What is the most important factor in maximizing my transaction value?
CONTRACTUALLY RECURRING REVENUE – All revenue dollars are not created equal. Revenue dollars that are the result of a contract for annual maintenance, annual licensing fees, a recurring retainer fee, technology license, etc. are much more powerful value drivers than new sales revenue, time and materials revenue, or other non-recurring revenue streams. It’s all about risk. The higher the risk (future sales) the lower the return. The lower the risk (contracted revenue stream) the higher the return. The most extreme case of this occurs in the software industry where companies are typically sold at a multiple of recurring maintenance revenue. New license sales, historical levels of project work and projected install revenue are virtually eliminated from the valuation formula. The lesson here is that if you can turn a T&M situation into an annual contract, you will be greatly rewarded when it comes time to sell your business.
