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One-off revenue inside the last 12 months

A contract, windfall or spike that will not repeat can sit inside the last 12 months and be priced as if it will. Take it out before you value the business.
Category
Financials
Applies to
All business models
Severity
Price it in
Last updated
Author
Loupe editorial
Reviewer
Not yet reviewed

Why it matters

Trailing twelve months figures are useful because they are recent. That also makes them easy to flatter. A large project that will not repeat, a one-time order, a product that sold out after a burst of press coverage, a grant, an insurance payout or the sale of old equipment can all sit inside the last 12 months and be priced as if they will happen again.

One-off revenue does two kinds of damage. It inflates the earnings you pay a multiple of, and it makes the trend look better than it is. In Loupe's valuation tool, revenue that rose 5% to 20% on the previous 12 months adds 5% to the multiple at its starting settings, and a rise of more than 20% adds 10%. A single contract can lift a flat business into those bands, so remove it before you enter the figures. The same works in reverse: a one-off in the earlier 12 months can make a steady business look as if it is declining.

Here is a fictional example. Marrowfield Signs reports revenue of £1,000,000 for the last 12 months. That includes a £150,000 contract to refit a stadium, which will not repeat, so normalised revenue is £850,000. If the contract earned a 30% margin, £45,000 of profit comes out too, and at an illustrative multiple of three the value falls by £135,000.

Some one-off items sit lower in the accounts, under other income: interest, grants, insurance claims, supplier refunds or gains on selling assets. They do not change revenue, but they lift profit in the same way.

Trailing twelve months (TTM)

Trailing twelve months means the most recent 12 consecutive months of figures, whatever the financial year. It gives a more current view than the last set of annual accounts.

How to spot it

Ask for revenue by month and by customer for the last 24 months. Then look for:

  • A spike in particular months that does not appear in the same months of earlier years.
  • A customer or project that appears in the last 12 months and nowhere before.
  • Other income that is larger than in previous years.
  • A listing that quotes the last 12 months when the last full financial year was weaker.
  • Revenue recognised in a lump when a project finished, rather than as the work was done.
  • Phrases such as "record year" or "exceptional growth" with no explanation of where the growth came from.

Questions to ask the seller

  • Which customers, projects or orders in the last 12 months are not expected to repeat?
  • What is included in other income, and will any of it continue?
  • Were any grants, insurance payouts, supplier refunds or asset sales recorded as income?
  • How much of the next 12 months' revenue is already contracted or ordered?
  • If the one-off items were removed, what would revenue and profit for the last 12 months be?

Asset sale versus share sale

In an asset sale you buy selected assets of a business; in a share sale (a stock sale in the US) you buy the company itself, with its full history. The choice shapes risk, tax and what needs consent.

Documents to request

  • Monthly revenue by customer for the last 24 months
  • A breakdown of other income by source for the last three years
  • Contracts or purchase orders for the largest jobs in the period
  • Grant letters, insurance settlements or asset sale records, where relevant
  • The current order book or pipeline for the next 12 months
  • General ledger detail for the revenue and other income accounts

Want this checked properly on a real listing?

A dossier checks the listing's figures, registrations and risks, with a source and confidence for every finding. Open a listing in the feed and request a dossier from its page.

Browse the feedWhat is in a dossier

Related red flags

  • Declining revenue or profit

    Falling sales or profit mean the business you take over is likely to earn less than its history suggests. Listings often price in the better years.

    Severity: price it inFinancials

  • Heavy discounting to hit targets

    Revenue bought with deep discounts, cut-price prepaid deals or stock pushed onto resellers flatters the final year before a sale and is unlikely to last.

    Severity: price it inCustomers and revenue

  • One customer above 20% of revenue

    When one customer brings in more than a fifth of revenue, much of the value you are buying depends on a relationship you do not yet control.

    Severity: price it inCustomers and revenue

  • Figures that change between the teaser and later documents

    Revenue, profit or add-backs in the teaser or listing do not match the information memorandum, the management accounts or the tax returns. Some changes have a simple explanation; others mean the first figures were never real.

    Severity: price it inSeller and process

  • Large or undocumented add-backs

    Add-backs raise the earnings a price is based on. When they are large, vague or unsupported, much of the asking price rests on claims rather than records.

    Severity: price it inFinancials

Guides

  • How to read a business-for-sale listing

    A listing is a sales document written to win enquiries. This guide shows how to read its numbers, its wording and its gaps, and how to turn them into questions before you sign an NDA.

    10 minutes to read

  • SDE and EBITDA explained with worked examples

    SDE and adjusted EBITDA both restate a business's profit for a buyer, but they answer different questions. This guide builds each one up line by line for two fictional businesses and shows which to use.

    9 minutes to read

  • How small businesses are valued

    Most small businesses are valued as a multiple of their earnings. This guide explains how the earnings basis is chosen, why size and quality move the multiple, and why an asking price is not a sale price.

    11 minutes to read

Checklists

  • Twenty-minute listing screen

    A quick first pass over a business-for-sale listing, so you can decide whether it deserves a call, an NDA or neither before you spend more time on it.

    About 20 minutes

  • Diligence document request list

    The documents to ask for once terms are agreed in principle, grouped by area so the seller can fill a data room in order and you can see what is still missing.

    About 30 minutes

Terms used

  • Trailing twelve months (TTM)

    Trailing twelve months means the most recent 12 consecutive months of figures, whatever the financial year. It gives a more current view than the last set of annual accounts.

  • Normalised earnings

    Normalised earnings are profits restated to show what a business would earn in a typical year under a new owner, after removing one-off items and correcting costs that are not at market rates.

  • Run rate

    A run rate annualises a recent short period, such as last month's revenue multiplied by twelve. It shows current pace, not what the business actually earned over a year.

  • Recurring revenue

    Recurring revenue comes back without being won again each time, through subscriptions, retainers or service contracts. Contracted revenue is the part committed for a fixed term.

  • Valuation multiple

    A valuation multiple expresses a price as a number of times a financial measure, such as SDE, adjusted EBITDA or ARR. It only means something once you know what it is applied to.

Free tools

  • See a low, likely and high value from the figures you have, and whether the asking price holds up.

  • Answer about 15 quick questions about a listing to see which areas need checking.

Live listings where this applies

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