gateways come with SSL protection included.

If you only sell things occasionally online (through Etsy, for example), you should go with a service like Paypal or 2Checkout‘s standard services. These are all-in-one solutions that include a merchant account and shopping cart wrapped up neatly in one package. The pros of using an all-in-one processor are that they are simple to set up and charge no monthly fees (I heard a rumor that Paypal charges smaller fees if your products cost less than $5 apiece, but I can’t find confirmation). The cons are that they take a bigger percentage of each sale than most other merchant service providers, and your customers have to pay on a Paypal or 2CO web page; they cannot use Paypal or 2CO’s gateways to pay directly on your web site. I currently use Paypal with a Mal’s free shopping cart for my online retail orders. For whatever reason, some people are uncomfortable with using Paypal to pay online (even though you don’t need a Paypal account to use it) and I lose about 10% of my business as a result. So far, the amount I lose in sales is still less than the cost of using a different merchant service provider.

If you mainly sell things at craft fairs, through the mail, and/or on the phone, and you do less than $3,000 in business per month, you would want to go with MOTO processing or something like Propay. Propay provides you with a merchant account and a virtual terminal. Their annual fees are significantly less than most other companies’, but they don’t provide a payment gateway. You have to buy Paypal’s Payflow gateway to sell things online.

Now that I’m starting to sell wholesale, I need to be able sell products directly through my web site, to take credit card orders at trade shows, and to allow people to order by phone or by mail. I therefore need a merchant account, a payment gateway, a shopping cart, SSL protection and a virtual terminal. My wholesale customers always receive their products shipped at a later date, so if a transaction is denied, we can resolve it before any goods arrive. I therefore don’t need any form of instant processing, either through a P.O.S. terminal or a cell phone.

The shopping cart I’m using for my wholesale site is Zen Cart. It’s free, open source software, which means there are a lot of online forums and documents, but no nifty 800-number you can call for support. It’s complicated as hell for a programming novice, and I’ve seen a lot of Zen Cart sites that look exactly the same because it’s too hard to figure out how to customize. Luckily, I have a fiance who’s pretty good at this stuff, so so far it’s working out for me.

For all the other stuff, including a full breakdown of the types of fees you can expect, I’ve made a nice little chart in Microsoft Excel for you. In it, I have compared the four different merchant service providers who gave me a knowledgeable person to talk to and could provide me with competitive rates for all the services I need. I didn’t include any P.O.S. info (sorry, don’t need it for my own business), but it’s all equation-based, so you can change around the sales numbers in lines 2-11 to see how the costs go up or down. You can also copy and paste any column and put in numbers for other service providers you research yourself. The formulas should remain intact.

Right-click (or control-click on a Mac) on this link and save the file to your computer. You can then open it in any spreadsheet program you’ve got. Hope this helps those of you out there who don’t know your POS from your MOTO.

What are Merchant Services? January 4, 2008

This, it turns out, is a very complicated question. Merchant services, generally speaking, are ways for your business to process credit cards. But there are many different kinds of merchant services, and each business only needs one to three out of the myriad available. Figuring out which merchant services I need, making sure they are all compatible with each other and finding them affordabley is proving to be a more challenging task than I had anticipated. I still haven’t quite settled on the providers for my credit card processing needs but at least now I know what I’m looking for. It took me days to figure this out.

I started with my bank, since most banks offer merchant accounts and you can often get a competitive rate if you are already a customer. I have a free business checking account with Washington Mutual so I went into my local branch before the holidays and they put me on the phone with Ethan, their TransFirst merchant services guy. That was when the questions began that I couldn’t answer:

Ethan: “Are you looking for POS, online or MOTO processing?”
Me: “What’s the difference? Er…sign me up for one of each?”
Ethan: “Well, how much do you generate in monthly credit card sales, on average?”
Me: “I don’t. I don’t have a credit card processor yet.”
Ethan: “Okay, then, what would you estimate?”
Me: “I don’t know. I don’t know how many customers will choose to use credit cards.”
Ethan: “Well how about the types of payments you will be accepting. Will you need a virtual terminal, a gateway, a wireless device?”

Sensing I might be in a little over my head (though I clearly covered well), I mumbled something about “running my numbers” and told him I’d get back to him. Then began several days of trying to figure out what the hell he was talking about.

First I visited craftster.org (Lord, how I love this web site) and read the 8 page thread about processing credit cards. Since crafty Biz Misses always comparison shop, I thought this would be a great place to begin to find details and good deals. Many of the posters recommended Propay, Thompson (a reseller for Chase Paymentech) and Amex PuchaseExpress (for Amex processing, specifically). Then I looked up Quickbooks, since I have their accounting software. If their rates were reasonable it would be a bonus to have something that would seamlessly integrate with my bookkeeping. Some more searching brought up TermNet, Paynet, Heartland, MSI (Merchant Services, Inc.) and Chase Paymentech themselves. Some companies post their rates and charges up front, but visiting these sites was most helpful for coming up with a fairly comprehensive list of questions to ask their sales representatives. I wrote all of the companies’ names and my questions into a grid for easy comparison and started calling.

I’ll save what happened next for the next post, since, as I said, I haven’t yet settled on my merchant provider(s), but here’s what I learned after three straight hours of excruciating phone calls:

1. You need a completely different set of services depending on whether you swipe credit cards in person (at your brick-and-mortar store, for example), take phone or mail orders, or want people to be able to buy things on your web site using their credit card.
2. A business like mine, which needs to be able to take phone, mail and Internet orders, needs both a merchant account and a payment gateway, in addition to SSL encryption on my web site.
3. Some companies can provide one, two or all three of those services.
4. Every company charges a different mix of one-time, monthly, and per-transaction fees that make it nearly impossible to compare prices accurately.
5. If you can speak to an authorized sales agent, rather than a “customer service representative” you can often negotiate lower or waived fees for yourself.

What I’m currently shopping for is a merchant account with a “virtual terminal” and a payment gateway. The virtual terminal component will let me take “card-not-present” orders. I can have customers give me their information by phone, mail, or in person (like at a trade show) and then process the transaction later through the virtual terminal (a website). This works fine for all of my non-Internet sales, since if the transaction doesn’t go through for some reason, I just don’t ship the products until it is resolved. A virtual terminal is definitely not the way to go for accepting cards at events like craft fairs unless you’re imprinting the card, collecting a billing address and looking at ID for every sale. I could collect Internet orders using a virtual terminal, too, but no customer wants to enter in all their information only to be told their order will actually be processed within the next 24-48 hours. That’s where the payment gateway comes in. A payment gateway, like Authorize or LinkPoint, is what you need to instantly process a credit card through your web site. I know this sounds confusing, but here’s a great article from OurShop.com that explains (and diagrams) everything.

Tomorrow I should finally have everything squared away, at which point I will actually post the gargantuan chart comparing about a dozen merchant services. I may even make a few recommendations. Stay tuned!