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Shaw Merchant Group
Sunday, April 16 2023
Selling Your Merchant Services Business | Overview

There are lots of reasons why building a merchant services business can be extremely lucrative, not the least of which is the fact that you can build a lasting asset (your residuals), which you can then sell. In fact, I spoke to someone in the industry today, and he was telling me all about his plan when he leaves the business and how he's planning to sell his residuals. What that conversation made me realize, though, is that lots of people underestimate the power of those residuals. The best thing you can do with this income is to use it as capital.

To be able to sell your business in the long-run, you need to make sure that you start the business the right way in the first place. There are some major things you're going to have to take into consideration so that your company is able to grow:

1) Own your portfolio's residuals. Maybe this seems very transparently obvious to you; after all, what's the point if you don't own your source of income? However, it's not uncommon that sales agents will lose their entire portfolio simply because they did not read the agreement that they made with their processor closely enough. You should always consider what might happen if you just decide to stop selling; if the answer is that you will lose your hard-earned residuals, then choose another partner.

2) Be able to sell your residuals. If you can't sell something, do you really own it, then? Sometimes processors will require you to have to consider an offer from them before selling to an outsider, and that's fine, but just make sure you are free to choose.

3) Find out if you can borrow cash against your residuals. A large ISO that isn't operating as a middle man should be able to lend you money. If they can't, this is a problem. Usually, you're going to want to exhaust several options before a buyout, and this includes borrowing.

So let's assume you have all of these issues squared away and are the proud owner of a growing portfolio of accounts. Now you can start to use that asset to raise some capital!

Before you do anything else, though, take a look at these general guidelines that will help you get a better picture of what is going on when the selling occurs:

Do you qualify? Don't bother trying to pump any cash from your portfolio before you have at least two dozen accounts or so. Make sure that your accounts are making at least $1000 every month as well. You will be hard pressed to find anyone who would want to buy residuals less than this.

Performing a buyout: When you perform an 100% upfront buyout, you'll get about 12 to 20 times the monthly worth of the accounts that you're selling. This is a rough estimate, but adjust your expectations accordingly.

Performing an earn-out: Basically, this is the same as a buyout, except you get less upfront. Some of the money is upfront, and the rest is sent to you in increments with the stipulation that your accounts don't get canceled and that they continue brining in a certain amount of money. This will yield you more than a buyout in the long run—about 20 to 24 times your monthly income.

Performing a secure buyout: Let's say you have a significantly-sized portfolio and you only want to sell some of your residuals. You can sell some of those accounts, and then use your others as collateral essentially to guarantee against any cancellations. This means less risk for the processor, so they are usually willing to pay more.

Getting a loan: Maybe you just need to borrow some liquid cash and use your residuals as a guarantee. Most ISOs can do this for you. Usually, you can borrow anywhere from a few months to up to a year's worth of residuals. The terms will vary depending on your merchant services ISO program. Since of course your ISO will be interested in minimizing risk, just show that you are using the funds to grow, and you'll have a better chance at getting the deal you want. Your ISO will also usually offer better terms than outside lenders.

Did this article help you learn more about how to turn your portfolio into a machine that pumps out capital? Do you have a portfolio that you're looking to use right now for these sorts of purposes? Contact us and we'll show you the way.

Posted by: Scott Shaw AT 09:05 am   |  Permalink   |  Email

Starting a Payment Processing Business?

To start a payment processing company, you will need to create a business plan outlining your target market, services offered, and financial projections. Next, you must establish relationships with banks, payment processors, and other industry partners, as well as obtain any necessary licenses and permits to operate legally.

Starting a credit card processing company can be a lucrative and rewarding venture for individuals looking to enter the payments industry. However, it is important to understand the steps involved in setting up and running a successful credit card processing company. Here are some key steps to consider when starting your own credit card processing company:

1. Conduct market research: Before starting a credit card processing company, it is important to conduct thorough market research to understand the industry landscape, identify potential competitors, and assess the demand for your services. This will help you determine the viability of your business idea and tailor your offerings to meet the needs of your target market.

2. Develop a business plan: A comprehensive business plan is essential for outlining your company's goals, target market, pricing strategy, marketing plan, and financial projections. A well-crafted business plan will serve as a roadmap for your business and help you secure funding from investors or lenders.

3. Obtain necessary licenses and permits: To operate a credit card processing company, you will need to obtain the necessary licenses and permits from regulatory authorities. These may include a Merchant Services Provider (MSP) registration, a Payment Card Industry Data Security Standard (PCI DSS) compliance certification, and other industry-specific licenses.

4. Choose a payment processing partner: Selecting a reliable payment processing partner is crucial for the success of your credit card processing company. Look for a reputable processor that offers competitive rates, robust security features, and excellent customer service. Consider factors such as processing fees, equipment options, and technical support when choosing a partner.

5. Set up merchant accounts: To process credit card payments on behalf of merchants, you will need to set up merchant accounts with acquiring banks. These accounts will allow you to accept credit card payments, manage transactions, and transfer funds to merchants' bank accounts. Work with your payment processing partner to establish merchant accounts for your clients.

6. Develop relationships with merchants: Building relationships with merchants is essential for growing your credit card processing company. Reach out to businesses in your target market, offer competitive rates and personalized solutions, and provide exceptional customer service to attract and retain merchants.

7. Implement marketing and sales strategies: Develop a marketing and sales strategy to promote your credit card processing services and attract new clients. Consider using online advertising, social media marketing, networking events, and referral programs to generate leads and secure merchant accounts.

Starting a credit card processing company requires careful planning, industry knowledge, and a strong commitment to providing exceptional service to merchants. By following these steps and investing time and effort into building your business, you can establish a successful credit card processing company in the competitive payments industry.

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