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Recurring revenue is a phrase that often appears during business valuations. The most profitable businesses (and therefore the most attractive to a potential buyer) are those that retain recurring revenues, meaning that the same customers continue to return time and time again. Rather than constantly seeking out new clients, a company with recurring revenues can earn a large portion of profits from repeat customers that have become loyal to the brand. Potential buyers seek out these types of businesses because, not only are they highly profitable and offer a high return on investment, but they also require less work and possess a lower risk factor.
The following guide describes various manners in which a business owner can create barriers to entry through instating a continual cash flow. When the time comes for the owner to sell the business, a company with recurring revenues will have a higher valuation number due to its client retention.