New Credit Card Security Rules Slap Merchants Credit Card ProcessingBusiness for Sale The business: They say it takes money to make money, and this Southeastern payment-processing company makes good on the adage. The owners of the company make money -- and lots of it -- by drafting checks for merchant customers and charging them a transaction fee. Since the company's proprietary software does the processing, the owners don't need a huge staff. Low overhead has helped them maintain profit margins of 66% to 76% over the past three years. Two partners with backgrounds in fraud detection founded the company 12 years ago. Its main asset is its copyrighted software. The system processes $41 million worth of transactions annually, with an average transaction size of $100, and is capable of processing up to $8.6 billion, the partners say. At an average fee of 2% of the transaction amount, revenue could grow to $172 million. The business has more than 1,000 commercial customers, from small businesses to members of the Fortune 500, and 5% of its revenue comes from foreign markets. The company uses its proprietary databases to screen transactions for accuracy and fraud. It then prints checks, drawn on the bank accounts of the merchants' customers, and delivers the checks overnight to the merchants or their banks. The company subtracts its own fee immediately upon paying the merchant. The current owners, who are both planning to retire, each work about 40 hours a week overseeing the company's operations, sales, and strategic planning. Neither draws a salary. They estimate that a new owner could hire professional managers to replace them at salaries of $65,000 and $50,000. Price: $3 million, including $125,000 worth of furniture, fixtures, and equipment. Outlook: Sunny. The business has reached its current sales level mostly by word of mouth. Any new marketing could boost revenue. The company has competitors, but there are more than enough transactions to go around, driven by booming demand for payment processing from E-tailers. According to research firm IDC, E-commerce spending was projected to pass the $1-trillion mark in 2002. Price rationale: The sellers have valued the business at a little more than five times earnings owing to the company's high level of profitability and its ownership of copyrighted software. Software companies tend to sell at two to three times annual revenue, which would price this business at $1.6 million to $2.4 million. Pros: You just don't see profit margins of 65% every day -- or a company with a system that could easily expand from processing millions of dollars of transactions to billions. Plus, the business can be run from anywhere. And given industry consolidation, flipping the company is a possible exit strategy. Cons: Although the business shows growth potential, a buyer will have to do some legwork to attract new customers. Large competitors in the payment-processing industry have the advertising dollars to silence a smaller player. Comparison shopping: Internet giant eBay paid $1.5 billion for payment processor PayPal in October 2002. On the other end of the spectrum, financial-technology company InterCept bought Electronic Payment Exchange for $51 million worth of stock in May 2002. InterCept also bought iBill for $104 million in cash in April 2002. Southeastern Payment Processor Gross Revenues EBIT* Owner's Compensation 2000 $578,000 $400,000 $0 2001 $617,000 $408,000 $0 2002 ** $810,000 $618,000 $0 *Earnings before interest and taxes. **Projected. Inc has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Bill Russell or Kristina Sydor at Southeast Business Partners Inc., at 800-784-7820 or firstname.lastname@example.org. Please E-mail your comments to email@example.com.
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There are some good reasons for using a merchant credit card terminal. But before you dive in and grab one, make sure you really need one. And if you decide you really do, then shop around for the right one to best suit your needs. There are plenty of them available on the market today, but they aren’t all the same. It’s worth your time to gain a little knowledge about the differences.
With most terminals, the best situations are when you’re doing business with your customer in person. They swipe their card, sign their receipt, and the transaction is finished. But in these situations you have someone who is using a credit card that is ‘right there’ in their hands and physically at the point of transaction. They can either ‘swipe’ the card, or punch in the numbers on the keypad.
Terminals work fine by phone also, just by punching in the numbers and completing the transaction that way. If you are going to open a merchant account, then the odds are you’re going to need a terminal to operate your business. Some people have more than one account. In this case, you want to find a terminal that can handle this situation, and they do exist. Many of them are designed to handle up to nine separate merchant accounts.
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