Important Facts You Need to Know About a Cash Business
Many businesses, such as restaurants, bars, and vendors, run on cash transactions. While numerous payment options are now available for modern businesses, cash remains king. Many businesses need to generate enough cash to repay investors, settle recurrent expenses, and perhaps have enough left to reinvest.
What Is a Cash-Only Business?
An all-cash business does not accept checks, credit cards, mobile wallets, or other forms of payment. There are no laws prohibiting businesses from accepting cash only or requiring them to accept alternative payment methods.
In some industries, customer payments are limited to cash only. These businesses include:
- Restaurants
- Coffee shops
- Lawn services
- Street vendors
- Laundromats
- Babysitters
- Vending machines, and others.
These businesses rarely accept credit cards, meaning most customers are accustomed to paying in cash.
While running a cash-only business has numerous benefits, tax considerations must be upheld. All transactions must be reported to the IRS, and even though you can avoid credit card fees, making any ‘under the table’ is illegal.
Benefits of Running a Cash-Only Business
So, are you wondering whether there are any pros to running a cash-only business? This section highlights some of them:
No Credit Card Fees
Any small business owner knows that credit card fees can significantly affect their profits. It also may not be practical to pass the cost onto the customers as it drives your prices up in a highly competitive market.
When customers give you cash, you do not pay any extra fees. However, if you accept credit cards, you must pay credit fees on every purchase and buy or rent processing equipment. Cash-only payments remove the additional cost of setup.
All cash transitions must be recorded to make it easier to fulfil your tax obligations.
Immediate Cash Boost
Unlike selling on credit with a promise of payment, cash sales immediately put money into your register. You never need to be concerned about customers fulfilling their debt obligations by a certain date.
Businesses selling on credit may have to wait weeks after the purchase to get payment. It is also frustrating to chase after customers who do not make timely payments and expensive to hire debt collectors for defaulters.
No Chargebacks
Accepting cash reduces the risk of credit card fraud. Credit card fraud costs small businesses time and money due to chargebacks. It is when a credit card provider, such as a bank, demands a refund from the merchant.
While not all chargebacks are fraudulent, businesses that limit payment to cash only do not need to worry about credit card fraud.
Disadvantages of Running a Cash-Only Business
While cash-only businesses have many benefits, there are several limitations to refusing other forms of payment.
For instance, 80% of consumers prefer to use credit or debit cards to make purchases. This is because it is easier to keep track of their spending compared to using cash only.
Limiting your business to cash can cut off many consumers who would otherwise buy from you.
Inconvenient for Most Consumers
Many consumers using credit and debit cards usually try to avoid withdrawal fees. These fees are not only inconvenient, but they also add up to significant amounts.
Cash-only businesses force their customers to incur unexpected withdrawal fees. Customers who do not have cash on hand may not make any purchases and might be reluctant to make future purchases from your establishment.
Cash-only businesses also discourage buyers from making large purchases resulting in slow cash flow.
Cash-Only Can Be a Security Risk
Accepting cash-only purchases means that your business could carry large amounts of cash. Your business may become a target for theft, especially if it is widely known that you accept cash only.
Having too much cash can also expose your business to employee theft. Unlike credit and debit cards, having ready cash in the register puts you at risk of employees pocketing money from sales.
Another security risk for cash-only businesses is that you might be exposed to accepting counterfeit money.
High Risk of Auditing
A cash-only business also puts you at a higher risk for auditing by the IRS. Cash-only businesses are at higher risk of tax fraud and evasion because there is no audit trail.
Many cash businesses are suspected of tax evasion because they can easily omit income with little to no paper trail.
Running a cash-only business puts you on the IRS radar of businesses that do not file taxes on their income.
Running a Cash-Only Business
Here are some tips to ensure operations run smoothly when running a cash-only business.
Notify Your Customers
Put clearly visible signs around your business premises to notify customers that you do not accept alternative forms of payment. Include a disclaimer on your website and other online platforms showing that you are cash-only.
This prevents customers from wasting time in your store only to learn that they need cash when they are about to leave. It also allows your buyers to withdraw cash before coming to your shop.
Train Employees
When hiring employees for a cash-only business, you must be vigilant about hiring honest and dependable people. You must also invest in training them on how to handle cash and how to tell if they receive counterfeit currency.
Conduct background checks and teach new employees about security features on the notes, such as the raised printing, Federal Reserve seal, and microprinting. Invest in counterfeit detection pens and other supplies to assist your employees where possible.
Keep Thorough Records
You must keep updated records. Cash-only businesses do not have electronic statements or signed receipts which can lead to a lack of accurate records. Always record the date, time, and goods or services sold.
Keeping clear records makes it easier to calculate your income, protects if there is an audit, and helps you file accurate taxes.
Follow IRS Tax Rules
The IRS keeps a close eye on cash-only businesses. You must complete Form 8300 for any payments over $10,000 made in cash in either one or more related transactions. Enter a transaction description, customer information, and business information.
Form 8300 can be filed electronically or via mail before the 15th day after the transaction. The customer must also provide a written statement by January 31st following the transaction.
Paying Employees in Cash
It is not illegal to pay employees in cash. However, all payments must be recorded, like other payroll transactions. You must also report and pay payroll taxes, otherwise, your employees will lose their retirement benefits.
Even if you pay employees in cash, you must pay their employment taxes. Any employee payments made in cash with the intention of avoiding payroll taxes are illegal and could result in prosecution.
Should You Run a Cash-Only Business?
You can run a cash-only establishment if it is most convenient for your business model. However, many successful businesses have adapted to accept different payment methods, including mobile wallets.
Consider limiting cash transactions to certain amounts before you can accept alternative payments. This makes your business more accessible while encouraging consumers to buy more.
Furthermore, consider talking to an accounting professional to find out which tools are available to make it easier to record cash transactions.
