RECURRING REVENUE is the fifth Value Driver and one of the most critical.  When a buyer comes in to buy your business, they want to understand how is this business going to continue when you, the owner, leave? The more recurring revenue you have, the more valuable it is going to be.  We have found that there are really six different forms of recurring revenue, and buyers view each of the forms a little bit differently. We are going to give you all six, kind of like David Letterman’s top 10 list. I will start from the lowest valuable one and end with the most valuable ones in the eyes of an acquirer. The first of the six forms of recurring revenue is simple consumables.  I am a coffee drinker, I probably have two a day, so in the morning and usually after lunch I get a refill on coffee. It is a simple consumables business. One step up the ladder is a sunk money consumable. You have seen those espresso coffee makers where you have the machine and you have to buy the little capsules.  That is called the sunk money subscription, because you have sunk money into the machine and you are way more likely to buy the capsules from the same company. The next one up the ladder is subscription revenue. If you have ever subscribed to a magazine, then you know about that. There is a start date and an end date to your subscription and the editors know that you are a subscriber for either a year or two years into the future, it is a form of recurring revenue. One step up the ladder is sunk money subscriptions, where you sink money into a platform, then you buy information or something on a subscription basis. A good example of that would be the Bloomberg terminal. Wall Street traders have the hardware, the physical computer that sits on their desk, that is called the Bloomberg terminal. They also buy the information on a subscription basis, so it is kind of mashing together two of these concepts, not only sunk money consumables, but also buying on a subscription. Auto renewal is the next rung up the ladder, where instead of having a start and stop date to a subscription, it is renewed in perpetuity.  When you store documents, for example, with a document storage company like Iron Mountain, that agreement runs in perpetuity. They keep the documents until you say send them back or shred them, and they just keep billing you on a continual basis. That is auto renewal, or evergreen. The most valuable form of recurring revenue is contract revenue, where a customer is contractually obligated to buy from you into the future. That is of course, the most rock-solid form of recurring revenue. To improve your score on this attribute, what you want to try to do is both walk up this hierarchy of recurring revenue, so think of it as a ladder moving up the rungs on a ladder. If you have subscription revenue today, think about if you could turn that into auto renewals subscriptions, or if you have got evergreen subscriptions, could you make those contracts? Once you can climb up as high as you can, you really want to focus on the proportion of recurring revenue. The ideal is 100%, very few businesses get there, but the higher proportion of recurring revenue and the higher up the ladder you go, the more valuable and sellable your company is going to be. If you would like to learn more about your company’s opportunities to generate recurring revenue, go now to fill out The Value Builder Questionnaire™.

The Value Builder System™ is a statistically proven methodology designed to increase the value of a privately held business. The Value Builder Score™ is an evaluation system driven by an algorithm that evaluates a business on the eight core value drivers that acquirers (investors or lenders) consider when buying (investing in or lending to) companies. The Value Builder Score™ gives a comprehensive assessment of the "Sellability" (“Investability” or Credit Worthiness) of your business, whether you want to sell next year or just to know that you're building a valuable asset for the future.  After analyzing more than 52,000+ businesses, analysts at The Value Builder System™ have discovered that companies with a Value Builder Score™ of 90+ received offers that are 71% higher than the average-scoring business.  The Value Builder System™ is available exclusively through an experienced and authorized group of advisors, known as Certified Value Builders™, such as Trinitas Business Valuations.  Click on one of the buttons below to discover whether you are ready to sell your business (The Value Builder Pre-Score™) or whether your business is ready to be sold for the best price, terms, & conditions (The Value Builder Score™). 

