Financial Planning Essentials for Businesses in Heavily Regulated Sectors
With the huge profits provided by large businesses, they also require heavy investments to keep running smoothly and to grow further. And that’s the point where financial planning controls things.
This is why 87% of the finance professionals have stated that financial management is critical to business success. (Source: LSPM)
But for every heavily regulated industry, arranging huge capital while fulfilling routine payments often feels both overwhelming and complex.
The struggle continues until the moment when businesses realize the right process to manage financial planning. Keep reading this article to learn about financial planning essentials for businesses in heavily regulated sectors.
Learn:
- Financial Planning Tips for Heavily Regulated Businesses
- Why Financial Planning is Different
- Hidden Costs of Compliance
- Top 5 Recommended High-Risk Payment Processors
- How To Create a Bulletproof Strategy
Financial Planning Tips for Heavily Regulated Businesses
Let’s face it. Businesses that operate within heavily regulated industries like CBD, nutraceuticals, firearms, gaming, and financial services deal with many obstacles that normal businesses don’t.
Things like state regulations, the need to know your customer, and ongoing compliance costs.
The biggest struggle though, is…
Accepting payments.
Depending on the industry, chances are there will be issues with traditional payment processors like Stripe, PayPal, and Square. Network freezes are common and completely out of anyone’s control. When a business lives and dies by cash flow, having an unplanned payment processor is a terrible scenario.
That’s why finding the right payment processor should be every regulated business’s number one priority.
Financial planning tip #1: Set the business up for success by securing a high-risk merchant account with a payment processor that specializes in regulated industries.
Why Financial Planning is Different
If you aren’t worried about your payment processor freezing your funds or holding your revenue… You’re not thinking about it enough.
For most regulated businesses, acceptance isn’t guaranteed. One needs to work with payment processors that focus in high-risk businesses and believe they stay in business.
Consider any business owner who got rejected by PayPal and you’ll hear horror stories about lost earnings and endless account conflicts.
“This can be dealt with in an easier way.”
Sound familiar?
It does for many business owners who have dealt with payment processor issues firsthand.
Here’s how to think about financial planning as a regulated business.
Keep reading to learn more…
Hidden Costs of Compliance
Unfortunately, compliance comes at a cost. But that cost isn’t just expensive licenses and regulations.
Also, taxing…
According to ZLURI.com, American businesses spent an average of $10,000 per employee to stay compliant last year.
That doesn’t sound too bad… Until you realize that’s just the average. Highly regulated businesses like healthcare, financial services, and gaming spend much more than that.
Here’s a crazy stat for you…
85% of executives say compliance requirements have increased in complexity over the last three years.
…Which means even the “hidden” costs of compliance are getting more expensive for regulated businesses.
Things like:
- Payment processing fees
- Rolling reserves
- Chargebacks
Make sure your business is budgeting for the obvious AND not so obvious costs of compliance.
Top 5 Recommended High Risk Payment Processors
Every regulated business should vet payment processors BEFORE they need one. Getting locked out of payments is not only a huge headache but causes huge dips in revenue.
Below are 5 recommended high-risk payment processors. All 5 of these companies specialize in working with high-risk businesses.
Quick Note: Commissions are earned from many of the links on this page. All partnerships are heavily vetted before being accepted. Only companies that are trustworthy are recommended.
1. Accept
This is the top recommendation for regulated businesses. They specialize in heavily regulated industries like:
- CBD
- Nutraceuticals
- Tobacco
- Gaming
- Financial services
You get competitive processing rates, low-tier dedicated account management, and best-in-class fraud prevention. Not to mention they get regulated businesses.
2Accept simplifies the onboarding process so high-risk merchants don’t get stuck jumping through hoops.
Don’t forget compensation starts as soon as you accept your first payment.
2. PaymentCloud
PaymentCloud is a great processor with an impressive acceptance rate. They support all major high-risk industries and offer great features like chargeback protection and fraud tools. Gateway connections are adaptive and easy to use.
The beginning process can take up to a few days. A few customers have mentioned volume limitations as well.
3. Durango Merchant Services
Durango has been working with high-risk clients for over 30 years. Some of their strongest features are International Payments and multi-currency support. They work great with Travel businesses, but e-commerce and subscription businesses benefit here as well.
Negotiating pricing is a must as they don’t list their pricing online.
4. Soar Payments
Soar Payments is another great processor with some competitive rates. One huge benefit is how transparent they are with their pricing. You’ll always know exactly what you’re paying.
They have some of the best customer service in the industry and offer account managers for each business. They do consider some industries “ultra-high-risk” so be sure to read their policies first.
5. SMB Global
SMB Global is best suited for larger businesses that need complex processing. They have strong multi-acquirer redundancy, which keeps payments flowing even if your volume suddenly increases.
They also have some of the most detailed reporting around, but some small businesses find it to be overkill.
How to Build a Bulletproof Strategy
Alright… Let’s get into the meat of financial planning for highly regulated businesses.
First and foremost, you must think about your regulated business differently than a “typical” small business.
Remember these tips and use them for every financial decision your business makes.
Budget for compliance costs upfront
This cannot be stressed enough. Your business will have ongoing compliance costs. Make sure you know what they are ahead of time!
Regulated businesses should budget for the following:
- Processing fees
- Reserve requirements
- Lawyers
- Yearly Compliance audits
These are things you should know about BEFORE your business opens its doors.
Set Your Business Up for Success With the Right Payment Processor
Switching payment processors is an absolute nightmare.
Make sure you do your research BEFORE your business launches and grow with a processor that specializes in high-risk accounts.
This cannot be stressed enough.
Start Building Your Cash Reserve NOW
Many payment processors place a reserve on every batch of transactions your business processes.
This means your money could be tied up for 90-180 days.
Until that money is released into your bank account, you’re operating on fumes.
Build a sizable cash reserve to account for these extended holds.
Aim for 3-6 months of operating expenses.
Keep a Close Eye on Your Chargeback Ratio
Visa considers any business with a chargeback ratio of higher than .9% of monthly transactions HIGH RISK.
Once you enter that dreaded “high-risk” category, you can kiss your current merchant account goodbye and accept percentage fee increases.
Push as close to that threshold as possible without going over.
Invest Money in Fraud Prevention
Don’t get ripped off by fraudsters! Not only will they cost you in chargebacks, but also lost inventory.
Fraud prevention tools can pay for themselves many times over by stopping hackers and criminals before they hit your business.
Wrapping Things Up
Almost every leader running a highly regulated business is aware of the complexities coming across while planning finances. Managing capital for regulations and growth requirements, along with processing present payments, often gets stressful.
By planning for the ongoing compliance early, using a specialized payment processor, building a cash reserve for holds, and keeping an eye on the chargeback ratio, you can help effectively plan for success and avoid common problems.
Having a strong financial strategy will keep your highly regulated business rolling freely while avoiding troubles.