Entrepreneur's Exit Strategy Tip of the Week: Recurring Revenues
What are buyer's of businesses looking for? Recurring revenues. Do you have them? Probably not. Can you create a plan to institute them as part of your business? YES. So why aren't you thinking creatively and doing it? It will benefit you in the short term and in the long term it WILL assist you in selling your business.
Let's take a look at a business model that doesn't have recurring revenues and demonstrate what can be done to create them. The small business consultant. Most consultants work on a project basis, meaning they price the service by the project. Most also, if savvy enough, require payment at least in thirds. A third when the contract for the project is agreed to and signed, a third at the middle of the project and a third at the end of the project. This keep revenues coming in and minimizes the chance of doing work and not getting paid for it. However, depending on the type of consulting, and if some of the work is being outsourced, this scenario of a payment schedule may still require some creative bookkeeping to keep the business flush with cash. I recommend that you require monthly payments, and that those payments begin at time of signing. This means you, the small business consultant, are being paid before your render the work each month. I also suggest that every contract require a 60 day cancellation notice. In this way, if your client decides for any reason not to continue working with you you will have 30 days pay in the bank and will only need to bill for the remaining 30 day payment. Unfortunately, it is a fact of life that with or without a contract clients do cancel before a project is completed. However by planning how you receive income you will have recurring revenues from all your clients When your financials are reviewed they will show that your business strategy rewards how your business is valued as your income is more likely to show stability.
Every entrepreneur should be thinking about how to institute recurring revenues into their busness. No matter what you sell - product or service - think about how to provide a maintenance/service agreement or annual consultation for a price determined in advanced and able to be placed on your books. Now you know why so many businesses today are selling you maintenance contracts and agreements. It's the frosting on the cake in their business and you can find a way to do it too. Buyers will stand in line to purchase businesses with recurring revenues. Make it part of your exit strategy today.
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