The fourth Value Driver deals with cash flow.  Do you remember when you were a kid, and you would go to the playground and you would be on a see saw or teeter totter? There is a light kid, and a heavier kid gets on and the light kid goes up. The same relationship exists between the way cash moves through your company, and its value.  This is the fourth driver of more valuable and sellable companies. Essentially, when a buyer comes and buys your business, they have actually got to write two checks. They write a check to you, the owner, that is obvious. They have to write a second check that a lot of people don’t really think about, and the second check is to fund your company’s working capital. That’s the money your business needs to operate the day you hand over the keys to the buyer. The deal is that the buyer has to write those two checks out of the same checkbook, so the more your company sucks up in the way of cash, the more cash your company needs to operate, the less they are going to be willing to buy your business. So, the way to improve your score on the VALUATION TEETER TOTTER is really to make sure that your business is generating cash. You know if you collect receivables, collect them faster. If you can extend your payable a little bit more, make sure that you are delaying your payments to the point where you are just generating more cash as a business. That is going to improve your score on the See Saw or Teeter Totter driver.  If you would like to learn more about your company’s cash flow performance, go now to fill out The Value Builder Questionnaire™.

The Value Builder System™ is a statistically proven methodology designed to increase the value of a privately held business. The Value Builder Score™ is an evaluation system driven by an algorithm that evaluates a business on the eight core value drivers that acquirers (investors or lenders) consider when buying (investing in or lending to) companies. The Value Builder Score™ gives a comprehensive assessment of the "Sellability" (“Investability” or Credit Worthiness) of your business, whether you want to sell next year or just to know that you're building a valuable asset for the future.  After analyzing more than 52,000+ businesses, analysts at The Value Builder System™ have discovered that companies with a Value Builder Score™ of 90+ received offers that are 71% higher than the average-scoring business. The Value Builder System™ is available exclusively through an experienced and authorized group of advisors, known as Certified Value Builders™, such as Trinitas Business Valuations.  Click on one of the buttons below to discover whether you are ready to sell your business (The Value Builder Pre-Score™) or whether your business is ready to be sold for the best price, terms, & conditions (The Value Builder Score™). 

The SWITZERLAND STRUCTURE, the third value driver, gets its name from the country of Switzerland. If you know anything about the history of Switzerland, it is pretty amazing. The Swiss have a national obsession for independence and neutrality.  They remained neutral in both of the two world wars that surrounded them, they didn’t send troops to Iraq, they wouldn’t even join the United Nations until a public referendum of Swiss citizens supported joining the U.N.  It really goes to the idea that as a country, Switzerland is independent of any one faction or regime. Independence is also essential for building a more valuable and sellable company.  Independence of any one constituency. The three most important groups that you have got to make sure you are independent of are: Number 1. Customers – you can’t have an overly concentrated customer set, you have got to have a good diversification among your customer set. Number two, employees – you can’t be overly reliant on any one employee. Number Three, and this one is obviously not as intuitive as the others, you can’t be overly dependent on any single supplier, either.  Customers, Employees, and Suppliers:  you have got to be independent of any single or small group of customers, employees, or suppliers.  For a buyer coming in, they are going to look at your business, and if they see that you are overly dependent on any one of those constituencies, they are going to discount the value of the business because it involves more risk for them. So, to improve your score, you have really got to make sure that you have good diversification in your customers, make sure that you are not overly reliant on any one employee, and you have got diversification in your suppliers, too.  If you would like to learn more about your company’s independence from key customers, employees, or suppliers, go now to fill out The Value Builder Questionnaire™.  

The Value Builder System™ is a statistically proven methodology designed to increase the value of a privately held business. The Value Builder Score™ is an evaluation system driven by an algorithm that evaluates a business on the eight core value drivers that acquirers (investors or lenders) consider when buying (investing in or lending to) companies. The Value Builder Score™ gives a comprehensive assessment of the "Sellability" (“Investability” or Credit Worthiness) of your business, whether you want to sell next year or just to know that you're building a valuable asset for the future.  After analyzing more than 52,000+ businesses, analysts at The Value Builder System™ have discovered that companies with a Value Builder Score™ of 90+ received offers that are 71% higher than the average-scoring business.  The Value Builder System™ is available exclusively through an experienced and authorized group of advisors, known as Certified Value Builders™, such as Trinitas Business Valuations.  Click on one of the buttons below to discover whether you are ready to sell your business (The Value Builder Pre-Score™) or whether your business is ready to be sold for the best price, terms, & conditions (The Value Builder Score™).