Accounting for MCA Businesses

Merchant cash advance (MCA) businesses are outstanding businesses. Not only do you get to provide a mission-critical resource to your clients, but you can earn a healthy living at the same time.

Whether you own your own MCA business or are interested in owning an MCA business, you have likely identified these opportunities. They can be tremendously exciting. That being said, running an MCA business requires you to wear many hats. One of those hats centers on accounting and bookkeeping.

Even if you find accounting and bookkeeping boring or confusing, it is critical to focus on these two areas when operating your MCA business. By doing so, you can avoid unnecessary mistakes, better serve your clients, and grow your business.

The Unavoidable Importance of Accounting and Bookkeeping

Bookkeeping and accounting are almost like the circulatory system for any organization. After all, without tracking revenue, expenses, and cash flow, any business will find it difficult to accomplish its goals. Yet for MCA businesses, they are even more important for a variety of reasons.

The most notable reason is that MCA businesses are unlike many other businesses. There are nuances to an MCA business’s bookkeeping and accounting, which means that you must understand these nuances to accurately reflect your business’s financial condition. These nuances aren’t academic; rather, they can play a part in how much you owe in taxes every year.

For instance, newcomers to an MCA business may believe that MCAs should be accounted for like a loan. This is a fundamental mistake, as an MCA is an alternative financing arrangement. Specifically, it is a cash advance that is based upon credit card sales that are deposited in your clients’ accounts. An MCA company is technically not charging interest.

What does this mean for you? Ultimately, if you attempt to account for your MCA business like a bank or other financial institution, you may encounter some issues with the IRS. Even if you claim you are not a loan company, accounting for MCAs like loans can make an IRS agent think otherwise. Because of this, it is critical to pay close attention to MCA accounting and bookkeeping—whether you do it yourself or delegate that task to a professional.

From there, bookkeeping and accounting are critical for MCA businesses because it helps you better manage your cash flow. Cash flow is the lifeblood of any business. Even if your business is profitable, you can still run into financial difficulties because of strained or stalled cash flow.

Tracking cash flow is even more important in MCA businesses since your cash flow is based on your clients’ cash flow. That specific cash flow will depend on a variety of factors, including a specific client’s holdback amount, the amount of credit card transactions that they normally process per day, and the advance amount that you send to a client.

There are many moving parts here, so it is in your best interest to stay on top of these cash inflows and outflows. While it is impossible to precisely predict the future, closely monitoring your cash flow can help you avoid major or minor cash flow issues.

Last (but not least), accounting and bookkeeping can help you take advantage of new business opportunities. To put it another way, by paying close attention to your business’s financial health, you can pounce on profitable opportunities that emerge.

For an MCA business, those opportunities could emerge very quickly. There can be volatile macroeconomic conditions, for instance, that lead to many more potential borrowers in your city. You’ll certainly want to pursue these new opportunities, but to do so, you must make sure that your business is on a sound financial footing. The best way to do this is to do your homework before these opportunities emerge. Even though there may be some short-term annoyance, the long-term gains are absolutely worth it.

Get Started Today

Being involved in an MCA business is extremely exciting, but it also involves hard work. Whether you are looking at your company’s books for the first time or have extensive accounting experience, it is well worth your time to closely monitor your accounting and bookkeeping.

In the end, the best time to get started is right now.

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