If you own a business and you are looking to sell, one of the most common questions that comes up is — how do I know if my business is ready? And what are the seven things I should be looking at to make sure I am ready to go and can get the maximum multiple — the A plus deal? Hopefully you are taking a look five years, four years, three years, two years into the future and saying it is time to prepare. Here is exactly what to evaluate. Learn the full framework in Exit Ratio 360™ and at Exit Ratio 360™ — the 360-point evaluation system.
Question 1 — Can your team run the business for 30 days without you?
This is the first and most revealing readiness test. Can the team you have make enough decisions to run the business for 30 days and do it correctly? Do they have the skills, the decision bands, the authority to act? This is the starting point because you can stage it — leave for a week, then two weeks, then three weeks, then a month. What you want is for your management team to have to answer to each other and to the business — not to you. Start by eliminating owner dependency from the inside out. See also: Key Person Dependency and the BENCH Framework.
Question 2 — What does your client concentration look like?
The dependency of your revenue on certain clients, companies, or individuals is one of the first things buyers examine. If you have 10 clients all paying $1,000 per year — a $10,000 book of business — and one of those clients represents 50 percent of revenue, you have a concentration problem. The danger threshold is 15 to 20 percent maximum in any single account. Above that, buyers have to underwrite the risk of that client leaving after close. The higher the concentration the harder the deal becomes to justify at a premium multiple. Target 10 to 15 percent maximum per client. See also: Customer Concentration Risk.
Question 3 — Are your financials closed on a consistent date every month?
If January ends, are the books closed by the 8th, 9th, or 10th of February? Consistent monthly close on a specific date is proof that you are paying attention to your numbers. It is proof that you know what is going on inside your business financially. This is a line in the sand — your bookkeeper will find every excuse not to do it, but the consistent X-date close tied to a quality of earnings report is one of the most powerful signals of financial discipline a buyer can see.
Question 4 — Do you have documented SOPs for every core revenue-generating process?
Apply the 80-20 rule — what are the eight out of ten processes that must be documented so that if a key person left, died, or was fired the business could continue? Those are the three reasons you will ever need an SOP — someone leaves, someone dies, someone gets fired. Documented SOPs are one of the most visible signals of operational readiness during due diligence.
Question 5 — Does your management team have a track record of independent decision-making?
This comes back to the vacation test. Take a week away. Then two weeks. Then three. What breaks? What decisions get made correctly without you? Mentoring your management team to make decisions the way you would — not just telling them what to do but teaching them how you think — is one of the most overlooked paths to a maximum multiple. Document this track record in your Titan Thesis with specific examples.
Question 6 — Is your recurring revenue percentage above 40 percent?
Do you have contracts? Do you have monthly recurring revenue? Do you have proof that money is coming back? Revenue without proof of recurrence is something buyers discount heavily. A buyer who sees signed contracts and documented recurring revenue history sees a predictable future cash flow — which is what they are actually purchasing. See also: Recurring Revenue — Building Predictability Buyers Pay For.
Question 7 — Would a buyer pay a premium for this business or a discount — and why?
This is the Titan Thesis question. Ask yourself honestly — based on what a buyer would find during due diligence, would they justify paying above market or below market for this business? The answer reveals every gap that still needs to be addressed. Every additional year of preparation gives you more time to get it right, more time to build the track record, and more runway to recover from mistakes before buyers find them. Learn more at The 5-4-3-2 Exit Planning Framework.
How do you know if your business is ready to sell?
Your business is ready to sell when you can answer all seven of these questions cleanly without hesitation — your team can run for 30 days without you, your client concentration is below 15 percent in any single account, your books close on a consistent monthly date, your core processes are documented in SOPs, your management team has a verified track record of independent decisions, your recurring revenue is above 40 percent, and an honest assessment of your Titan Thesis shows a buyer would pay a premium not a discount. When all seven are true — you are ready. When any one is missing — that is where the preparation work starts.
What is the 30-day disappearance test for business readiness?
The 30-day disappearance test asks one question — if you left your business today for a full month, what breaks first and how fast? The answer reveals the exact nature and severity of your owner dependency. You stage the test progressively — leave for a week, then two weeks, then three weeks, then a month. Each stage shows you where the gaps are and gives your management team practice making decisions without routing everything through you.
What is the fastest way to improve business readiness before selling?
Address the item on this list that has the longest lead time first. Owner dependency and management track record take 24 to 36 months to build credibly. Consistent financial close history needs at least 12 months to be meaningful. Client concentration reduction takes as long as your sales cycle. SOPs can be built relatively quickly. The 5-4-3-2 Exit Planning Framework sequences these in the correct order and gives you a realistic timeline for each.
