Choosing the right POS system for your startup

If your startup has opened its doors and you’re making your first sales, congrats! Even if business isn’t booming yet, it could gain momentum quickly. When it does, how you process and track your sales is going to matter even more. So, it’s helpful to start planning ahead and pick the right point of sale (POS) system for your startup.

A POS system isn’t just a checkout tool. It’s the front door to your financial operations. It can help you with handling payments, tracking inventory, reporting sales, and reconciling purchases. For startups, an effective POS system can mean the difference between smooth financial operations and constant chaos. 

In this article, we’ll go over what a POS system is, how it works, and how you can choose the right one for your needs. By the end, you’ll feel confident about selecting the best startup POS system for your business.

A point of sale (POS) system is the software and hardware technology a business uses to accept payments and record sales when a customer makes a purchase. POS systems can be used in physical stores at the checkout, at pop-up shops with mobile payments, and in hybrid businesses that sell both online and in person. 

There are three key components of a POS system:

1. Hardware: The physical part of a POS system includes a terminal, cash drawer, receipt printer, barcode scanner, and card reader.
2. Software: Think of the digital interface as the brain of the system. It tracks your business activity, such as sales, inventory, customer data, employee data, and more.
3. Payments infrastructure: The technology processes transactions and usually includes payment gateways, payment processors, bank integrations, security software, and fraud protection.

How does a point of sale system work?

Here’s how a POS system goes from purchase to payment to reporting. 

1. Customer initiates a purchase

Whether in-store, online, or mobile, the system adds the product to the cart and calculates the total purchase amount, which includes taxes and any promotional discounts. 

2. POS processes the payment

The customer selects a payment method. Then, the POS system sends the payment details to the payment processor via a secure channel. 

3. The transaction is authorized

The payment processor communicates with the customer’s bank. he bank checks for sufficient funds, and then approves the transaction. The approval is sent to the POS system. 

4. The sale is recorded in the system

The POS system logs the transaction and automatically updates the inventory levels. It generates a receipt, which can be either a hard copy or digital. The POS system then sends the sales data to the reporting dashboard. 

5. Funds are settled into your account

The funds move from the customer’s bank through the payment processor into your bank account. The process can happen over one to three days depending on the provider. Often, approved transactions are batched together. 

Throughout this process, data capture is a valuable part of what a startup POS system can provide. The system can track several important metrics:

• Best-selling products
• Average order value (AOV)
• Peak hours
• Seasonality
• Sales trends
• Customer purchase history
• Repeat customer visits 

Smart startup founders use their POS system as a tool to support decision-making, instead of just as a payment system. You could, for instance, leverage what you learn from your POS data to optimize inventory, personalize customer experiences, and improve operations.

If you’re a founder, your POS system is a strategic tool you may be overlooking. It’s one of the earliest sources of financial truth for your business and contains a goldmine of data. Here are a few areas where a POS system can make a difference for early-stage startups.

Real-time sales visibility

If you’re running an early-stage startup, you probably don’t have the luxury of waiting days or weeks for sales numbers. With a POS system, you can see daily revenue and top-selling products as well as sales trends. This makes it easier to identify what’s working and what needs to be changed.

Inventory tracking

Having too much inventory ties up cash, and having too little inventory means you could be missing out on sales. With an effective POS system, you’ll be equipped with helpful information that can help you avoid these inventory mistakes, optimize inventory levels, and accurately forecast demand. Plus, when items are running low, a POS system will alert you, so you can stock up.

Customer insights

Strong customer relationships are an important part of growing a startup. With POS system data, you can track purchase history, identify repeat and high-value customers, and understand your customers’ buying patterns. Using this information, you can better personalize offers to increase retention and average order value.

Accounting and reporting

Using a POS system that connects directly with your accounting tools and financial reporting systems will reduce the need for manual data entry. It generates clean, accurate, and up-to-date reports that detail your company’s revenue, profit, margins, and more.

There are many varieties of POS systems on the market. Here’s what you need to know about the different types and whether they’re right for your business.

