February 18, 2020

Businesses with Recurring Revenue: Getting a Good Deal

By Achim Neumann

Business owners selling a business with recurring revenue start from a position of strength in the process.

Recurring revenue streams are attractive to prospective buyers due to the stable bottom line cash flow they provide to a business. Stable cash flow can support the potential for growth, success, sustainability and overall business stability. Recurring revenue streams can help you get a good deal when selling your business in the ways described below.

Include Evidence in Your Sales Pitch

Showing a prospective buyer that your business has the potential to sustain and increase recurring revenue will increase the probability of gaining the highest sales price. Examples of recurring revenues include active subscriptions, monthly or annual maintenance fees, SaaS licensing, long-term client relationships and large projects that are in progress. As a seller, you should ensure that you highlight the importance of these streams in your sales pitch. Recurring revenues show that the business has a client-base to support ongoing income generation.

Increase Buyer Confidence

A business with recurring revenue will help to convince a buyer that they can count on success in the post-closing period. When a buyer contemplates acquiring a business, it can only take a few negative signals for them to get cold feet. This is where an assurance of consistent revenue is invaluable. Having the confidence that the business will continue to bring in revenue even if they made little to no effort to develop it, helps buyers to feel comfortable and increases your chances of closing a deal that is both favorable and profitable.

Recurring revenue allows buyers to plan for future expenses and determine financial growth projections and make a plan for managing the long-term viability of the business. The ability to demonstrate this will reassure the buyer about their decision and instill them with the confidence to go through with the deal.

Recurring Revenue Metrics: Know Your Stuff

When selling a business with recurring revenue, it is vital that you work out what percentage of your cash flow is made up of recurring revenue, how long your customers have been with you, the value of existing contacts and how existing contracts are set to expire. It should be your goal to develop a document that showcases that your business delivers exceptional results for operations, customer service and marketing. Such prospectus will be essential to demonstrate that your business is positioned strategically for the future.

If you’d like to speak further about reoccurring revenue or anything from a business valuation to planning an exit strategy from your business, then please don’t hesitate to reach out to one of our qualified M&A Advisors in Pennsylvania, New York, Connecticut and along the entire East Coast at A. Neumann & Associates, LLC.

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or info@neumannassociates.com

Client Testimonials

“I'm an attorney. I have represented the buyers and sellers of businesses for 20+ years. Recently I had the pleasure of handling a transaction where Richard Wilder of A. Neumann & Associates was the broker for the seller. Mr. Wilder was of great service to his client. He is very knowledgeable and organized. Thanks to his guidance the transaction proceeded smoothly and closed on time. He is highly recommended.”

Nick Ferrante

“Richard, you came to my office a few years ago and were wonderful in explaining your process and procedures. Our company is probably an anomaly in that we sold the majority to two long time employees and I financed them both. Our company is entering its 45th year and is still thriving. The purpose of the note is to thank you very much for the service that you provide. Thank you again.”

John Foug, Seller

“We had a great experience working with Richard Wilder from Neumann and Associates as the sell-side broker for Blade Runners. He was knowledgeable, professional, and clearly had his client’s best interests at heart. Richard helped keep the process smooth for everyone, and thanks in part to his efforts, we found a fantastic owner to partner with. We'd gladly work with Richard and the Neumann and Associates team again.”

Justin Martin

“Very happy with Richard and the entire process. I was on the buyer side of the transaction.”

Isaac Palmer, Jr.

“If you are looking for a professional and informative company that meets your needs, A Neumann & Associates is the company to go with. Ted Kantor went above and beyond to make our experience as easy as possible. Ted was helpful from the start of our process to the end. He was there every step of the way to guide us and answer all of our questions. He handled all of the in-depth communication and followed up on every detail. We strongly recommend Ted Kantor to help you whether you're buying or selling. It was a great experience. We never imagined it would go as smooth as it did. The Laluna's (Andy, Maria & Tony Jr)”

Maria Laluna

“A Pleasure to work with - I highly recommend them! Working with Richard Wilder was a pleasure, and he found us the perfect match.”

Laura Keith-Macario

“This spring we acquired a business that was represented by Richard Wilder at A Neumann & Associates. Small business acquisitions can be very emotional for the sellers and life-changing for the buyers, and Richard was keenly aware of this throughout the process. Although he was working for the sellers and not for us, he knew that most business owners see their business as their baby so the only way to have a happy outcome for his clients was to also have a happy outcome for the buyers. Knowing how nerve-wracking this process can be (think home buying x 10), he never dropped the ball on keeping everyone updated, anticipating potential snags, and guiding us along in the process. We highly recommend Richard.”

Shannon, Buyer

“My business was my baby for over 40 years. It is a tough and cruel world out there when it comes to selling your business. Neuman and Associates provided the professional guidance/protection to get the job done with care and no pressure. In my view a tremendous value. I would recommend them to anyone seeking to sell their business. Eric Storck, president of Blade Runners Inc.”

Eric Storck, President - Blade Runners Inc.

“I’m really impressed with how your firm operates. The focus on confidentiality, the thorough vetting process, and the use of third-party accredited valuations really stand out. It’s easy to see why you’ve built such a strong reputation over the years.”

Ann M., Investor

“Thanks for sending over such a detailed CIM. While I have only reviewed a have dozen CIMs at this point, your company has put together the most comprehensive data and detailed presentation I have seen so far.”

Ben N., Investor

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Contact A Neumann & Associates, LLC

If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please fill out our contact form, or call us at 732-872-6777. We will contact you directly and will never identify ourselves to your employees.

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