The Value of Recurring Revenue When It’s Time to Sell

Savvy business buyers love recurring revenue and for good reason. Recurring revenue  immediately communicates  stability, lends itself to positive cash flow, and, more importantly, suggests that there is potential for future growth.

If you want to convince a buyer that your  business is worth the asking price, you should start cultivating recurring revenue opportunities today.  If you already have recurring revenue, start tracking it!    A history of  well-documented recurring revenue attracts more buyers and convinces them that your business is worth a premium.

 Recurring Revenue, Cash Flow, and Predictability

Recurring revenue and predictable cash flow typically go hand-in-hand.  Savvy buyers understand this, and all buyers want a business to be predictable. Consistency and stability at every level is highly valued by the savvy buyer and perhaps even more so by the inexperienced one.  In the mind of any buyer, it’s the reason they are paying a premium to buy your business rather than risk a start up of their own.  Nothing says, “I have good reason to be confident in future earnings,” more than recurring revenue.  It’s a powerful indicator and rightfully so.  It offers proof that they will continue to “reap” based upon what the seller has “sown.”   That assurance of predictable cash flow matters!  Both the seasoned and  the first time buyer will be attracted to it.  This creates greater competition among buyers, and typically commands a higher sale price.

 Recurring Revenue Points the Way Forward

Buyers don’t mind refining and improving a business, but reinventing one is another matter.  No buyer will pay a  premium for the privilege of optimizing potential that the seller left untapped.  Developing potential takes time and more of their money before it can be translated into profit.  However,  they will pay that premium if  potential is there together with evidence of how it can be realized.

Recurring Revenue often points the way to that end.  It removes some of the pressure that comes with immediately having to develop and grow a business.  Why?  Because it demonstrates that you have already “invented the wheel,”  and it “rolls!” Recurring revenue is evidence of the fact that your business offers goods and services  consistently in demand.  

It also strongly suggests that your business is doing many other things correctly. For example, your business is able to consistently serve its customers.  And, it does so well enough to make them want to come back over and over again.  Accordingly,  buyers reason that your management team and employees are performing optimally.

Develop & Document Annually Recurring Revenue (ARR)

It’s never too late to start developing recurring revenue streams.  Obviously, the sooner you do so the better.  And, don’t underestimate the value of documenting  strong ARR  protocols and metrics.  These will be key when it comes time to sell.   You may know that you use integrated “drip campaigns” or direct mail marketing, etc., but are you documenting the process and tracking your results?  Doing both is what adds real value when it’s time to sell.  It’s one thing to say, a business produces $1M in ARR, and another to hand over a proof of that success.  Better still to have systems or protocols in place which provide a roadmap for repeating it!

Don’t be shy about emphasizing strong ARR  to buyers. A healthy number serves as a truly powerful indicator of your company’s current and future potential.

Recurring revenue is a quick and easy way for potential buyers to gain insight into the value of your company. Any seller looking to optimally showcase their ARR, or looking for ways to boost their recurring revenue, should consider working with a us. We understand all the different variables involved in prepare a business to be sold, including best practices for developing and documenting  recurring revenue.

Copyright: Business Brokers and Consultants, Inc.

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This article is based on the post Unlocking Business Potential with Strong Recurring Revenue which appeared first on Deal Studio.