The eight numbers every buyer checks first
Buyers run the same ruler over every business, whatever the industry. Here are the eight numbers they start with, and why knowing them changes the negotiation.
General information only, not financial, legal or taxation advice. Tony Pope holds Queensland Office of Fair Trading licence 4963575.
The short version
- Buyers assess the same eight measures in almost every business sale, regardless of industry.
- An owner who presents these numbers unprompted lowers the buyer's risk perception, and risk perception is what discounts prices.
- None of the eight need to be perfect. They need to be known, honest and improving.
The usual preparation for a sale is tidying the yard and printing the profit and loss. Buyers do not start there. They start with a set of measures that tell them how much of your business survives your departure, and they run the same ruler over a turf farm, a transport fleet and an online store.
The eight
Normalised earnings. Not the accounting profit. The true earnings once your wage, personal costs and genuine one off expenses are added back. Every add back needs documenting, because undocumented ones get struck out in due diligence and take price with them.
Owner dependence. How much of the business walks out the door with you. If you price every job, hold every relationship and answer every call, the buyer is applying for a job rather than acquiring an asset.
Customer concentration. Revenue share by customer across three years. One client at sixty per cent of turnover is the first risk a buyer prices and the first question their financier asks.
Recurring or contracted revenue. Revenue on the calendar is worth a multiple of revenue on the phone. This single split moves the price more than almost anything else on the list.
Margin by line, not blended. Buyers want to see which work actually makes money after every cost. They will find the customer you have been servicing at a loss out of loyalty.
Transferable systems. Whether the process lives in a system or in someone's head. Documented beats remembered every time.
Asset condition and finance position. For anyone carrying plant, gear or stock, the honest market value and the payout figures. Book values are routinely wrong in both directions.
Clean records. Three tidy financial years, business and personal spending separated, and numbers that reconcile to the bank and to whatever system runs the operation.
Why it matters more than the list suggests
A seller who hands this over on day one changes the tone of the whole process. The buyer's uncertainty drops, due diligence gets shorter, and shorter due diligence protects deals. Deals rarely die on price. They die in the gap between agreement and settlement, while somebody goes looking for something and finds a surprise.
The other reason to know these numbers early is that most of them are moveable. Concentration comes down over eighteen months. Contracted revenue can be built. Owner dependence can be engineered out with enough lead time. That is the whole argument for having the conversation a year or two before you intend to sell, rather than the week you decide you have had enough.
Common questions
What do buyers look at first when buying a business?
Normalised earnings, owner dependence, customer concentration, recurring or contracted revenue, margin by line rather than blended, transferable systems, asset condition and finance position, and whether the financial records are clean. They run the same ruler over a turf farm, a transport fleet and an online store.
What should I prepare before a buyer asks?
Three tidy financial years that reconcile to the bank, a documented normalisation with evidence behind every add back, revenue share by customer across three years, a plant schedule with honest market values and payout figures, and written process documentation. Handing this over unprompted lowers the buyer's risk perception, and risk perception is what discounts prices.
Do these numbers need to be perfect?
No. They need to be known, honest and improving. A buyer is not expecting a flawless business. They are pricing uncertainty, and an owner who can produce the numbers and explain the weak ones removes far more uncertainty than an owner who cannot.
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.
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Ask what it is worth
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If you would rather not put anything in writing yet, ring 0431 124 128. Prefer to pick a time yourself? Book a time in my diary.
Thinking about selling?
Thirty minutes, on the phone or in person, at a time that suits you including evenings. You will get a straight read on where the business sits today and what would move the number. It costs nothing, there is no obligation, and nobody finds out you asked.