What does business readiness have to do with the Exit Ratio 360™?
The Exit Ratio 360™ scores a business across nine frameworks — LAUNCH, SCORE, SELL, SCALE, DRIVER, EXIT, BENCH, LEAD Model, and THREATS — producing a 360-point total that identifies every preparation gap before a buyer finds it. The seven questions in this video map directly to the SCORE, BENCH, DRIVER, and SELL frameworks inside the system. A business that can answer all seven cleanly is a business that scores well on the Exit Ratio 360™ — and a business that scores well commands the maximum multiple.
Related: Key Person Dependency | Customer Concentration Risk | 5-4-3-2 Framework | Titan Thesis | BENCH Framework | Exit Ratio 360™ | Exit Ratio 360™ on Amazon
About Scott Sylvan Bell
Scott Sylvan Bell is a mid-market exit strategy consultant and the creator of the Exit Ratio 360™ — the only 360-point business evaluation system built specifically for owners of $10M to $250M companies preparing for a sale. He works from Sacramento, California, the North Shore of Oahu, and Tahiti. His book Exit Ratio 360™ is available on Amazon. Learn more at scottsylvanbell.com/why-scott/.
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Full Video Transcript
If you own a business and you’re looking to sell, one of the most common questions that comes up is, how do I know if my business is ready to sell? And what are the seven things that I should be looking at to make sure that I’m ready to go and I get the maximum multiple or that A plus deal? I’m Scott Sylvan Bell coming to you live from Consulting Secrets on a perfect day — talk about business growth opportunities, closing deals, and the seven questions that you need to know about if you’re ready or not. Coming to you live from Haleiwa, Oahu, one of my favorite places on earth.
All right, so you’re on this path, you want to sell. Hopefully you’re taking a look five years, four years, three years, two years into the future, and saying hey, I think it’s time for me to prepare my business to sell. One of the first and easiest things to take a look at is — can you step away from the business for 30 days? Can the team that you have make enough decisions to run that business for 30 days and do it right? Do they have the decision bands? That’s one of the first places to start. You can leave for a week, then two weeks, then three weeks, stage this. Eventually get to a month, then two months, then three months. What you want is for your team to see you step away — and for them to have to answer to managers, to come to questions, and not you. You don’t want owner dependency.
Number two — what is your revenue like when it comes from your clients? The dependency upon certain companies or individuals to bring you money is dangerous if it’s above 15, 20, 30 percent. If you’ve got 10 clients and one of them is 50 percent of the business — that’s dangerous. It’s dangerous for whoever buys you, because if they leave, the buyer has to underwrite that. These deals go to underwriting and like, ooh, you got too much dependency on one person. Where possible, depending on your industry, 10 to 15 percent is the max you’re looking for. Somebody at 50 percent leaves — that’s hard. Somebody at 10 percent leaves — you can find somebody.
Number three — are the financials closed on a set date? If January is over, are the books closed by the 8th, 9th, or 10th of February? Consistent X-date closing is proof that you’re maintaining your books, proof that you’re paying attention. Inside an organization one of the most common places you’ll struggle is the person doing the books finding every excuse not to close on time. This is a line in the sand. If you can tie this to a quality of earnings report yearly, you’re in good position.
Number four — do you have documented SOPs for every core revenue-generating process? If you can find the 80-20 rule — what are the eight out of ten things you have to have so that if somebody left, died, or got fired, you’re covered? Those are the three reasons you’ll ever need them. Somebody leaves, they die, they get fired. Number five — does your management team have a track record of independent decision-making? This comes back to taking a vacation. This comes back to mentoring them and making sure they know how to answer questions and deal with problems correctly. Mentorship of management is one of the things that’s overlooked that helps you get to that maximum multiple.
Number six — is your recurring revenue percentage above 40%? Do you have contracts? Do you have monthly recurring revenue? Do you have proof that that money is going to be back? Revenue without proof is one of those things where a buyer’s like, yeah, that’s kind of iffy. But if you’ve got signed contracts and proof of money coming in — and if you have a Titan Thesis — you can ask yourself, would a buyer pay a premium for this business or give you a discount? My belief is it’s your business. You should get every cent out of it that you can. This means preparing five years, four years, three years, two years out where possible. Can you do it in six months? Yeah. Do you want to? No. Can you do it in 18 months? Yeah. Do you want to? No. You want as much opportunity to get it right and as much opportunity for error as you can, so that you can get the maximum advantage to get the maximum multiple. Aloha. Mahalo.