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Should Yours Be a Cash-Only Business?

Being a cash-only business has its pros and cons, and some business ventures are better suited to purely cash payments. The decision of which consumer payment methods to accept shouldn’t be taken lightly—your choice could inhibit your business’s growth or trim your margins too thin.

In general, businesses that do well as cash-only are very small (or are a seasonal or part-time side-hustle), provide services or sell merchandise in person that are smaller in value, and don’t process many merchandise returns. They’re also more likely to be single-person operations and not require a physical address.

Here is a short list of some businesses best-suited to all-cash cash-flow:

  • Coffee/food cart or food truck
  • Bakery, deli, or lunch stand
  • Lawn mowing service
  • Personal chef
  • Errand service
  • Transportation service
  • Farmer’s market vendor
  • Arts and crafts show vendor
  • Street artist
  • Babysitting service
  • Pet services (pet sitting, pet grooming, pet training, dog walking, etc.)
  • Personal trainer or fitness instructor
  • Handyman service
  • Music teacher/tutor
  • Hair/nail salon or barbershop

Advantages of cash-only

  1. Lower costs and overhead (i.e. no processing fees)
      

    You can save money by only accepting cash payments. In order to process credit card transactions, you’d need to buy or lease card-reader equipment, maintain that equipment, and pay a percentage of your sales for each swipe of a card. Some processors also charge additional monthly or per incidence fees. All these costs can really affect your profitability.
      
    With cash, all you should need is a cash register and perhaps a calculator if the register doesn’t come with one. It’s easier to calculate and maintain your profit margins.
      
  2. No funding holds
      
    With plastic payments, your business account won’t receive the funds for 24 to 72 hours later. And, even after that time, you could receive a chargeback if a customer demands a refund, even months after a purchase is made.
      
    Cash doesn’t involve any of these delays, unless you decide to offer a customer a refund, but even then, you’d work in-person with the customer and may be able to offer another solution instead.
      
  3. Avoid fraud and bounced checks
      
    If you don’t accept plastic or personal checks as payment, you can completely avoid bounced or NSF checks and bogus credit or debit cards. You won’t need to spend the time and hassle of trying to get money from shifty customers whose payments didn’t clear the bank.
      
  4. Accessible to more customers
      
    You’ll be well-positioned to reach customers who don’t have access to credit or a smart device for mobile payments. These “underbanked” in the community may feel more comfortable doing business with you.

Disadvantages

  1. Lost customers and/or smaller-dollar sales
      
    In general, fewer customers are carrying much, if any, cash on them these days. New customers who don’t know you’re a cash-only business may be forced to walk away without giving you their business because they didn’t have cash on them at the moment. Or they may be forced to make a smaller purchase based on the amount of cash they have on hand.
  2. Limited growth opportunities
      
    Cash-only means in-person only business and limits expansion of your business to include online sales. In-person sales also limit your customer base to your immediate local community—which can be just fine—but you’ll reach your maximum business capacity much faster.
      
  3. Stringent cash-handling policies
      
    You might avoid check and credit card fraud with cash, but you’ll be vulnerable to counterfeits. You and any employees will need to know how to spot fake money. Speaking of employees, if anyone but yourself handles cash register drawers full of cash, you could lose money to theft and unscrupulous employees. You’ll need strict cash handling policies that are enforced regularly and stringently.
      
    Even if your employees are all trustworthy, they’re still prone to human error and miscounting, including when taking the right amount from customers, making change, and counting totals at the end of the day. Having cash on-hand is also a security risk for robbery.
      
  4. Potential for IRS audits
      
    The IRS knows it’s easier for cash-only businesses to underreport earnings and avoid paying taxes, and for that reason, the IRS audits cash businesses more often. You must carefully document all your transactions to be able to establish a pattern of honesty, should you be audited.
      
  5. Difficulty obtaining a business loan
      
    If you decide you’d like to expand your business, you’ll most likely need a business loan. Your local credit union is a great place to start, as they are known for helping local small businesses. However, you will need excellent accounting records if you’ve been operating on cash-only to show you have adequate cash flow to repay the loan.
      
    If you think you’d like to start out as a cash-only business and expand later to accept card payments, there are ways of easing into that transition. You could accept card payments at first only for purchase totals above a certain dollar amount. You could also invest in a mobile card processor (like Square) to quickly set up a card process account without having to pay for expensive equipment. From there, you can see if expanding payment options is good for business and if you should invest in a more complete card processing system!
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