When is my business valued on a multiple of recurring revenue?

So, if your business is small, or being fully integrated into the acquiring firm, then you’re still likely to receive a multiple of recurring revenue as a valuation metric.

There’s a wide spread of valuations out there. The average is currently sitting somewhere between 3.5 and 3.75 times recurring revenue. Although, it’s not uncommon to see businesses selling for as low as two times and as high as five times plus. Where do you, therefore sit, on this spectrum of valuations? Well, a number of things will come into play here.

Number one, of course, is your business. What is the average age of your clients? How profitable are those clients? And is there the ability, over time, that the acquiring firm can look to increase those fees, where, of course, they can demonstrate greater levels of service being provided.

The multiple that you’re offered is not just about your business. It’s also based on the acquiring firm. They may be willing to pay more, where this gives them a strategic advantage, or where they have other services they can also offer to your clients that could increase profitability.