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Leaders rarely have a destination in mind when they embark on the entrepreneurial journey. An idea exists of how to grow a team, implement a new strategy, and even have some fun along the way. It is not uncommon for a founder to start seeing their role at their company as having a finish line and wondering, “What’s next?” Exiting a business can sometimes be considered the pinnacle of a founder’s career, representing years of hard work, strategic growth, and relentless pursuit of success. However, for many founders, the journey to a successful exit introduces new terms and models that the founder hasn’t heard since a finance class decades ago. Sound familiar?
One frequently overlooked aspect of exit planning is the role your merchant account and merchant processing health play in business valuation. Minimizing overhead expenses, improving cash flows, and reorganizing merchant processing contracts are great ways to make your business more attractive to buyers.
Understanding the Exit Planning Landscape
Exit planning is not just about finding a buyer and signing on the dotted line, as much as we all would love for it to be that simple. It’s about preparing your business to achieve the best possible outcome—whether that’s a sale, merger, or another form of transition. This involves optimizing every aspect of your business to ensure it is as attractive and profitable as possible. While areas like operations, marketing, and human resources often take center stage, financial management—particularly merchant processing—can be an overlooked opportunity in maximizing your exit value.
Why Merchant Processing Should Be in Your Exit Strategy
Merchant processing is often thought of as just a cost of doing business. While that is certainly true, many businesses overlook the importance of keeping up with trends surrounding new tools and methods such as integrations, surcharging, or dual pricing. This vital system is directly tied to your revenue stream, cash flow, and financial health. Ignoring this critical aspect could leave significant money on the table when preparing for an exit. Here’s why:
Strategic Merchant Processing Reduces Your Overhead Costs
One of the first steps in exit planning is to streamline operations and reduce unnecessary costs. Merchant processing fees can be a significant overhead expense, particularly if you’re locked into unfavorable contracts or using outdated systems because of that time-old phrase of, “That’s the way we’ve always done it.” You can reduce your monthly overheads significantly by renegotiating these terms or switching to a more cost-effective processing solution, like Evolve Payment. Lower overhead translates directly to improved profitability, meaning you have a stronger EBITDA, which can make your business more attractive to potential buyers and absolutely increase your exit valuation.
Strategic Merchant Processing Maximizes Cash Flow & Working Capital
Cash flow is king, especially in the lead-up to an exit. Efficient merchant processing ensures that your accounts receivable process is optimized, meaning you get paid faster and with fewer hiccups. This improves your immediate cash flow and enhances the predictability of your revenue streams—an attractive feature for any potential buyer. Moreover, a well-managed accounts receivable system reduces the risk of bad debt, further strengthening your financial position. Implementing an AR process that makes it easier for your customers to pay their invoices will give you more cash and flexibility to make investment decisions instead of investment guesses.
Strategic Merchant Processing Builds Buyer Confidence
Buyers want to acquire profitable businesses, which the industry calls “Turn-Key.” “Turn-Key” means all you need to do is take the keys, turn on the engine, and get off to the races. A well-structured business that reduces costs and maximizes cash flow adds a layer of transparency and reliability to your business. Imagine the ease of logging into a dashboard to pull information instead of calling a sales rep and waiting days to hear back from them. It removes your ability to be perceived as having a firm grasp of your business. Maximizing the opportunity for a solid financial process demonstrates to potential buyers that your business is financially sound and that there are no hidden pitfalls in payment processing systems. This can expedite the sale process and even open the door to more favorable terms.
Steps to Optimize Your Merchant Processing Before an Exit
Now that we’ve covered the key benefits of including merchant processing in your business exit strategy, the next step is reviewing what this entails. The following list isn’t exhaustive, but it will give your team a good starting place to explore further:
Audit Your Merchant Account & Merchant Processing Contracts
Conduct a thorough review of your existing merchant processing arrangements to identify inefficiencies and cost-saving opportunities. Audits and periodic reviews of your merchant account can uncover hidden fees, discrepancies, or outdated contact terms that could cost your business more than is needed. Once you identify areas for improvement, you can renegotiate contracts or switch to a provider that’s more aligned with your business goals and budget.
Regularly auditing your merchant account and contracts keeps the cash flowing and ensures you’re always getting the best rates, a sign of financial health to prospective buyers. The best way to do this is by partnering with a payment processing provider like Evolve Payment, which can analyze your statements in less than a business day due to investments it has made by implementing AI into its process.
Implement Modern Payment Technology Solutions
Invest in technology that streamlines your payment processes and even integrates into your existing Accounting Software or ERP to make the money flow even easier than before. Did you know you are no longer bound to the organic fees associated with accepting payments through QuickBooks? You no longer need to work directly with Intuit Pay, and can use a 3rd party resource to significantly reduce your fees, and even introduce Dual Pricing to eliminate fees entirely.
Improve Your Accounts Receivable Strategy
Ensure that your accounts receivable process is efficient and effective. This might involve automating invoice processing, improving credit control measures, and ensuring timely collections. A great way to get started on improving your accounts receivable strategy is to set and track Key Performance Indicators (KPIs). Answering the following questions will shine a brighter light on your accounts receivable and help you find and fix problems early:
- What is your average percentage of invoices sent out on time, and what is your target for improvement?
- What percentage of your invoices are typically paid within the payment terms, and how does this compare to your target?
- What percentage of your accounts receivable is overdue by 30, 60, and 90 days or more?
- What is the average resolution time for billing disputes, and how does this impact your overall cash flow percentage?
- What is your current invoice processing time (from issue to payment received), and how does it compare to your goal or industry average?
- How much of your total accounts receivable is considered “bad debt,” and what is your target reduction over the next quarter or year?
- What is your current collection success rate (percentage of overdue accounts collected within 30, 60, or 90 days), and how does this compare to your goals?
Prepare Your Merchant Account for Your Future Business Sale
Merchant processing and the payment processing space is more than just a back-office function—it’s a critical component of your business’s financial health. By incorporating merchant processing into your exit planning strategy, you can unburden yourself from unnecessary fees, maximize your accounts receivable, and ultimately enhance your overall business valuation.
To learn more about how to make this happen, contact the team at Evolve Payment to get a return on not just your investment, but a positive return on your time.