What is Your Revenue Story?
Did you know that a track record of three years of revenue growth can be very impactful on your business’ valuation? Do you know what your company’s last three years of revenue growth, AKA “revenue story” is?
It is commonly understood that the amount of revenue a company generates impacts the value of that company. But why is that? The reason is that your company’s ability to generate revenue shows that it’s meeting a need in the marketplace. If your company cannot generate revenue, it’s uncertain if there is a demand for what you are selling. In general, increasing revenue will increase the value of your business.
Let’s analyze the revenue story of two companies over a three-year period:
Company 1’s annual revenue fluctuates from $2.1 M, to $1.8 M, to $2.0 in Year 3. Company 2’s annual revenue grows from $1.3 M in Year 1, to $1.8 M, and finally to $2.0 M in Year 3.
Based solely on the revenue story presented, which of the two companies is worth more?
The answer is Company 2. Even though both companies had the same revenue during the last two years, Company 2 has a revenue story that shows consistent year-over-year growth. It appears – just from this graph – that Company 2 has figured out how to grow revenue and has the potential to see healthy growth going forward.
By contrast, Company 1 has generated more money over the three years than Company 2, but Company 1 appears to be hanging around the $2 million revenue mark. The revenue story does not indicate growth. All other things being equal, it is likely that Company 2 will have a higher valuation because it has a more compelling revenue story.
So, what’s your revenue story? Does it tell a positive story of growth? Your business’ value is based on the story of your revenue. Most buyers will review the last three years of financial information when determining your company’s value. Your revenue story during the past three years tells a story about your company – where it’s been, and what the prospective buyer can expect in future years. To help you see what your revenue story is, we’ve created our easy-to-use revenue analysis template.