January 11, 2017
Not all revenue streams are created equal. When determining the overall health and stability of your company, recurring revenue dollars go far beyond basic math in creating value for your business. Simply stated, the more predictable the dollar is, i.e. the more likely that you will receive that dollar every month from your customer, the more valuable it becomes when creating an overall wealth profile for your business.
When that recurring dollar is multiplied by adding new customers each month, you begin to realize the benefits that come from having a reliable recurring revenue stream. With a reliable stream of cash flowing into your business, you can spend more of your time and energy growing your business rather than trying to maintain your current revenue needs. With recurring revenue and a consistent customer base, you don’t start each fiscal year over at $0, you start at your current level of consistent, recurring cash flow and build from there.
One of the most significant factors in company valuation is predictability. Conversely, it is also one of the most difficult factors to quantify. Businesses with traditional revenue streams might be confident that they will continue to grow year after year, and might state this to potential buyers. But without actual money coming in to a business, it’s easy to see why investors would be skeptical of such a claim.
The key component of recurring revenue is that because your earnings are predictable, you mitigate your risks—something that is music to investors’ ears. In fact, the more recurring revenue a company has, the higher the valuation it will receive from potential buyers. This is why it is imperative that every small business owner should prioritize including a recurring revenue stream in their business.
If you are a business owner, you need to be constantly evaluating how you can drive a higher percentage of recurring revenue through your company. This is a surefire way to increase value, decrease stress and grow your company more quickly than a traditional business model. If your company does not have a line of recurring revenue, then you are putting the future of your business in jeopardy.
Interested in learning more about more about adding a line of recurring revenue to your business? Contact our expert team today by clicking HERE or giving us a call at 816-287-2010.