I’ll briefly recap parts one and two of this article series so it will
all make sense. In part one I challenged everyone to simply ask
himself or herself, “What is your exit strategy”? Quite simply if you
don’t know where you’re going you probably won’t end up there by
accident. There are many great places to take your business in this
industry. You should be thinking about what you want and plan
accordingly.
In part two I went over many of the things you should be doing today if
you think you may want to sell your business or your residuals. These
things fell into three basic categories: plan, organize and document.
Look at your business through the eyes of someone who knows nothing
about it. You may have a great relationship with your processor and
golf with the owner every weekend, but that won’t get you much mileage
with a buyer if you have a crappy contract, with lousy reporting and no
accounting.
There are a couple of important contractual things that I’ve come to
realize from first hand experience that I didn’t mention in part 2.
Many of us have the right to reassign our residual streams and maybe we
have to give our current processor the “right of first refusal”. To
most of us this means that we bring a written offer to our current
processor and they either match it or pass on it. Ah Ha… As I always
say the “devil is in the details”. Make sure in your MLS / ISO
agreement that you have a written time frame for your processor to
respond. Let’s face it, your buyout isn’t the most important thing on
your processor’s plate. They could drag their feet until a buyer
simply isn’t interested anymore. Also, one thing I had never thought
about is who pays the legal fees? Make sure your MLS / ISO agreement
specifically says that each party is responsible for paying their own
legal fees. Your processor can say to you “great we’ll have our
attorney review the offer and we’ll send you the bill”. Now you’re
at their mercy of having to pay those or other associated fees. Just
remember everyone’s your buddy when things are going well. That may
not be the case when you call up looking to sell, remember people are
funny and there’s a lot that they can do to ruin your payday. Another
important clause to have in or add to your contract is that your
processor will provide, free of charge, any detailed reporting that the
prospective buyer may need. Your processor could say to you, $500.00
per hour to compile additional reports. That can add up. Last make
sure you have specific language that your processor has to match the
offer point for point.
Let’s look at what can happen to you without having these things agreed
to in advance. Make believe you’ve got a buyer for a smaller
$10,000.00 per month residual payment and they’re willing to pay 20
times with no strings attached. That’s a $200,000.00 clean offer you
bring to your current processor. Your current processor says we will
take a look at it, and then 3 weeks go by with you calling them every
other day. You just keep hearing we haven’t gotten to it yet. Finally
in week 4 you get a call saying we need to send this to our legal
department for review and you must pay $300.00 per hour. Those
additional reports you’ll require will cost you $200.00 per hour of
research. We really don’t know how many hours all this will take and
we’ll get to it when we get to it. Or maybe you could just do a clean
deal with us, but we’ll only be able to pay you $175,000.00 and we’ll
need to build in some minimum attrition standards. You say OH SH&*^%!
Now this scenario looks even worse if you NEED the money for something
and you have time constraints. People listen to me! If you think this
type of stuff doesn’t happen every day in our business you’ve got rocks
in your head! I personally believe that games like this should NEVER
be played with anyone. So be smart, be proactive and plan for your
future.
Part of this planning is going to be what are you going to do with the
money when you get it? Remember taking a lump sum payment can really
hurt when the taxman comes a calling. Make sure you plan with your
accountant the best way to handle this depending upon your unique
situation. There are many things you can do to end up with more money
in your pocket if you plan in advance. Overall, some quite simple
steps could put some serious BLING in your pocket. So until next
month, plan, organize and document!
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