SAN FRANCISCO–Owning a merchant-services independent sales organization can bring financial and personal independence. But starting one up requires hard work, long hours and a significant amount of cash.
Those criteria for becoming an entrepreneur in the acquiring business were a featured theme of a Sept. 21 presentation by consultant Mark Dunn here at the Western States Acquirers Association’s Eighth Annual Conference.
Sales agents who become ISOs can take charge of their future, keep all of the residuals from the business they write, build their own sales teams and work toward a sizeable cash payout when they sell the business, said Dunn, who is president of Hartland, Wis.-based Field Guide Enterprises.
Getting started typically takes between $100,000 and $250,000, although some aspirants have launched successful ISOs for as little as $75,000, Dunn told attendees. New ISOs need not amass all of the capital at first because upfront expenses come to about $25,000, he noted.
Funding may come from what many in the industry refer to as the three “F’s,”– friends, family and fools, according to Dunn.
A cash-flow projection for the first three years should indicate when the business might first turn a profit, he said. But money alone will not guarantee success. Fledgling ISOs should get help in recognizing unfamiliar pitfalls; keep careful financial records to establish the value of the company and help make wise tax decisions; and rev up their sales engines with astute recruitment, hiring training and monitoring, Dunn said.
New ISOs also should choose their partners well by picking the most appropriate processors, vendors and value-added resellers, he noted.
But even those well-laid plans will not immunize ISOs to the initial long work hours that can come between spouses or between parents and offspring, Dunn noted.
Moreover, the best salesperson does not necessarily become a good sales manager overnight, he added.
Sales agents who decide to take on the challenge of becoming an ISO might consider specializing in services for a particular type or types of merchants, Dunn suggested. Smaller ISOs can find their niche and compete with larger ISOs by concentrating on a geographic area; sharpening their skills in a particular type of selling, such as telephone sales; or exploring a new category, such as green companies, he said.
Deciding where one fits into the industry also requires some thought, Dunn cautioned. Newcomers might want to start by gaining some experience as sales agents working for an ISO, he suggested. Most would keep 40% to 80% of the residuals their accounts bring in to the ISO, he said.
If they go out on their own, they might begin as ISOs that assign the risk of merchant defaults to another entity, such as a processor, Dunn said. ISOs may choose to take on that risk themselves after they grow large enough, with more than 3,000 accounts, Dunn said. ISOs that shoulder the risk tend to qualify for lower processing fees, he noted.
In the end, however, risk and hardship should not stand in the way of a well-reasoned approach to the American Dream of financial independence for those with the drive to achieve it, Dunn said.
