How does revenue mix affect what a buyer will pay?

When 50% or more of revenue is recurring, through subscriptions, retainers or multi-year contracts, buyers can underwrite future cash flow with confidence. Primarily transactional or project-based revenue rebuilds from a near-zero base each year and is treated as higher risk.

How much customer concentration is acceptable to buyers?

With no customer over 10% of revenue and the top three under 30%, the base is diversified with no single point of failure. One customer over 20%, or the top three over 45%, triggers earnouts, escrow requirements or a reduced headline valuation.

Why does contract status matter when selling a business?

Written contracts with defined terms and renewal provisions that are assignable without customer re-approval give a buyer confidence the revenue transfers. Informal or at-will relationships force buyers to treat all revenue as at risk at ownership transfer.

What renewal or retention rate do buyers look for?

Documented annual retention of 85% or higher demonstrates durable customer relationships. Retention below 70%, or untracked retention, leads buyers to assume the most adverse scenario and discount revenue projections.

How does the revenue growth trend affect valuation?

Organic growth of 10% or more for two consecutive years, not driven by one-time events, supports premium pricing. Flat, declining or volatile revenue is underwritten conservatively and rarely earns a premium multiple.

Horizon M&A Advisors

Confidential

Prepared March 2026

Exit Readiness Assessment · Section 2 of 5

Revenue Quality Scorecard

An assessment of the five revenue factors that determine how sophisticated buyers underwrite your business and the multiple they are prepared to pay. Complete each section honestly — this analysis is for your use only.

Section 2 — Revenue Quality

Scoring Key

Green — Buyer-ready (2 pts)

Yellow — Needs attention (1 pt)

Red — Significant gap (0 pts)

Click a column to record your rating.

Revenue Mix

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
50% or more of revenue is recurring in nature — subscriptions, retainers, maintenance agreements, or multi-year service contracts with defined renewal terms. Buyers can underwrite future cash flows with confidence.	25–50% of revenue is recurring. A meaningful portion is project-based or variable. Buyers will apply some discount for the unpredictability, but a clear recurring foundation exists to build on.	Revenue is primarily transactional or project-based. Each year requires rebuilding the top line from a near-zero base. Buyers treat this as a materially higher-risk profile and underwrite accordingly.

Customer Concentration

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
No single customer exceeds 10% of revenue. The top three customers collectively represent less than 30% of total revenue. The customer base is diversified and does not present single-point-of-failure risk.	The top customer represents 10–20% of revenue, or the top three represent 30–45% collectively. Buyers will flag this in diligence but will typically proceed with appropriate structural protections.	One customer exceeds 20% of revenue, or the top three collectively exceed 45%. This concentration profile triggers significant buyer concern and commonly results in earnouts, escrow requirements, or reduced headline valuation.

Contract Status

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
The majority of revenue is governed by written contracts with defined terms, pricing, and renewal provisions. Contracts are assignable to a buyer without requiring customer re-approval or renegotiation.	Some written contracts exist but coverage is inconsistent. A mix of formal agreements and informal arrangements reduces the certainty of revenue transfer and may require buyer-funded customer re-engagement post-close.	Revenue relationships are primarily informal or at-will. No written contracts govern the majority of the customer base. Buyers must treat all revenue as potentially at-risk at the time of ownership transfer.

Renewal & Retention Rate

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
Customer retention is 85% or higher on an annual basis, and this history is documented in a form that can be presented and substantiated during buyer due diligence. Retention demonstrates the durability of customer relationships.	Retention falls in the 70–85% range. Churn exists but is manageable. Buyers will require explanation of customer exits and may apply modest risk adjustments to projected revenue in their underwriting models.	Retention is below 70%, or customer retention has not been formally tracked. In the absence of data, buyers will assume the most adverse scenario and discount revenue projections to reflect unquantified churn risk.

Revenue Growth Trend

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
Revenue has grown organically at 10% or more per year for two or more consecutive years. The growth trend is consistent and is not attributable to one-time events, single customer additions, or acquisitions.	Revenue growth is flat to modest — in the 0–10% range. The business is stable but does not demonstrate the trajectory that commands premium pricing. Buyers will underwrite conservatively against this profile.	Revenue is declining or exhibiting significant year-over-year variability. Buyers will require a substantive explanation, apply downside protection in deal structure, and are unlikely to support a premium multiple absent a compelling turnaround narrative.

Revenue Quality Assessment Score

— / 10

8 – 10

Revenue profile is buyer-ready. Structured to support a premium multiple and attract institutional acquirers in a competitive process.

5 – 7

Material gaps identified. A 6–18 month effort focused on contracts, concentration, and retention will measurably improve the buyer perception of revenue quality.

0 – 4

Significant deficiencies present. A 2–3 year preparation runway is recommended to restructure the revenue base before initiating a formal sale process.

Discuss your results with an advisor. A complimentary 30-minute strategy call with Dave Halvorson will provide a professional assessment of your score, identify your highest-priority gaps, and outline a preparation timeline tailored to your target exit window.

Schedule a Call

This document is provided for informational purposes only and does not constitute a formal valuation, opinion of value, or engagement to provide advisory services. All assessments are self-reported by the business owner and are not verified by Horizon M&A Advisors. Results are intended to support internal exit planning and should not be shared with prospective buyers or used in connection with any transaction without the written consent of Horizon M&A Advisors.