I am crafting my presentation for HostingCon and tangents keep on slipping in. I kick them out, Obviously I can’t just go off in the wrong direction. So these are a couple of topics we can discuss over a Texas tea.
First who is your lobbyist in Washington? That said lets go to topic B.
Preface – One business issue that sets hosting firms apart from many other industries are the billing practices. Most hosting firms have a very large percentage of its customer base on automatic credit card billing. Great idea, great administrative savings.
The business practice: Let me explain how it works. (1) Once a month an e-mail is “automatically” generated from your billing system to the customer indicating they will be charged XX amount on the credit card. (2) The billing system “automatically” debits the customers credit card. (3) Almost “automatically” the funds arrive in your deposit account. (4) “Possibly” your employee looks at the bank account and “posts it” to your accounting package (quite possibly QuickBooks Pro). (5) Every once and a while an accountant pauses briefly at the revenue line, compares it to your bank statement and rubber-stamps the fact that two numbers match.
Simple, sleek, paperless, actually elegant. Cost efficient also comes to mind.
Quite possibly you will have to shuck this system.
Problem: 1099’s – At first I was pissed that I would have to do it. I then considered a looming hosting company accounting problem when you have to send out a “1099” to someone. Then I realized I had it backwards.
I ask the question: How many 1099’s to you “send out” a year? Very few I bet. The bigger question: How many 1099’s do you “receive” a year? Very few I bet.
Remember it is easier to do things to a group than hand pick half amongst The Middle and treat them special. After all that’s why you like credit card billing.
According to new US federal laws every business that spends more that $600 a year with any individual or business (stuff that floats through your QuickBooks) will have to send them a 1099 starting in 2012.
If you stay at the Four Seasons during HostingCon your bill will be over $600, you will need their EIN number. Forget the fact that you buy directly from Dell or products from CDW (EIN numbers required) or rent space from Uncle Phil (SS # required). You will generate a lot of paper on the “expense” side of your accounting system. Be safe, get the EIN or SS number from everyone you do business with and send a 1099 to everyone.
But that’s not your problem. If you have 20,000 customers, that’s a real problem. Expect to receive some 15,000 1099’s in your PO box somewhere around January for the rest of your life. QuickBooks or Peachtree will generate some, some will be typed and some will be handwritten. Gear up.
Some staff member will be bursting those little pieces of papers on both ends of the envelope. Some accountant somewhere will want to make sure your revenues tie back to those 1099’s. Some one will have to look up those accounts and verify the 1099 you received is in fact correct. Then if someone fails to send you that coveted 1099, you will have to send them a request to generate that form. Actual government details may change, but I bet I am close.
You can thank the healthcare bill.
Back to my first question, who is your lobbyist?
At HostingCon I will be making a presentation regarding Cloud Valuations, Monday at 3 PM. It should be interesting.
Later – Tom
More about Tom: NCC International – the Hosting Business Broker Twitter: TomNCC and NCC WebHostBusiness
