Continuing with our blog series on “building a business you can sell”, let me discuss some of the things that buyer’s look for when considering an acquisition. Let’s begin with discussing a key feature that a buyer will look for – Recurring Revenue.
Recurring Revenue: Recurring revenue is that part of a company’s revenue that is very likely to continue in the future. This is revenue that is predictable, that is stable, and that can be counted on day-to-day, week-to-week, or month-to-month with a high degree of certainty.
Some examples: rental income from a property you own and lease to a tenant, payments to a cable company with thousands or millions of customers creating revenues that are regular and consistent, the payment of insurance premiums that are often paid electronically from the customer’s bank account without the need to even issue an invoice, and loan or mortgage payments.
With consistent income streams, a buyer can rely upon monthly or annual revenue from each customer. This added certainty reduces risk to a buyer and can justify a buyer paying a higher price for the business. If possible, the business owner should look into ways the recurring revenue streams can be built into the business model.