Staffing, IT managed services, agencies, facilities. A services firm is priced on how much of its revenue recurs, how concentrated the client base is, and whether the business is the founder's relationships or a machine that runs without them.
You know which contracts auto-renew and which are up for review, which clients call you and which call the account team, and how much of next year is already booked. The business lives on relationships and reputation, and both of those, to a buyer, start as question marks until they are shown to be durable.
A services firm trades on its revenue retention, not its revenue. A client that renews on a signed multi-year contract is worth several times the same client on a project that ended last month. The founder's relationships are the engine, and a buyer prices the risk that the engine leaves with the founder. The firms that sell for the most are the ones where the clients belong to the business, not to a person.
A buyer in this market underwrites four things before they will talk about price. Each one is a discount by default, and a point of value once it is evidenced.
Contracted, recurring revenue is the base a buyer underwrites. Project and one-time work is real, but priced as cyclical.
The client base read for concentration and for retention. A buyer models the day the largest account does not renew.
How much of the revenue follows the founder or a few rainmakers. The more the firm depends on them, the more a buyer discounts it.
Utilization, bill rates and delivery cost, tested for whether the margin holds when the founder is not watching it.
The same four things, turned from risk into value. This is the preparation a Value Protection Study and the Cordis MRI are built to run.
The recurring base documented and, where it can be, moved onto longer terms, so retention is shown rather than asserted.
The client relationships moved from the founder's name to the account team's, before a buyer asks what happens when the founder leaves.
The client base broadened where possible and the durability of the top accounts documented.
Owner compensation normalized and every adjustment filed beside the document that proves it.
Every major client came because of the founder, and a buyer priced the risk that they would leave with him. The readiness work moved the relationships onto the account team, put the recurring revenue under longer contracts, and documented the retention. A buyer could finally see a business rather than a person, and paid for one.
More in practiceThe Cordis MRI runs your own financials through the underwriting model of every buyer lane, and returns the range, not a single number. The Value Protection Study turns that read into a sequence. Both happen before anything goes to market.