In my last blog post, I described my work with entrepreneurial payments companies, fintechs, and ISOs. I considered the five biggest questions I get from owners:
- How do I grow my sales?
- How do I differentiate my company?
- How can I compete with the big players in an atmosphere of big change?
- Where can I get more working capital to grow?
- When should I consider selling my portfolio?
In this second part of the blog, I address questions 4 and 5.
Where can I get the capital I need to grow my ISO?
You can sell part of your existing portfolio. You can secure a loan against your current residual stream. You can seek an additional investor. You can merge with another ISO who has capital and will agree with your plans for growing the new business. You can find venture capital from several VC companies if you’re large enough.
Each option can be complicated, and you will need sound advice from an experienced player to get through the process.
Hot tip: Focus on giving up the least amount of direct control over your ISO in exchange for additional funding.
When should I consider selling my portfolio?
This is a question on the mind of any ISO or agent who has been selling merchant services for any length of time. As I have told all of my clients through the years, there are two paydays in the ISO/agent business: 1) the ongoing residual check every month and 2) the payout when you sell your residual stream, portfolio, or ISO business. It is important to build and manage your ISO so as to maximize the second payday.
Every ISO wants to know the current “multiple” for their business. The “multiple” is the number, which, when multiplied times the average monthly residual, will give the total offer price. There is no easy answer to this. There are at least a dozen factors that will determine the range of selling prices, and no one can give an easy, correct answer to the “multiple” question.
Here I offer more questions rather than one pat answer. An important part of answering the question above about when to sell is being able to answer these questions:
- Where is this merchant services business going?
- What areas must be addressed in order to improve the business?
- How much work is involved in addressing these areas of the merchant services business?
- How many additional investment dollars will have to be put into the business to support the improvements, and do the owners have a source for these investment dollars?
- What will you, the owners, do with the proceeds from the sale?
- How great will the buyout offer have to be to make it worth your while to give up the projected ongoing residual checks?
- What, if any, limitations have been placed on you, whether in the existing ISO or agent agreement or in the buyout offer from the buyer?
Hot tip: Get a business valuation from an expert in the ISO industry. Having the neutral viewpoint of an outside expert will set the framework for a discussion with a potential buyer. Also, this will lessen any “sticker shock” when you get your first actual buyout offer.