Can You Really Run A Cash-Only Business?

Accepting only cash payments saves your business money by eliminating the expenses associated with taking credit cards. To accept cards, you have to purchase or lease card readers and other equipment. You also have to consider the time and expense associated with maintaining your equipment.

You’ll also be required to pay card processing fees. These percentage-based costs make it difficult to predict how much usage would cost ahead of time. Some processors also charge additional fees, which can add up quickly.

With a cash-only business, you eliminate these expenses. You’ll be able to operate with a basic cash register, won’t have to pay recurring monthly fees, and won’t be hit with processing fees each time a customer pays using a card. 

As a cash-only business, you’ll receive your money right away. If you accept debit and credit cards, your account won’t be funded until 24 to 72 hours later.

Even after you’ve received your money, you’re still at risk for chargebacks. If you have too many chargebacks, your process could freeze or even terminate your account. With frozen or terminated accounts, you might not get back the charges in those accounts at all.

With cash, you’ll never have to worry about any of these issues. You get your money right away, and, unless a customer complains and you decide to refund their purchase, you’re never obligated to pay back what you have already taken in.

If you take cash, you can simplify your business’s accounting needs.

There are two ways to keep your books: the cash method and the accrual method. The cash method doesn’t have anything to do with taking incoming payments only in cash. It merely means that you book a sale or expense when you actually receive or pay for the goods or services.

The cash method is considered the simpler of the two accounting methods. It gives you a realistic understanding of how much you have in the bank but does not take into account future income or expenditures.

With the accrual method, you book the sale or expense when you make the sale or incur the expenditure, even if you don’t receive the payment or don’t pay out the money until later. With the accrual method, you must track your business’s finances with accounts receivables and payables.

If you take cash payments only, no matter which accounting method you use, you can simplify your accounting. With the accrual method, your accounts receivables are always up to date because you have already received the money and won’t have to keep track of them after that. If you use the cash method, you won’t have to deal with money you expect to receive in the future because, even though the method doesn’t require you to book the sale until you actually receive the money, you do, in fact, receive the money right away because you are paid in cash at the time of sale.

Most customers today no longer carry a large amount of cash and prefer instead to pay with a credit or debit card. Going cashless means that these customers won’t be able to make purchases at your business unless they either have the cash on them or can access a nearby ATM. Even if your customers manage to get the cash to complete the purchase, there’s a chance they won’t return due to the inconvenience of paying with cash.

Taking only cash can reduce your business’s growth opportunities. Accepting cash only makes sense in a physical storefront. But if you plan to expand your business to online sales or phone orders, the cash-only model limits your potential for growth. Many customers today prefer the convenience of shopping online. In addition, online sales can reach customers all over the world. Going cash-only means you might be missing these customers who can help your business grow.

Handling cash means you will have to deal with counterfeits. Despite security features such as colored ink, raised printing, watermarks, and similar, counterfeit currency are still in circulation. In fact, the US Department of Treasury estimates that $70-200 million dollars in counterfeits could be in circulation today. If you take cash only, you and your employees who handle cash payments should be trained on how to spot counterfeits.

Additionally, you also have to consider potentially dishonest employees. If you have a cash-only business, you would have to have strict cash-handling policies that are enforced regularly and stringently. You might even have to invest in surveillance equipment to catch those employees who steal.

Sometimes, cash shortages are caused by inaccurate counting instead of theft. With a cash-only business, the person at the cash register must count carefully, both when taking in cash and counting back cash to give change. While this might not be difficult under normal circumstances, if you operate a business with rush times like lunch periods, having to count cash for every customer could make you more error-prone.

In contrast, if you take payment cards, only the exact amount would be processed, and you would eliminate a source of counting errors.

The IRS knows that it’s easier for cash-only businesses to underreport earnings and avoid paying taxes. Of course, not every cash-only business tries to avoid paying taxes, but enough have done so that the IRS typically audits cash businesses more often. Even if you report all your cash earnings honestly, you must carefully document all your transactions. Otherwise, it could be difficult to establish a pattern of honesty to convince the IRS that you haven’t underreported.

Some businesses that are cash-only may have large sums of money on-hand at any given time. This is particularly true of businesses like marijuana dispensaries. Having a large amount of cash that’s easily accessible is extremely risky for your business, so additional security requirements may need to be implemented to protect your business. Purchasing safes to protect your money and hiring armored car services to transport your deposits to the bank are additional expenses you may need to consider if you’re operating a cash-only business.

Most cash-only businesses are single-person operations that are quick and easy to set up. These businesses sell lower-priced goods and services, and customers typically do not seek refunds. Examples include food carts and stands, laundromats, babysitting, pet services, vendors at craft shows or farmer’s markets, tutors, and lawn maintenance services.

The best businesses to start with cash are those with low startup costs that can be set up quickly and easily. Businesses with low overhead costs that sell lower-priced goods and services tend to be the most successful cash-only businesses.

You can prove your income with a cash-only business by keeping good records. Copies of customer invoices, accounting records, bank statements, and personal income tax statements can help you prove your income if your business only accepts cash payments.