What a Buyer Checks First

An experienced buyer does not open with your financial statements. Those arrived earlier, and businesses like yours have crossed that desk before.

The opening move is a checklist. The same one, in roughly the same order, on every company that comes up, because the question is not whether your business is good. That much is visible from the outside. The test is narrower and much harder to fake, which is whether what is good about it still works after you leave.

There are six questions on that checklist. Four of them are answered in your records rather than in your operations, which is the part most owners get wrong. They assume preparing to sell means changing how the company runs. Usually it means making the company legible to a stranger who will never take your word for anything.

One: the recurring base, counted the way a buyer counts it

Almost every business has something that repeats. Maintenance agreements, service contracts, managed service plans, retainers, memberships, standing orders, subscriptions, renewals.

Every owner knows roughly how many they have. Almost none has the number a buyer wants.

The count is not what a buyer wants. What a buyer wants is the number that are current, that renew without anybody asking, that are paid by card or bank draft rather than by invoice, and that attach to a company or a property rather than to a person who may move on. Then the renewal rate for each of the last three years, calculated the same way in each of them.

The gap between the two numbers is usually large. Fourteen hundred agreements, of which nine hundred are current and three hundred are on automatic payment, is a good business. It is not a fourteen hundred agreement business, and it will not be priced as one.

A buyer will have your real number inside a week. The only question is whether you have it first.

Two: the money you have already collected

This is the mirror image of the first one, and it surprises people.

When a customer prepays, you hold the cash and you still owe the work. Annual plans paid up front. Retainers drawn down over months. Deposits on jobs not yet started. Blocks of hours sold and not yet used. The portion you have not delivered is an obligation, and it transfers with the company.

A buyer's accountant calculates that balance at closing and treats it as an obligation being assumed, either inside the working capital settlement or as a debt like item that comes off the price. The stronger your recurring base, the larger this number is. The asset and the obligation grow together.

Owners rarely have the figure, because a tax return has no reason to show it. If you have never calculated what you owe in undelivered work, the buyer will calculate it for you, and that estimate will be conservative in the buyer's favor.

Three: the permission that does not convey

Nearly every business operates on somebody else's permission. A license. A certification. A franchise agreement. A dealer or distributor appointment. A facility clearance. A bonding line. An approval from a payer, an accreditor or a prime contractor.

Each one of those has an answer to the question of what happens at a change of ownership, and the answers are not the same. Some transfer with the entity. Some require consent that the other side is under no obligation to give. Some are attached to a named individual, and that individual is usually you.

The clearest example I know sits in the trades, and it is worth walking through because the shape of it repeats everywhere.

In Virginia a Class A contractor license is issued to the business entity rather than to a person, and it is not transferable. The entity must carry a qualified individual, who has to be a full time employee or one of the principals, with at least five years of experience in the classification. A change in that person must be reported to the Board within sixty days. A change in the legal structure of the business requires a new license to be applied for within thirty days.

Now put the owner in that role, which is where the owner usually sits, and put that person on a plane the week after closing. If the buyer bought the assets into a new entity, that entity holds no license at all and cannot lawfully do the work on Monday. If the buyer bought the company itself, there are sixty days to put a qualified replacement in place, and if nobody inside meets the requirement, the clock simply runs out. It is not a pricing problem. It is a stop.

The same shape appears in a dozen other forms. A franchisor whose consent to the transfer arrives with conditions. A dealer agreement that terminates on a change of control. A clearance that does not follow the company to an owner who cannot sponsor it. A bonding line written on a personal indemnity that leaves when you do. A professional practice where the license belongs to the practitioner and the entity is only the wrapper.

The work here is not complicated and it is not quick. List every permission the company operates under. For each one, find out in writing what happens when it is sold. Where the answer is a person, name a second one and give them long enough in the role that the arrangement is real rather than a document prepared for a buyer.

Four: the people who hold the relationships

A buyer reads your roster the way an insurer reads a risk. Average tenure. Who holds the certifications. Whether pay is at market, because a crew that is underpaid is a crew that leaves on the first offer after closing. Which agreements survive a change of ownership and which are handshakes.

Then comes the question that matters most, which is whether the best salesperson in the company is you.

That one is measurable in a way owners do not expect. If work closes at a materially higher rate when you run the meeting, it shows up in the numbers, and the buyer will price the company on the rate the rest of the team achieves rather than on yours. Market commentary puts the discount for genuine owner dependence somewhere between fifteen and twenty five percent. My own experience is that it rarely arrives as a single line item. It arrives as a quieter set of assumptions about what happens to revenue in year one.

Five: the mix that is not worth what it looks like

Most companies carry two or three kinds of revenue that a buyer values differently, and the top line hides the difference.

Recurring work is the base. It is what a buyer is really buying. Project work is the profit, it is lumpy, and it has to be won again. Then there is the third kind, which varies by industry and is always the weakest: work that follows somebody else's cycle. New construction tied to builders. Programs tied to a grant. Volume tied to one customer's expansion that will end when the expansion does.

An owner who spends three years chasing growth without watching which of the three it came from can find the top line rising and the multiple falling at the same time.

Six: everything that runs through you personally

Finally, the related party items get restated, and that happens before anything is valued.

Rent, where the owner holds the building and set the rent years ago. Owner compensation. Family members on the payroll. Vehicles, equipment or intellectual property held outside the company. Personal guarantees that the business has been quietly relying on.

None of this is improper and most of it is ordinary. The issue is that it all gets normalized to market before a price is set, and normalization runs in both directions. Below market rent means the earnings a buyer sees are lower than the earnings on your return, and the difference comes out of the price at whatever multiple applies.

This is also where the real estate decision belongs, and it should be made deliberately rather than at a closing table. Keeping the building and leasing it to the buyer is a legitimate outcome and sometimes the better one. It is simply not a decision to make in the last thirty days.

The pattern underneath the six

Go back over the list and notice how little of it is about how well you run the company.

The real count of the recurring base. The undelivered balance. The permissions and who holds them. The related party items. Four of the six are records. They do not ask you to operate differently. They ask the company to be readable by somebody who will verify everything and assume nothing.

The other two, the people and the mix, are genuine work and take genuine time, which is exactly why they cannot be started in the year you decide to sell.

And all six are versions of the same question. Not whether the business is good. Whether what is good about it survives your departure.

Where to start

If nobody has ever read your company the way a buyer will, the value gap estimate is the cheapest place to begin. You answer questions about the business in plain language, it takes about fifteen minutes, and it asks for no financial statements. I review every one personally and send you the result.