Twelve things a buyer's accountant and lender test, and what a no costs you
The twelve questions in my free readiness check, grouped by what they test, why a buyer's accountant and lender ask each one, and what a no answer costs in a sale.
General information only, not financial, legal or taxation advice. Tony Pope holds Queensland Office of Fair Trading licence 4963575.
The short version
- The free readiness check on this site asks twelve questions, scores 2 for yes, 1 for partly and 0 for not yet, and gives a total out of 24.
- It runs in your browser, stores nothing, asks for no email, and the score is indicative only, not a valuation.
- The twelve questions fall into seven groups: records, the owner, revenue, the lease and licences, people, assets and timing.
- Each question is one a buyer, their accountant or their lender will raise, whether you have asked it first or not.
- A no answer costs a seller in one or more of four ways: a lower price, part of the price made conditional, a longer timetable, or fewer buyers able to get finance.
My free readiness check asks twelve questions, and each one is a thing a buyer's accountant or lender will test whether you have asked it first or not. This piece goes through all twelve, grouped by what they test, with why each matters and what a no costs you.
What the check is, and what it is not
The readiness check is twelve questions. Each answer scores 2 for yes, 1 for partly and 0 for not yet, so the total is out of 24. It runs in your browser on the page itself. Nothing you enter is stored or sent, there is no form, and it does not ask for your email.
The score is indicative only. It is not a valuation, and the page says plainly that no business should be bought, sold or valued on the basis of it.
At the end it gives one of three bands, worded on the page as "ready, or close to it" for 19 or more, "saleable, with fixable gaps" for 11 to 18, and "a map, not bad news" for 10 or less.
A no answer costs a seller in one or more of four ways: a lower price, part of the price made conditional on what happens after settlement, a longer timetable, or fewer buyers who can get finance. Here is where each question sits.
Records
1. "Could you hand over three years of lodged tax returns and financials within 48 hours?"
This is where a buyer's lender starts. Business Queensland's due diligence list for buyers asks for tax returns for a minimum of three previous years, and a profit and loss statement for three years or longer. If they are not ready, everything waits for them, and a buyer who waits starts to wonder why.
2. "Are this year's management accounts reconciled to those returns?"
The returns cover the past. The management accounts cover the months since. A buyer's accountant wants the two to tell the same story. If this year's figures do not reconcile to the method used in the returns, the accountant cannot tell whether the business has changed or the bookkeeping has, and doubt is priced.
9. "Are your add-backs documented, each with a paper trail?"
Add backs are the costs that belong to you rather than to the business, added back to show what it really earns. An add back with an invoice and a bank line has a far better chance. One without gets struck out, and where the price is a multiple of earnings, it can fall by that amount times the multiple. A lender may not lend against add backs it cannot verify at all. More on which ones hold in add backs that survive due diligence.
What a no costs: time first, then price. An accountant who has to rebuild your records charges the buyer for it, and the buyer remembers.
The owner
3. "Would the business run for four weeks without you?"
A buyer is paying for earnings that continue after you leave. If they stop when you stop, the buyer is buying a job, and they price that risk into the offer.
7. "Are your day-to-day processes written down, so a stranger could follow them?"
If it lives in your head, the buyer is buying your head, and you are leaving. Business Queensland's advice to sellers is to build a strong management team to help the new owners through transition, and to put plans in place so staff can run the business when you sell.
What a no costs: a longer handover, part of the price held back until the business proves it runs without you, or a lower price where neither is agreed.
Revenue
5. "Is your biggest customer under 20 per cent of revenue?"
That figure is the check's line, not a law. Past it, one lost customer starts to change what the business earns, and a lender has to ask what is left without them. The hint on the page puts it simply: concentration is priced as risk.
6. "Is a decent share of revenue repeating: contracts, accounts, re-orders?"
Revenue that repeats is revenue a buyer can forecast and a lender can lend against. Work won job by job has to be won again by the new owner. Predictable revenue earns a higher multiple.
What a no costs: a lower multiple, or part of the price tied to the revenue holding up after settlement.
