Five Ways Your Business Is Being Ripped Off
Owning a business is arguably one of the most stressful, but rewarding things a person can do. Like raising a child, owning a business will take up all of your time, frustrate you beyond anything you thought possible, and make you a target because of your somewhat unique situation. Businesses know that if your business needs theirs, they can charge you more than they would other customers for the same services. In economics, this is known as price discrimination and, because the elasticity of demand for businesses is different than regular consumers, business owners will be gouged!
Credit Card Processing
As I’m sure you’ve heard from us before, we think most credit card processors are taking advantage of business owners through their somewhat nefarious percentages and hidden fees. They make billions of dollars every year skimming a couple percentage points on top of what they actually pay to Visa, MasterCard, et al. In 2012, credit card transactions accounted for 21 percent of the total number of non-cash transactions.
In the 26.2 billion transactions in the United States in 2012, some $2.48 trillion was moved using credit cards. If the credit card processors cleared just one percent of that (they don’t, they make more than twice that) they’d still be making damn near twenty five billion dollars a year. Lucrative to say the least.
Number of Dollars Exchanged Using Credit Cards in 2012
Of course, there are others out there vying to take advantage of businesses who need their services and, while they are numerous, we’ve picked just a few that might be just as bad as credit card processors.
While “borrowing” a copy of Microsoft Word from your nephew might fly at home, that sort of blatant disregard for law will get you in serious trouble. Simply looking at the new Microsoft Office 365 pricing, a personal license is $7 a month. For businesses, however, those same services are $13.25 for a single user. Granted, there are some discrepancies in the business and personal services, but ultimately, you’re paying for a bunch of stuff you probably didn’t want in the first place.
More than $400,000,000,000 was spent on software worldwide last year, with between five and six percent of the total generated by audits.
If you need more specialized software for running your business, you’re looking at hundreds of thousands, if not millions, of dollars a year in licensing fees. Of course, the idea is that if you spend 2 million dollars on their software, it will make your company six million dollars more productive.
With free and open source options getting better and better every day, you might explore one of those and save your business thousands of dollars.
Insurance is a game of numbers in which the insurers always come out on top. No matter what you’re buying insurance for, they calculate risk, add a chunk for overhead, and then charge you for it monthly. What’s more is that when it comes time for these insurance companies to pony up and pay out what the insured party is owed, they do everything in their power to make sure that they pay out the least amount possible. When they have a surplus of cash, they invest it and usually make more money off of those investments than they do actually providing insurance to those who need it. Insurance companies are usually listed right after banks in lists of the most deplorable businesses.
Now, on an infinite time scale, if you were to take what insurance would cost and contribute it towards some sort of savings account, that account would always be in the black even if you had to pay out a number of claims. The fact of the matter, however, is that time for your business is not infinite and any sizable claim could send it into bankruptcy. As such, businesses are much more risk averse than an individual because they have so much more to lose. Because of this unique situation, insurance companies know that businesses are more likely to need their services and that demand often drives prices up.
Because businesses move a tonne of money, they get charged small fees for a lot of these transactions. Completing these transactions has become less and less expensive as more financial transfers happen digitally, often not needing any human input whatsoever. Why, then, does a transaction that happens in a fraction of a second cost you a dollar to complete? Overdraft fees are another new and sneaky means by which the biggest banks in America are bending their customers over a barrel. For the privilege of even having an overdraft, you may be charged between $25 and $35.
At banks with more than $25 billion in assets, the median overdraft fee was $35 at the end of 2012, according to Moebs. Banks with less than $100 million in assets charged a median price of $25… Last year’s total of $32 billion in overdraft fee revenue was up 1.3% from 2011.
Business travel is an industry whose numbers often surprise. US companies are now spending in excess of 200 billion dollars a year sending their employees about the country and, while most of it likely does have a positive ROI, there are always some shady expenses that simply take advantage of businesses.
Next time you’re in a hotel room on business, check out the telephone charges. Often, it’s much less expensive to pay your cell phone provider’s long distance charges. Similarly, even touching the items in a mini-bar may get you charged for their consumption. Indeed, hotels are literally making billions of dollars off of surcharges like these.
Furthermore, airlines can be notorious for charging for everything these days. Sure, ridership has gone down, but the fees have risen completely improportionately. Just check out these numbers comparing 2007 to 2011:
Not a huge deal, but one that can add up is the rental-car damage waiver. Very few business travelers will ever need it (insurance is basically there to prey on your fear) especially given that coverage is most likely available from your own insurance or your credit card! Check before your travel to see if you are indeed covered. A simple call to your automobile insurer or credit card provider will sort you right out.
The game continues to change and as profit margins get tighter, these companies are going to try and nickel and dime your business to death. While some of these services are definitely good purchases, they might be taking advantage of you because of your position!