Starting Your Own Online Business: Part 2 of 3 Dan Parks Sydow December, 2000 Part 1 | Part 2 | Part 3 In the first article in this series you read about opening a business checking account and getting a domain name. Here you'll read about obtaining Web hosting and getting a merchant account. If you missed that first article, take a look at it now. If you've read it, then you've got the preliminaries covered and it's time to jump right in ... Get Web Hosting Service In the previous article I said that you should register your own business domain name (dot-com). Doing that stops your competitor (or any future competitor) from using the same name. But it doesn't give you any kind of Web presence. Now you need to contract with a Web hosting service. Your computer (whether it's a Mac or any other kind) isn't a permanent fixture on the Internet. Sure, you can use your Internet service provider (ISP) or an online service such as America Online to log on to the 'Net, but when you do that you're just visiting the Internet. In order to maintain a 24 hour a day, 7 days a week site, you need to either turn your computer into a server computer, or you need to contract with a Web hosting service to make use of their existing server computers. While it's possible to turn your Mac (or just about any other computer) into a Web server, very, very few small businesses do so. It's a time-consuming, expensive, technical undertaking, and not for the novice or the technically timid. Instead, very small businesses typically pay $25 to $100 or so per month in order to have a large Web hosting service reserve space on one of their Internet-connected computers. Doing so means that you can access your site-defining files at any time, from anywhere. (Your "site-defining" files being the text and graphic files that you (or someone you hire) create, and that define the look of your site. More on that later.) It also means that potential customers can visit your site at anytime, from anywhere. As a business, that is of course of paramount importance. You want anyone with Internet access to be able to visit your site 24 hours a day, 7 days a week, 365 days a year. At www.smallbizzone.com I have my own Small Biz Zone site set up as a Web hosting service for small businesses. Of course there are thousands of other Web hosting services to choose from. Verio, at www.verio.com, is the world's largest. Their Web hosting packages start at about $25 per month and go up to $200 or so per month (depending on services, such as an integrated shopping cart). You can find listings for other Web hosting services in the back of Internet-related magazines, by searching for "web hosting" at your favorite Internet search engine, or at the recommendation of friends, family, or co-workers who have their own Web sites. In this series' first article I mentioned that you'd want to consider getting a merchant account so that your online business can accept credit card orders. I also mentioned that before doing so you should open a business checking account so that you can specify where funds from online transactions should end up. You'll also want to have Web hosting service set up before you apply for a merchant account. When you do apply you'll need to provide the domain name (dot-com) of the site from which you do business, and you'll want to have already contracted for Web hosting so that your site can be ready to go by the time you get your merchant account. If you don't already have a domain name reserved, consider reserving one at the time you sign up for Web hosting. A Web hosting service will generally take care of the details of registration for you if you sign up for one of their hosting plans. You'll still need to pay for domain name registration, but the Web hosting service may offer a discounted price. For instance, when you sign up for Web hosting the Web hosting service may register your domain name for, say, $20 for one year, as opposed to the $35 to $40 you might pay if you registered the name yourself at a registrar such as Network Solutions. A Web host is named such because it hosts, or stores, or maintains, the files that define your site. One of the Web host's server computers holds your site's files, and that server computer is accessible to Internet surfers at all times. Or at least, it should be. In choosing a Web hosting service look for reliability. A potential customer can't visit your site if the server computer that hosts your site is down. You'll want to look for a Web hosting service that claims to have little downtime. It's not unreasonable to expect your Web hosting service to be running trouble-free 99% of the time (an uptime of 99%). Most Web hosting services offer different plans, or tiers, of service. You can get Web hosting for as little as $8 or $10 a month, but more typical is a plan that costs $25 to $30 a month. Note that such plans seldom include a shopping cart -- a feature you'll definitely want at your business site. For an e-commerce-ready Web hosting plan with a shopping cart expect to pay anywhere from $50 to $100 or more each month (the cost varying with options such as extra disk space and so forth). Alternately you can get a Web hosting plan for about $30 per month and then make use of a separate shopping cart service. Such services usually cost about $25 to $50 each month (above and beyond the Web hosting fee of about $30 each month). Whether you sign up for Web hosting that includes a shopping cart, or opt for Web hosting and then add a shopping cart yourself, expect to pay about $60 to $100 each month for Web hosting and shopping cart services. We'll take a longer look at shopping carts in the next (and last) article in this series. Obtain a Merchant Account Giving a potential customer the option of using a credit card to pay for a purchase at your site is the best way to increase sales. In order to be able to accept payment by credit card you need a merchant account. You may have worked for a business that accepts credit cards, but you yourself have probably never sold anything and been able to accept payment by credit card. The same holds true for most individuals. Because few people have ever been involved with accepting credit card purchases, the merchant account is one of the most confusing topics for people interested in starting an online business. An online credit card purchase transaction begins when someone who is visiting an Internet Web site decides to make a purchase using a credit card. The customer enters credit card information in an onscreen form and clicks an onscreen button to indicate that the purchase should be made. When that occurs a processing network performs a funds availability check to make sure the purchase can be authorized. If it can be, the customer's credit card is charged and the funds go to the merchant (that's you). The funds don't immediately get to you, however. They first make their way to a bank account set up specifically to handle credit card fund transfers. This bank account is the merchant account a merchant must have in order to accept credit card orders. When you apply for and get a merchant account, you're getting this new bank account. Within a couple days of the purchase the funds make their way from the customer's credit card bank to the merchant account and then on to your business checking account (the account discussed in this series' first article). When your online business is ready to accept orders by credit card, the process of carrying out such a transaction will be automated. Anyone who surfs the Internet can, twenty-four hours a day, seven days a week, place an order at your site. You won't have to be online to personally take or accept the order. When the order is placed, the verification of credit card information and acceptance of the credit card charge will be made without your participation. After a successful order, the customer gets an automated e-mail message confirming the order. You'll automatically get a similar e-mail message so that you know what item or items were ordered, and where the order needs to be shipped. Within about 48 hours of the sale the funds from the sale automatically appear in your business checking account. Your only role in the transaction will be in fulfilling the order. That is, you'll be responsible for packaging and shipping the item or items the customer ordered. You can go to your local bank to see if they'll provide you with a merchant account. But many banks are somewhat distrusting of a start-up company such as yours - a small (perhaps one-man) operation that may exist only as a virtual entity on the Internet. Alternatively you can check your local Yellow Pages phone directory under the "Credit Card & Other Credit Plans" listing to find a merchant service provider located in your area. There too, though, you may encounter some resistance to getting a merchant account. The best way to find a merchant service provider may be on the Internet. Since you're an Internet business looking to make credit card sales on the Internet, it makes sense that you'll want to deal with an Internet-savvy merchant service provider. Such providers of course advertise on the Internet and of course have Internet sites of their own. One way to find such providers is to perform a search in your search engine of choice. To choose a merchant account provider you may want to use some or all of the following criteria: An established company While in many industries "established" might mean being in business for decades, you certainly can't expect that in a company that's involved in a very new form of business. Still, you may find it important (and it may alleviate some of your fears of giving money to a "fly-by-night" business) to deal with a business that has been in existence for say, a couple of years or more. Physical location You'll sign a multiple year lease with the service provider you choose. Again, if you're concerned about the company you do business with "disappearing", then it might be important for you to know that the company also has a physical location - a real bricks-and-mortar office from which they do business. Even if that business isn't located anywhere near you, it may give you peace of mind to know that the firm is set up such that a person could walk into their office if they desired. After-sales support You've signed a contract that says you'll pay a fixed monthly fee to the merchant service provider for the right to have a merchant account. Now that the merchant service provider got you a merchant account, are you on your own? Did they just "take the money and run?" If you're new to online business, you may (or more likely, you will) have a