If you are thinking of buying or selling a company, you may have heard the term: recurring revenue. But what exactly is recurring revenue?
Recurring Revenue is the part of a company’s revenue that is expected to continue in the future. It is not necessarily guaranteed to continue in the future, but it’s much more likely than the revenue that comes from just a one-off project or product sale to a new customer.
The more recurring revenue that a company has, the more desirable it is from an acquisition standpoint and everything else being equal, the higher the value of the company. Some buyers will only look to purchase companies that have a certain amount of recurring revenue because they tend to do better during recessions as well as economic expansions.
For business sellers and Business Brokers, it is important to identify which customers have long term recurring revenue. Recurring revenue comes in many different forms and in a number of different industries.
What Types of Companies have Recurring Revenue?
- Subscription based companies. These companies often have predictable revenue streams from customers that pay a monthly fee. The higher the customer retention rate then, the more predictable would be the revenue. This type of company is desirable because a new owner of the company has a base of revenue to continue to build off of and grow the company while they also focus on keeping the current customer base happy. Some examples of companies that we have sold with subscription-based revenue are:
- Software as a Service (SaaS) company. Instead of selling a license to use the software product, they charge a monthly or annual fee to use the software. This type of software company can have a favorable trade-off with less revenue initially but more revenue in the long term.
- Publishers: Both traditional Magazines and some Internet Content Providers may charge customers a monthly fee.
- Internet Service Providers (ISPs) usually have monthly fees with monthly recurring revenue (MRR).
- Professional Services Companies: Many different types of professional services companies have clients that do repeat business with them over time. Some of these companies will have formal contracts in place, and some won’t necessarily have contracts but may have long standing relationships with repeat customers. Some of the professional services companies that we have sold with significant recurring revenue include:
- Construction Companies Some Subcontractors can be more involved with short term new construction projects while other contractors have long term multi-year projects where a buyer can count on profitable revenue coming in for years. The more long term projects you have the easier it is to sell your company.
- Home & Building Services Companies: Companies in this category may have long term customers that pay a monthly fee for their home or commercial office to be serviced regularly. The types of companies that are desirable in this category include:
- Manufacturing Companies: Many manufacturing companies have long term customers that can be counted on to order regular products. Especially if the company manufactures something unique, then customers may not have many options to order from other suppliers. B2B Manufacturers may have large customers that reorder, such as Fortune 500 customers or large government entities. B2C customers may have a large number of small repeat customers or may have large distributors that continually reorder the same products.
- Distribution Companies: Similar to Manufacturers, Distributors can have customers that order the same products over many years.
- Healthcare and Medical: Certain types of healthcare and medical practices can have more repeat customers than others. Some types of Mental & Behavioral Health and Homecare businesses often have patients that need care for an extended period of time and in some cases, for the rest of their lives.
- Education: Education businesses such as preschools and daycare can have recurring revenue customers that pay monthly fees for many years.
- Transportation: Some Transportation companies such as Medical Transporation can have clients that need transportation regularly to go back and forth to a hospital for dialysis or other regular medical treatments.
View our businesses for sale by Industry
If you are considering buying a business with recurring revenue, there are many different industries and companies to consider. For a list of our current businesses for sale by sector, please click on the industry below. You can sort by price range and geography or browse the companies available in that industry:
If you are interested in one of our Companies for sale, please fill out the electronic NDA and provide us some information on your background for more details.
Selling a Business with Recurring Revenue
Having sold many businesses for sale with recurring revenue, we understand the value of these companies. We provide a confidential consultation to understand your needs and give you a potential selling price for your company. We’ll discuss our marketing plan and how we’ll keep the sale confidential. We maintain the confidentiality of the sale of your business and only release details when a buyer has signed a Non-Disclosure Agreement and provide us with their qualifications.
There is no fee for our services until your company is sold. Our focus is on selling companies with annual revenues of $700,000 to $50 Million in the industries above.
Contact Synergy Business Brokers
We have Senior M&A Brokers in the Northeast and Southern US that can meet with you to understand your business better and discuss how we can maximize the sale price. We’ll want to discuss the types of clients you have, including what types of recurring revenue relationships you have. This way, we can bring this out in a marketing document designed to attract the right buyers that appreciate what you have to offer and are willing to pay what you deserve for your company.
To get started with your free consultation, please fill out our contact form, and one of our Senior M&A Brokers will be in touch with you.