Blog - Lauren Pearl · Lauren Pearl
articleinsightBuying deferred revenue
7 February 2026Profit
Source excerpt
About Blog - Lauren PearlWhen you're buying a business, what are you buying?I was recently discussing an M&A deal with a client involving a business they were considering purchasing.My client owns a related business, and we were exploring acquisitions to expedite growth.We'd looked at a lot of interesting businesses, warts and all, but one in particular sticks in my mind as a great lesson:There was something really funky about this one business we looked at:They had high forecasted revenues of $5M for the next 8 months.They were basing their valuation on a multiple of these revenue numbers.But they currently had almost zero cash in the bank, a couple hundred thousand in AR,They had some big bank & investor loans to pay on the balance sheet and a large interest expense,And they had $8M in deferred revenue.Anyone see what's wrong here?I often talk to founders about the difference between cash and revenue.When I…
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Apollo layer
What a founder can learn
Founder takeaway
In an acquisition, do not value forecast revenue without tracing its cash economics. A large deferred-revenue balance may represent work the buyer must deliver even though the seller has already collected the cash—making it an operating obligation, not fresh cash generation.
Why it matters
Headline revenue can conceal a cash-starved business burdened by debt, interest, and prepaid customer commitments. Separating recognized revenue from future cash receipts helps you assess the true purchase price, funding needs, and downside risk.