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™).