Mobile or lightweight POS systems

Best for pop-ups, early-stage startups, and low-volume businesses, this type of POS system is small, portable, and typically runs on a smartphone or tablet with a card reader. These systems offer basic inventory and reporting features.

Retail POS systems

Ideal for physical stores and inventory-heavy businesses, these POS systems excel at managing products, stock, SKUs, and in-store transactions. They typically offer detailed inventory tracking and sales reporting.

Restaurant POS systems

Designed for food and beverage businesses with complex workflows, these POS systems handle processes like table management, split bills, and product modifiers. They can also manage different types of restaurant orders, such as dine-in, takeout, and delivery.

Omnichannel POS systems

If you’re selling both online and in-person, go with an omnichannel POS system. It syncs inventory levels across channels, unifies online and offline customer profiles, and centralizes reporting across the business.

Feeling overwhelmed by POS system options? Follow this framework to figure out which system is the best match for your startup.

1. Start with your business model and industry

Think about how your startup sells to customers: Are you running your business fully in-person, fully online, or a hybrid of each? Also, consider your industry. For example, a retail POS system that designed especially for inventory and SKUs won’t be right for a restaurant that needs a POS system made to handle kitchen workflows.

2. Understand volume and complexity

Match your POS system to your current stage of business, including sales volume and complexity. If you’re an early-stage founder, you’ll likely need a system that’s easy to use and matches your budget. If you choose a system that far exceeds your current business needs, you’ll end up wasting money on features you’re not even using. 

3. Look at payment processing fees

Payment processing fees are a hidden cost that scales with growth. In other words, as your startup grows, the fees could increase, too. Find out whether the payment provider you’re considering offers fixed or percentage-based transaction fees, different costs for each method of payment, and monthly or per-transaction pricing. Do the math to see which fee model will be most profitable for your business.

4. Evaluate integrations

Your POS system should integrate with your accounting tools, e-commerce platforms, and banking* tools, like Mercury. As part of your tech stack, the POS system can eliminate manual work, reduce human error, and provide increased visibility across platforms.

5. Consider reporting and visibility

The right POS system can help you make sound decisions faster and more clearly byproviding insight into daily sales and margins, seasonal performance shifts, and how well each product or service is performing. So, choose a system that helps you better understand your business.

6. Balance simplicity and scalability

If your startup POS system is too simple, you might outgrow it quickly and have to migrate to a new system. However, if it’s too complex, you might end up paying for features that you don’t use. Look for a POS system that meets your team’s day-to-day needs now but has additional products or plans that can grow with your business.

The best POS system for startups is the one that meets your operational requirements. Review the table below for leading suggestions.

As you evaluate point-of-sale systems for your startup, focus on options with features that best match your needs. Picking the wrong system can lead to issues that compound over time, so be sure to avoid these common errors. .

Choosing based on brand name

Instead of picking based on brand name, focus on how your business operates and whether the POS system can support your day-to-day needs. 

Ignoring fees and margins

Processing fees scale as you sell more, so a half-percentage can mean thousands of dollars in lost profitability as your revenue goes up, which can squeeze your margins. Model the cost of processing fees to see their true cost at scale. 

Not thinking about integrations from the beginning

Your POS system is part of an ecosystem, so it should connect to your startup’s other systems from day one. Fragmented systems can result in delayed or messy reconciliation, as well as a reliance on time-consuming manual processes. That’s why a fully integrated system is critical for fast-moving businesses. Choose a startup POS system that has native integrations to your accounting, banking, and other tools, so you’ll get a single source of truth for financial data. 

Overcomplicating the setup

You may be tempted to future-proof your POS system, but that can result in higher costs, a longer setup time, and slower operations. Opt for a system that’s quick and easy to set up and that can be upgraded as your needs grow.

Choosing the right POS system is a strategic decision that will impact your startup’s future. A POS system handles payments and transactions, but it’s so much more than that. When combined with flexible financial tools, like Mercury, a point-of-sale system can be an essential part of your startup’s central financial system and serve as a source of financial truth across your revenue streams. With the right POS system, you can better understand your startup and make informed decisions in real time that accelerate the pace of your business.