Increasing your Business’s Value Through a Predictable and Reoccurring Revenue Stream
In our last post, we discussed how owner-dependent businesses destroy business value. I wanted to bring attention to, yet, another important element to increasing your business’s value: a predictable and reoccurring revenue stream.
This post will delve into how buyers love to see a predictable, reliable, and recurring monthly or annual revenue stream. Revenue which is expected to continue in the future, or a portion of revenue that is not a “one-off”.
Some business owners may not be aware, but oftentimes you can, actually, get more for your business if you can sell it at a multiple of revenue, rather than a multiple of profit.
Research proves that the enterprise value of businesses with recurring revenue business models are typically 50% higher (but as much as 3 times higher) than those that are not. In addition, the more recurring revenue the better – and ideally you want 75% or more of the company’s sales to come from this solid, predictable, and stable revenue machine that is likely to continue in the future.
Oftentimes, this may be seen by having contracts in place, for example, a maintenance contract, or even some sort of subscription-based model. Interestingly enough, contractual recurring revenue is better than non-contractual recurring revenue due to the fact there is a higher degree of certainty of future revenue over the month-to-month renewal.
There are many avenues in which we see a variety of recurring revenue streams in business to include subscription-based services, to maintenance contracts, where revenues climb higher and higher every single month – even with customer attrition.
Now, compare this to non-recurring revenue where every month you start with nothing and have the stress of hustling to sell anything in order to cover your ongoing business expenses.
To conclude, do yourself a favor and start thinking of how you can create a recurring revenue stream in your business.