The Paperwork Needed to Go Plastic
“Do I need a business plan?” “How do I introduce drug testing for my employees?” “Where can I get legal advice on a merger?” Small-business owners often have questions about how to run their companies. This column will attempt to provide answers from a variety of experts. Consultants are interviewed by freelance writer Karen E. Klein.
Q Our mail-order company sends flowers and gifts overseas. We would like to start accepting credit-card orders so our service will be more convenient for our customers. How do I accomplish that?
--H. Wadhwani, Granada Hills,
Flowers & Wishes International
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A You should begin by calling your bank and asking if they provide merchant credit-card processing for mail-order businesses. Many banks offer merchant bank card processing, either through their own system or in partnership with a specialized vendor such as NOVA, 1st Data Resource, National Data Corp. or others.
If your bank does not provide this service, ask them to recommend a company that specializes in mail order and Internet processing, such as Card Service International or Electronic Card Service. A few phone calls should match you up with a card processor in no time.
You will be asked to fill out an application that requires financial information so the processing company can do a credit review, evaluate your financial stability, length of time in business, average amount of each transaction and the method in which the card information is presented to your business.
Processing charges are set based on this evaluation, and the fees and requirements differ greatly from processor to processor. Most companies charge application, setup and per-transaction fees. Also, the processor will apply a discount rate to your transactions, so you will not receive the full value of the credit purchase amount.
Generally, the higher the risk factor on the transaction, the higher the discount rate the processor will apply. Be aware that transactions that are less than $100 and transactions that are not performed by the cardholder in person--such as mail-order transactions--are usually considered high risk and are charged at a higher discount rate.
--Olha C. Holland, senior vice president,
business banking, Glendale Federal Bank
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Q I started an S-corporation in October with my own initial investment and I own all shares of outstanding stock. During start-up, I offered my salesman, an independent contractor, the chance to buy up to 40% of the company. The business looks like it will turn a profit soon, so he is ready to invest. How do I calculate the stock price?
--Al Niski, Redondo Beach
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A If you’ve already started your business and are about to turn a profit, this is indeed a good time for you to sell some stock and increase your cash flow.
The par value of a stock, for a start-up company, is an arbitrary number that is open to negotiation just like any other investment. For instance, if four people will invest in a new company, and each of them will own 25,000 shares, you might place the stock value at a penny a share and have each contribute $250.
Once the corporation is operating, the stock value is usually determined by the marketplace, based on the earnings or projected earnings of the company.
Each industry typically has an average multiple it uses to calculate stock value. If the multiple in your industry was 10, for instance, and your earnings were $2 per share, your stock would be sold at $20 a share.
In an early-stage company like yours, you may not have any significant earnings for three or four years. In that case, you will need to try to project your earnings for a few years down the line and sell at a multiple of that number. Of course, the owner of the company usually has higher earnings expectations than does the investor, so you will have to come to an agreement on a figure. If you cannot reach an agreement, you could simply take your company’s assets and divide by the number of shares: For instance, if you have $100,000 in assets and 100,000 shares, you would sell each share for $1.
A stockbroker could give you the multiple range used for your industry or you could go to your local library and ask for stock market reference materials in order to get more information.
--Tiffany Haugen, director, Accelerate Technology Small Business Development Center, UC Irvine
If you have a question about how to start or operate a small business, please mail it to Karen E. Klein in care of the Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia 91016, or e-mail it to Kklein6349@aol.com. Include your name, address and telephone number. The column is designed to answer questions of general interest. It should not be construed as legal advice.
