In this edition of our “Need to Know” series for small business owners, Sarah Hopen looks at (and through) the glossy picture painted by banks and other Merchant Service Providers to help you ask the  right questions.

After car manufacturers and Coca-cola, Merchant Service Providers are one of the worst purveyors of Lifestyle Porn.  Or maybe they’re among the best…guess it’s all in how you look at it.

What is a Merchant Service Provider? MSPs provide the suite of tools used by business owners to receive and process payments – point of sale machines (debit and credit card machines), virtual terminals, payment gateway providers, and other payment tools.  Is it possible to run a business without accepting credit cards, debit cards or online payments? It’s definitely possible, but the outcomes are likely not desirable. Retail operations most certainly lose customers when they don’t take plastic. 

Just take a look at these happy folks from the Merchant Services section of the Paypal website.

Chillaxin’ at the office

Small business owners are always looking for ways to increase cashflow to their business and ways to speed up that process. As we know from our many creative business clients at STAR Company, entrepreneurs work incredibly hard and they welcome tools that might make their lives a bit easier

Banks and financial services providers are very aware of this too.   Their ad campaigns feature happy-go-lucky small business owners bringing in money worry-free –  thanks to  ‘inexpensive’, easy-to use, merchant services.

Who doesn’t love to work at night in a dark warehouse?!?

 But…here’s the thing about merchant services:

1.     Convenience comes at a price.

The cost of accepting credit and debit in a retail operation is high. On the low end, Merchant Service Providers take 1.9% of a sale. On the high end it can reach 3.8%. In addition, there is usually a monthly “account fee” of approximately $30 for point of sale systems as well as “rental fees” – again, usually about $25.

If you have a retail operation that brings in about $35,000 in sales per month, you are likely paying close to $900 in fees to your MSP per month, or $10,800 per year, to accept  credit and debit payments in your business..

 If you are a service provider that accepts online payments via Paypal and you are doing about $10,000 of business per month, you are likely paying Paypal somewhere between $280 and $300 per month, or $3600 per year to process your payments.

That’s a sizeable chunk of change…out of your business and your profits.

2. Hassle free?

Not really. The big selling point put forward by MSPs is that taking credit cards and online payments encourages customers to spend more money while you work less to receive those payments. But the time and resources required to translate the reports that you receive from MSPs, and track your income is significant. In addition the support provided by companies such as Chase Paymentech and Paypal is negligible, especially when considered next to the amount paid in user fees.

Paypal made $2.4 billion dollars in profit in 2010. Ebay purchased Paypal in 2011 and increased it’s earnings by 20% to bring in $10.6 billion dollars in profit. TD Bank made $5.89 billion in profit in 2011. CIBC made $3.1 billion.

I think you get the point.

Why do small business, pay such an enormous prices for their merchant services?

Is it fair? Why do we as consumers accept these high fees? And why do we put up with such poor customer service and user interfaces? Can we expect more? And who will step forward to provide it?

You don’t necessarily need to camp out in front of Chase headquarters, but if you are a business owner, make sure that the next time you negotiate your contract with your Merchant Service Provider, you shop around.

Here’s what you can do:

Ask for a better rate.

Tell them you will switch providers if you don’t get a better deal.

Then tell all your friends.

Demand that more of that hard earned money stay in your pocket!

Our own Sarah Hopen has been invited to present her smart, useful and inspiring workshop…

‘The Creative Entrepreneur: Making it Work’,  at next week’s Small Business Arts Forum.

The workshop is part of a one day conference presented by Enterprise Toronto.  Sarah’s workshop explores key challenges for creative entrepreneurs and the important questions you need to ask yourself as a business owner.

We attended the event last year and it turned out to be a great opportunity for networking and brainstorming with other creative types.  It’s all free and it’s jammed with workshops and seminars all geared to artists and creative business.

This year’s keynote speaker is iconic contemporary Canadian painter Charles Pachter.

The Enterprise Toronto: Small Business Arts Forum happens Tuesday April 24, 9am-4pm at the North York Civic Centre.  We hope to see you there!

Sustainable Creativity – Tools and Tactics for Personal Resilience and Financial Clarity

Presented by STAR Company CEO Sarah Hopen & Career Coach Anne Carbert

Two group workshops and two one-on-one finance / personal vision sessions. Sarah joins forces with Anne Carbert, Career and Transition Counsellor to help you manage your financial demons while offering a strong dose of inspiration that taps into your strengths and rekindles an energizing business vision.

As an artist or creative entrepreneur, it can be easy to lose sight of your original intention and feel overwhelmed by financial worries. Do you know your financial goals for your business? Have a good sense of your growth prospects? Remember why you started this crazy business in the first place? Some concrete financial planning will help and it’s not as daunting as you think.

Saturday April 14 & May 5, 2:30 – 4:30pm

At the Centre for Social Innovation – Annex

At STAR Company, we get lots of insight into what makes creative ventures fly. 

Here’s a chance for us to share that info with those of you out there who are creative entrepreneurs interested in building a flourishing business or social enterprise.

Come join us in this free, practical, hands-on workshop  as we identify ten important steps to restructuring your time and efforts so that you can focus your energy and creativity on developing a successful business or enterprise.

It’s free, sure to be fun  (really), and you are guaranteed to walk away will practical steps to move your business along.

Plus there will be snacks.

See you there.

photo by ian sane

The big question every creative person needs to face is: “How can I afford to do the work I love to do?”

For some of us, it’s easier to imagine ways to market our skills or products to create a sustainable cash flow (e.g. graphic designers or music teachers).

For others, it requires a little more creative effort (e.g. performance artist with a passionate interest in 14th century marriage rituals).

But at the end of the day, we all need to find a way to fund our creative work.

When stripped down to the bare bones, there are basically three paths:

1. Do what you love.   Develop the skills, products or projects that you are passionate about, find/make work in your field, apply for grants.

2. Do stuff around what you love.   Build complementary skills or products to the creative work that you are passionate about such as teaching, writing, consulting or working in an arts organization.  Or use your skills in a parallel career.  For example, often dancers transfer their knowledge and passion about movement and the body into the healing arts.

3. Keep a day job.   Maintain a secondary unrelated revenue stream to fund your creative work.

There is not one path that is more valid than the other and each makes sense for different people at different stages and different situations. The myth that someone isn’t a ‘real artist’ if they aren’t living solely off the dividends of their creative efforts is, well, wrong.   Many artists work in other sectors and many artists fund their work through complimentary/parallel/secondary careers.  And most importantly, many people find it fulfilling to have multiple careers.

The big question to ask oneself is “What path suits me?”  Often it is possible to build an interesting flourishing business around what you do.  For example, people often create merchandise, services, and products that compliment the core of their artist endeavors.  This can be lucrative and interesting, but don’t underestimate the effort and resources required for such ventures.  These types of projects usually mean that you are now running a full-fledged business.  Check that you have the passion and skill set for such an undertaking.

Alternatively you often hear folks dream about leaving their “day job” to pursue their artistic projects.  However, sometimes people find that leaving the financial stability, and social /time structure of a job leaves them feeling isolated, unmoored, stressed and dead in the creative waters.

It’s all about finding the balance that’s right for you.

In upcoming blogs, I will explore some of the myths and realities about artists and money and tools that to help create a sustainable creative career.