question or two after you get your Web site up and running. Can the company be reached for support by e-mail? Does their own Web site list a phone number at which you can speak to a real person in the event you're confused about credit card-related transactions? Obtaining a merchant account is as easy as filling out an application form and submitting an application fee. The application fee should be around $100 or less. Before filling out the application you should feel free to contact the merchant account provider to discuss any concerns you have about the cost of the merchant account. If your credit history is spotty, you may also want to discuss how this might affect your ability to get a merchant account. In this credit-conscious society that last point may interest many of you. Approval of a merchant account is up to a bank, and the requirements of banks vary. If you're an established business, or you're an individual with a sterling credit rating, you should have absolutely no trouble in obtaining a merchant account. If you have a spotty credit history, you may face some resistance from some banks. But fear not. When you fill out an application for a merchant account, you divulge personal information such as your Social Security number, address, telephone number, and bank account information. When you supply this information to a bank, the bank and the credit card associations that you'll be working with know who you are. If you are approved for a merchant account and allowed to perform online credit card transactions it is then pretty unlikely that you are going to be interested in participating in any shady dealings. After all, it's not too bright of a person that attempts some sort of credit card fraud when banks and credit card institutions know all about that person! This then is the reason that some banks will partake in the issuing of a merchant account to an individual with poor credit. I say "some" banks because there are many banks that won't work with individuals who have bad credit. If you have poor or bad -- or even very bad -- credit the key here is to find a merchant service provider that works with a "liberal" bank -- a bank that is willing to overlook many credit issues. Many banks have credit history standards that are strict -- those with poor credit will not be considered for a merchant account. Other banks, though, have looser standards. These banking institutions that are more flexible are willing to ignore many credit issues (many of the issues that in the past have labeled you as one with "bad credit"). If you have any number of bad credit items that involve what amounts to unpaid bills, you may very well still be eligible to get a merchant account. That's important to know, because many, many people who are considered a bad credit risk fall into that category simply due to having several unpaid or late-paid bills. Some merchant account providers work with banks that will even issue merchant accounts to people who have a bankruptcy, foreclosure, lien, or judgement in the credit history. From my experience I've found that a huge number of people have credit issues and concerns. In most of these cases I don't think such people should be excluded from getting in on the Internet sales boom! At my Small Biz Zone I make use of the services of a merchant account provider that works with liberal, understanding banks. If you have credit issues and you want a merchant account, make sure to search out such a merchant account service provider. When you're approved for a merchant account you'll sign a contract that specifies how much you'll pay for the account. What you are in fact paying for is a combination of things related to online sales. You'll have a merchant account at a bank, you'll be employing the electronic services of a processing network (recall that the processing network is an online entity that serves to verify credit card fund availability, and then transfers those funds from the customer to you), and you'll have access to an online virtual terminal that allows you to manually enter credit card order information (which is a feature in addition to the "normal" way of doing things -- having the process automated at your site so that customers can order without you participating in the sale). Expect to pay anywhere from $60 to $90 a month for this package of services. If you want to do business online, then this monthly fee is well worth it. Most Internet shoppers use credit cards! Next... At this point you know about business checking accounts and domain name registration (from the previous article) and Web hosting and merchant accounts (from this article). In next week's article I'll discuss the design of your site and the implementation of a shopping cart. After that, you're ready to roll! About the Author: Dan Parks Sydow is a software engineer, computer programmer, and the author of over twenty computer books. Mr. Sydow has written beginner-level Internet user books such as "Internet For Macs For Dummies: Quick Reference", beginner-level programming books such as "Mac Programming For Dummies", and advanced-level Internet programming books such as "Jumping to Java" (all from IDG Books). Dan is also an online entrepreneur and author of the recently published e-commerce title "E-Commerce Revealed". You can contact Dan at the Small Biz Zone.