20 Destroyers of Business Value: # 2 No Recurring, Consistent Revenue

Posted on July 23, 2012 · Posted in Blog

While watching a hockey game several years before I sold my first company, I learned my most valuable lesson in increasing business value. Russell had sold his alarm security business earlier in the year. I knew that I wanted to follow in a similar path and start the process of exiting my company.

I asked him for his advice and insight on the process.  Create a recurring, consistent revenue stream was the only advice he gave me. “Russell I own a printing company how can I create a recurring revenue stream?” “Find a way” he replied.

With that I started on a mission to add recurring revenue and consistency to our revenue stream. We began to seek work that was consistent and repetitive in nature and moved away from big bid situations that had severe highs and lows.

We secured business like monthly newsletters and ongoing marketing projects and had contracts drawn up that gave discounted pricing in exchange for long term commitments.

In addition, we spread our risk and customer concentration by pulling together diverse customer bases of franchises and targeted niche markets. We signed contracts to become the “preferred” printer for franchises and nationally recognized companies like Anheuser – Busch (we worked with over 400 of their independent wholesalers nationwide).

Over the next several years, we created a diverse, secure and consistent revenue stream. In essence, we created a “recurring” revenue stream. This substantially reduced the risk of our cash flows and increased the value of our business. When the time came to sell the business, we received a multiple of earnings that was nearly double the average for printing companies.    Heck of a return for a couple hockey tickets!

Always remember that business acquirers want a recurring, consistent revenue stream as a base they can build from and will pay a premium for it. The more predictable the revenue stream…the more valuable it becomes.  Are you destroying value in your business by not having a consistent, recurring revenue stream?

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