What a Recurring Revenue Line Costs When Nothing Proves It
One point of EBITDA multiple, on a Swiss SME valued between three and eight million francs, is worth somewhere between 300,000 and 800,000 francs of price. That is roughly what is at stake when revenue described as recurring rests on no verifiable contract: the buyer does not strike it from the offer, they strike it from the price, by applying a lower multiple to the whole of EBITDA rather than isolating the part they do not believe.
What a buyer actually means by recurring
"Our clients have stayed with us for fifteen years" is not proof, it is an impression, however sincere. A buyer who builds an offer around recurrence looks for framework contracts with a written term, a tacit renewal clause, a defined notice period, sometimes a minimum volume commitment. Without those elements, even the most loyal relationship remains, on paper, a series of one off orders that could stop next month. That is exactly what the data room checks during due diligence: not the owner's sense of client loyalty, but the documents that bind it contractually.
The difference costs money because it changes the nature of the risk the buyer is taking on. Contractual revenue can be projected over three to five years with a reasonable margin of error. Revenue that simply repeats year after year without a written commitment gets valued instead as a flow that could stop at any time, which in the buyer's mind justifies a lower EBITDA multiple to offset the uncertainty bought along with the company.
The table of what weighs on the price
| Item examined | What the buyer looks for | What it costs when missing |
|---|---|---|
| Written contracts vs. verbal agreements | Signed contracts, term and renewal spelled out | 0.5 to 1 multiple point on the revenue share concerned |
| Client concentration | No client above 25 to 30% of revenue | up to 1 to 1.5 points if one client exceeds that threshold |
| Change of control clause | Contracts that survive the sale without renegotiation | an extra 0.5 point if the clause is missing on a significant contract |
| Tracked renewal rate | Documented history over three to five years, not a verbal estimate | a slower process, heavier guarantees rather than one precise figure |
These orders of magnitude vary by sector and company size; they point a direction, not a formula. What the four items share is that they all get negotiated before the letter of intent, rarely after.
What putting the file in order costs, in time and in francs
Reviewing a contract portfolio for a mid sized SME, updating it, adding a renewal or change of control clause where one is missing, typically runs between 8,000 and 25,000 francs in legal fees depending on the number of contracts and their state, and a project of two to four months rather than two weeks, the time it takes for each major client to agree to sign an amendment. On top of that comes the internal time: someone has to reconstruct, contract by contract, what was agreed verbally eight years ago with a client who still accounts for 15% of revenue, which often means reopening the commercial discussion rather than simply filing an existing paper. We cover the financial side of this preparation elsewhere, in getting your numbers ready for a buyer: readable accounts and a solid contract file nearly always progress together, on the same timeline.
In the mandates I run, this work rarely tops the owner's priority list, precisely because it produces no visible result in the short term, unlike a new commercial contract or a hire. It only pays off at the negotiating table, which is why so many SMEs arrive in front of a buyer with solid revenue and a contract file that only half proves it.
What cannot be fixed in the last six months
A contract can be signed within weeks if the client is willing. A five year renewal history cannot be manufactured in six months, whatever the quality of advice brought in: either the data already existed somewhere, in the accounting system or the CRM, and it only needs extracting and formatting, or it was never tracked, and the buyer will have to settle for a thinner file, with the price consequences that follow. Client concentration follows the same logic: diversifying a client base where one account carries 40% of revenue takes years, not months, which ties back to what we write on company valuation before a succession.
When the contract file stays incomplete regardless, part of the price gap can be bridged another way: an earn-out tied to the actual renewal of the main contracts over the following twelve to twenty four months lets the buyer take on less risk at signing, in exchange for a price top up the seller only collects if the recurrence proves out in practice. It is a fallback, not a substitute for preparation: it shifts the risk in time, it does not make it disappear.
An owner who starts this inventory two years before putting the company up for sale has time to negotiate the missing clauses client by client, without calendar pressure. One who starts six months out has to settle for explaining, item by item, why the contract does not exist yet, which is never the conversation a seller wants to have once the price is on the table.