Why recurring revenues are key to getting the high business valuation you desire

Most business owners will know that new sales are often unpredictable, time consuming and costly.

That’s why, when the time comes to sell your business, those companies that can show a high level of consistent and sustainable recurring revenues from customers, typically through subscriptions or long-term contracts of more than 12 months, will achieve a higher multiple and a higher business valuation.

How do recurring revenues impact company valuation?

If you have to consistently bid for work or rely on infrequent, serendipitous sales, then your business will not be valued as highly.

Recurring revenues lower the perceived risk of a business purchase and help to demonstrate to investors that earnings will continue to be predictable into the future.

And strong client relationships are vital to generating repeat business.

You will need to demonstrate to any potential buyer that you put as much effort into client account management and retaining clients as you do into generating new sales.

You need to show that you have a process for managing client accounts, for looking after key client stakeholders, for identifying client concerns, and crucially, for showing how you plan to increase the revenue per client in the future.

You also need to show that you are committed to, and have robust processes in place for monitoring, maintaining, and improving customer service.

What questions will a prospective buyer ask you about your recurring revenues?

If you can answer the following questions with confidence, when it comes to selling your business, you will achieve a significantly higher valuation:

> How satisfied are your clients? Do you know your net promoter score?

> How many of your customers renew their contracts with you?

> Do you have a high level of repeat business? What is your churn rate?

> Do you rely on faith that each customer will work with you again in the future?

> What percentage of your revenue is made up of new clients and existing clients?

> How much of your work consists of individual bids, pitches and/or tenders?

> What Client Relationship Management (CRM) system do you use? How often is your CRM used by employees?

> How many of your customers are signed up to long term, multi-year contracts? What is the average lifetime value of your clients?

Start increasing the value of your business today! Download our Free 54-Page Guide: “How to Seriously Increase the Value of Your Business”

This article is taken from our free 54-Page Guide for Business Owners and Directors: How to Seriously Increase the Value of Your Business.

The guide will help you to get the sale value you want and deserve, and ensure that when the time comes to sell your business, your guts, drive, commitment and sacrifice will be worth it – literally.

You will also get a Valuation Scorecard to use in your own business to start increasing your business’s value today.

Find out more about the guide and download it here.

Alternatively, contact us today and speak to our advisors to tell us about your exit plans (in confidence) and to find out how we can help you to grow the value of your business from day 1.