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 firstname.lastname@example.org