cases. You want to make sure the amount you have to put in mirrors the business you are looking at and that you do not overstretch yourself. The idea you can just get as much debt as you want is generally not accurate. For one thing, the banks won't just lend with significant scrutiny. Also, the cash flow has to be sufficient to pay the debt back. So it is prudent to understand what Enterprise Value range and terms are going to work for you. Recurring/Repeating Revenue - The value of recurring/repeat revenue is talked about a lot and is, of course, true. In the end, you are buying a future cash flow and the less risk there is around this actually coming in, the better. Sometimes repeating revenue is the best kind to have as the customers will just keep their contracts running indefinitely as long as there is no friction. This can even be better than long-term contracts, which may have an endpoint or a ‘cliff’. But in both cases, the customers are baked in and the business does not need to find new customers for the bulk of the revenue which lowers risk. However, this is a general concept that must be evaluated in detail for all types of businesses on a case-by-case basis. There are many nuances and some businesses that rely on a new customer or new contracts on a regular basis are great businesses. Room for Lots of Growth - In theory, the leverage buy-out model can work ok with flat revenue (when the debt is paid in 5 years and the business can be sold again for the same price, mathematically the return is still very good for the original investment). However, it is commonly understood that businesses are either growing are dying so this is not a great strategy. Also, business is in a constant state of flux with the loss of some customers and markets and others added, so a business owner generally wants somewhere to grow into. One of the main features of buying a small business is to be able to improve and scale the model, so there needs to be a market to scale into. Growth is exciting and just
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