The lease and licences
4. "Does your lease have three or more years left, options included?"
A buyer's lender wants the lease to outlast the loan. Business Queensland lists leases, with their terms and conditions, among the financial documents a buyer reviews. A short lease with no option is a finance problem before it is anything else. There is more in your lease could cost you the sale.
10. "Do the licences the business trades on transfer, or can the buyer get their own quickly?"
Some licences attach to you, not the business. Business Queensland's due diligence list covers licences twice: staff licences and qualifications, and the business's own licences and contracts. If the buyer cannot trade on day one, they are not buying a going business. Which of yours transfer is a question for the regulator that issued it, or your solicitor.
What a no costs: fewer buyers who can get finance, and conditions in the contract, such as landlord consent or a new licence, that can push settlement back.
People
8. "Would your key staff stay through a change of owner?"
Expect a buyer to ask this early, and a yes needs a reason behind it: a manager with real authority, people who have been there for years, arrangements in writing. Business Queensland lists staff and contractor contracts among the documents a buyer reviews. Entitlements matter too. The Fair Work Ombudsman says that where the old and new employers are not associated entities, the new employer can choose not to recognise prior service for annual leave and redundancy. How that is handled is a negotiation, and your solicitor and accountant should be in it. More in what happens to staff entitlements when you sell.
What a no costs: a buyer who discounts for the risk of losing the people who run the business, or who asks you to stay longer to hold them.
Assets
11. "Is your plant and equipment maintained, listed, and actually owned by the entity selling?"
A buyer's solicitor can search the Personal Property Securities Register, which can be searched by serial number or by grantor details, to find any security interest registered against the assets. Business Queensland lists plant, equipment and vehicles, maintenance records, and outstanding debt or title among the things a buyer checks. An asset register with finance owing against it, found late, surprises everyone.
What a no costs: a price renegotiated in due diligence, or a settlement held up while finance is paid out and security released.
Timing
12. "Could you wait twelve months and sell then, if the price was better?"
Business Queensland tells sellers they are less likely to get the price they would like if they need to sell quickly for financial or personal reasons. A seller who can walk away negotiates differently from one who cannot, and a buyer can tell.
What a no costs: leverage. Options are worth money, and a forced timetable gives them to the buyer.
What the score does not tell you
Two businesses with the same score can be worth very different amounts. The check measures how a business will stand up when a buyer's accountant and lender test it. It does not measure earnings, sector or who is buying, and those set the price. For how a price is worked out, see what is my business worth.
A low score is not a verdict either. Every question on the list is something an owner can change, and some take longer than others. Some records can be put right in weeks. Owner dependence, customer concentration and the lease take months, sometimes a year or two.
Where a broker fits
I am not a valuer, an accountant or a solicitor. What I can do is take your answers, look at the business behind them, and tell you which of the gaps a buyer is likely to price and which are worth fixing before you go to market.
Common questions
What does the readiness check measure?
It asks twelve questions about records, owner dependence, revenue, the lease, licences, staff, assets and timing. Each answer scores 2 for yes, 1 for partly and 0 for not yet, for a total out of 24. It is indicative only and it is not a valuation.
Does the readiness check store my answers or ask for my email?
No. The check runs in your browser on the page itself. Nothing you enter is stored or sent, and there is no form or email address to give. Close the page and the answers are gone.
What do the score bands mean?
The page gives three bands. A score of 19 or more is labelled ready, or close to it; 11 to 18 is saleable, with fixable gaps; and 10 or less is a map, not bad news. None of the bands is a price or a promise of a sale.
Is a high score the same as a good price?
No. The check tells you how a buyer's accountant and lender are likely to find the business when they test it. What it is worth depends on its earnings, its sector and the buyers in the market, which is what a written appraisal sets out.
Keep reading
All notes on selling a business · All seller guides · What is my business worth?
Check it yourself
Primary sources, none of them affiliated with me and none of them endorsing this site. Where anything here differs from an official source, the official source is right.
Links open on external government and industry websites. The full list sits on licensing, registers and official sources.
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