Like most of you, over the years we’ve built up several residual payments, some substantial and some not. Some have continued paying us faithfully and some stopped paying us in violation of the agreements. Many of the one-person-show MLS’s and smaller sales offices are so busy with the day- to- day activity that it’s difficult to think about where you want to be in a year or two. Well, I’m going to ask you all right now, “What’s your exit strategy?” If you don’t have a clear answer to that question, NO MATTER WHAT SIZE your business is, you’d better keep reading.
    The first time I was asked that question was by one of my mentors (John Rante of Online Data Corp.) I didn’t have a good answer. Like many of you I said that I’d like to build up a big fat residual cash flow and then retire and watch the money flow in. John, who has successfully built, sold and even participated in going public with a payment processing company gave me the kind of look you give your kids when they’re learning something new, but haven’t quite figured it out yet. Anyway, he encouraged me to begin to plan an exit strategy and gave me his reasoning behind it.
    First and foremost, it makes great sense to “take profits” from anything you’re involved in. Residuals are a monthly payment that can make you rich & secure over time, but this is America with microwaves, drive-thrus, and we want to be rich & secure today. It’s sound business sense to take some money off the table and put it away today or reinvest it. Unlike residuals, the profit for either the sale of an income stream or sales engine can’t just go away. Just like in the stock market, you’re not rich until you’ve actually sold your stock. There are plenty of people who get rich on paper, only to see the stock values plummet before they cashed in.
    I’d also like you to consider that it doesn’t have to be a multi-million or even a million dollar deal. Someone’s $5,000 per month and 15 deals per month may be even more important to protect. You always see the bigger guys pulling large amounts of cash out of their company. Why not we little people? Also one can look at some of the super ISO’s and make the argument that they’re being “groomed to sell”. Yes folks, at the expense of making money and sound financial decisions today, they can build a valuable asset. The only problem is when it’s done that way someone’s going to pay for all the freebies and you can bet it’s not going to be the fat cats at the top. So why not what I call the “micro acquisition”?
    Since John asked me that question I’ve been researching and developing the market for the smaller residual sale. Someone doesn’t have to beat me over the head with a good idea when I hear one. Good news is, increased competition for good MLS’s and sales offices is driving money down to the grass roots level. There are now more opportunities for smaller players to negotiate ownership of their residual stream and sale of that payment for a multiple. In some cases people are willing to pay more to receive your future business or some expertise you may have in the industry.
    I hear a lot of chatter from the folks at the larger ISO/MSP level about how much our residuals are worth, depending on what type of point they’re trying to make. If they’re recruiting you it’s 35 to 50X. If you’re looking to sell their own merchants back to them it’s normally anywhere from “not buying” to twenty something X and it amazes me how many “not buyings” we hear about. You would think anyone in business that truly believes that something is worth 35X would jump at the chance to buy some at 20X?
    So I’d like you to spend some time thinking about what you’d like in an exit strategy. As my next article will be about some of the different options and the things you need to be doing NOW so that you can have a shot at an exit strategy at some point in the future. n