The importance of strong revenue mix if you're planning to sell your business

Many business owners we speak to have ambitions to sell their company so here are some of the best ways to prepare.

Of course, if you do plan to sell your business, there are many aspects you need to pay attention to and, ideally, you need to start working on them as early as possible.

One element, and the one we're going to look at here, is revenue mix — how buyers assess it and why they'll pay more if it's done well.

First, let's define revenue mix. Essentially, it's how your business makes it money from different sources. For example:

• The different products or services your business sells

• The various types of customers who buy from your business, e.g. one-off or repeat

• The sales channels you use to sell to your customers, e.g. online, in-store, wholesale, etc.

• The different geographic markets your business serves

A good revenue mix is demonstrated by not relying too much on any one product, customer or market. It makes a business more stable and therefore more attractive to buyers.

Here's why:

• Less risk

  • Buyers look for businesses with steady and reliable income streams.

  • A more diverse revenue mix offers protection if revenue in one segment suddenly falls.

• More predictable cash flow

  • Consistent, diversified revenue makes financial projections more reliable.

  • Businesses with subscription models or recurring contracts are more attractive because buyers will have more confidence in future earnings.

• Better valuation

  • Companies are valued and sold on multiples of revenue or profit (e.g. EBIT or EBITDA which we'll discuss in future finance newsletters). Businesses with stable, diversified revenue streams will often sell at higher multiples.

• Increased growth potential

  • Businesses that can demonstrate their ability to expand into new segments, customer groups or markets suggest greater potential for growth and scaleability.

• Can strengthen competitive advantage

  • Diversified revenue can make your business resilient to competition.

  • If one product or service becomes less profitable, others may be able to sustain your business.

  • A strong mix can reduce market saturation in one category, i.e. where there's no further chance to grow.

As you can see, if you want to sell your business, it's important to consider and analyse the different sources of your revenue streams.

You must also be careful not to deviate and chase revenue streams that are not compatible with your core competences and the value proposition you offer. That approach can prove dilutive and may deter potential buyers.