Selling a Business With Recurring Revenue

If you are selling a business with recurring revenue, you are in a good position. Sellers and buyers alike love recurring revenue. 

What Does It Mean to Have a Recurring Revenue Business?

If your business has recurring revenue, that means you have income you can rely upon on a regular basis. In most cases, this revenue comes from service agreements or subscriptions, but it can also be a result of consistent repeat customers. 

Recurring revenue is a stabilizing force in positive cash flow, a signal that portrays the potential for growth, sustainability, success, and overall business stability. These factors make recurring revenue an attractive factor to business sellers and buyers. 

The following metrics are important when considering selling a business with recurring revenue:

• Monthly recurring revenue (MRR): Your MRR is the revenue you generate each month from recurring purchases, most often subscriptions or service agreements. While many companies operate on a monthly subscription model, you can also measure your quarterly or biannual recurring revenue if you tend to operate on three- to six-month contracts.
• Annual recurring revenue (ARR): ARR is the measure of your recurring income over a calendar year. This is especially relevant for companies with longer contract terms, such as yearly renewal schedules. 
• Customer acquisition cost (CAC): The CAC is the average cost to earn a new client — this includes costs incurred for sales and marketing efforts, as well as any free trials or demos your company provides. 
• Customer lifetime value (CLV): Your business’s CLV is the total income you can expect from a customer from their first purchase with you until their last. Because building new customer relationships is six to seven times more expensive than keeping current ones, demonstrating that you maintain good relationships and earn repeat customers is vital for selling recurring revenue businesses.
• Churn rate: Also called a rate of attrition, your churn rate is the percentage of customers that do not continue their relationship with your company. If you are in a highly competitive or saturated market, your churn rate will be particularly important for buyers.

5 Best Practices for Preparing Your Business for Sale

If you want to sell your business for any reason, there are a few best practices you should follow to ensure you’re prepared for the sale process: 

1. Do Your Due Diligence

The first step in your due diligence for selling a business is performing a business valuation — this gives buyers an objective view of your company’s value and growth potential. Buyers want to see that your business’s financial performance is strong and consistent. To demonstrate that, you should prepare profit and loss statements, clean up balance sheets, compile past tax returns, and ensure accurate and up-to-date financial records. 

It’s a good idea to work with a business broker who is familiar with the needs of your industry and market to get the most accurate valuation and price estimate.

2. Assess Your Operations

First impressions are key, so it’s vital that you showcase how your company is organized and ready to respond to shifts in the market. As you’re preparing for sale, reevaluate your operations to identify any areas of weakness or waste. Demonstrating operational efficiency shows buyers you have a stable business with a strong management structure.

3. Know Your Recurring Revenue Metrics

When selling a business with recurring revenue, it is important that you determine what percentage of your business is recurring revenue, how long your customers have been with you, and what contracts they have in place. You’ll want to develop a business marketing document that showcases that your business delivers exceptionally in matters of operation, customer service, and marketing — in short, show how your business has aligned itself strategically.

4. Demonstrate Strong Customer Relationships

Your recurring revenue will be a key selling point, so provide concrete examples of how your business fosters and nurtures good customer relationships. Earning repeat business is a signal to buyers that customers trust your company.

5. Understand the Necessary Contracts and Agreements

When selling your business, confidentiality is key. If you are looking at the possibility of selling your business but haven’t made a final decision, contact a business broker for a confidential consultation to review your options. Also, familiarize yourself with the relevant regulations and potential legal liabilities that might impact the sale. 

Benefits of Selling a Recurring Revenue Business

Selling a company with recurring revenue can benefit you and your business in the following ways.

Ongoing Demand

If you are selling a business with recurring revenue, it will be valued higher than other similar businesses without recurring revenue. Some examples of recurring revenue are: 

• Active subscriptions.
• Monthly or annual maintenance fees.
• Software as a service (SaaS) licensing.
• Long-term recurring customers.
• Extended project contracts.
• Frequent customer or client requests.

Recurring revenue demonstrates that you have consumers who support ongoing income generation. Showing a prospective buyer that your business has the potential to sustain and increase recurring revenue will increase the odds in your favor. Also, it shows you are offering a product or service the right way and that demand is consistent.

Build Buyer Confidence

When selling a business with recurring revenue, buyers will have more confidence to go ahead with a business transaction and count on success from the word go. When buyers consider buying a business, nervousness may make them hesitant; assurance of revenue happens to be a remedy. Knowing that the business would still bring in revenue even if they made little to no effort to develop it, buyers will feel comfortable with the deal on the table and increase the chances of closing a deal that is favorable to you as a seller.

Buyers find recurring revenue suitable and helpful for planning future expenses, determining financial growth projections, and assessing the viability of the business in the long run. The ability to show this just increases the buyer’s stability in their decisions and confidence in the business and will help to close the deal.

Contact Synergy Business Brokers About Selling Your Business

Synergy Business Brokers is a leading mergers and acquisitions firm focused on selling companies with an annual revenue of $700,000 to $250 million. If you are considering selling your business, consult our award-winning business brokers. Synergy Business Brokers has the right expertise to help you reveal the best aspects of your business and put them in the limelight for prospective buyers to see. We have experienced Senior M&A Brokers throughout the US and sell businesses around the World.

For a confidential consultation, please fill out our Seller Registration form or email info@synergybb.com.

• SHARE: