The Exit Readiness Audit: 20 Questions That Decide What Your Business Is Worth
A self-assessment for owner-managers. Score your business the way an institutional buyer would before they do it for you.
In short
Private equity buyers don't price your business on turnover and reported profit. They price risk, predictability and whether the business works without you. When due diligence finds a problem, buyers rarely walk away. They keep the deal and cut the price, reducing the multiple, disputing your profit adjustments, or moving cash out of completion and into an earn-out you have to work for. This audit scores your business across the five areas buyers examine, so you can find those problems while you still have time to fix them.
Why buyers cut the price instead of walking away
By the time a buyer is in your data room, they have spent money on lawyers and accountants and they want a deal. What they will not do is pay a full price for a business that carries risk they hadn't priced.
So they re-cut the offer. Three levers, usually in combination:
The multiple comes down. Every dependency they find (you, one big customer, one unrepeatable contract) knocks a fraction off the multiple they'll apply.
The profit figure comes down. Their accountants test every adjustment you've made to your profit. Anything you can't evidence gets removed from the number they multiply.
The cash moves backwards. Money that was going to be paid at completion becomes an earn-out or a retention, paid only if the business performs after you've sold it.
None of this happens because your business is bad. It happens because it isn't ready to be examined. That is a fixable problem, and it is usually a 12 to 24 month one.
How to score yourself
Twenty questions, five areas. For each one, pick the option that honestly describes where you are today; not where you intend to be.
A - 5 points. In place, documented, and would stand up to a stranger's scrutiny.
B - 2.5 points. Partly there. Informal, in progress, or dependent on someone's memory.
C - 0 points. A red flag. Unaddressed, or entirely dependent on you.
Keep a running total out of 100. The five areas carry different weights, reflecting how much attention each gets in a real diligence process:
| Area | Questions | Points available |
|---|---|---|
| 1. Your numbers | 1-5 | 25 |
| 2. Your management team | 6-10 | 25 |
| 3. Your customers and revenue | 11-14 | 20 |
| 4. Your contracts and housekeeping | 15-17 | 15 |
| 5. Your growth story | 18-20 | 15 |
Area 1: Your numbers (25 points)
Buyers call this quality of earnings. It means: is the profit you're reporting real, repeatable, and evidenced?
1. How quickly and how reliably do you close the month?
A (5): Month-end closes within 10 working days on a proper cloud accounting system, with the balance sheet reconciled every month.
B (2.5): Accounts arrive within 20 working days, but they're built in Excel with manual adjustments.
C (0): Accounts are irregular, cash-based, or produced once a year for the tax return.
2. Can you evidence your profit adjustments?
A (5): Every one-off, exceptional and personal cost is separately identified with proof behind it (invoices, contracts, board notes) ready to hand to a buyer's accountants.
B (2.5): You know roughly what the adjustments are, but nothing is written down or evidenced.
C (0): Personal and business costs are mixed together, and statutory profit is the only figure you have.
3. Have your accounts been independently tested?
A (5): Audited for at least the last two years by a recognised firm, with a clean opinion each time.
B (2.5): Unaudited, but prepared on a proper accruals basis (FRS 102) by an external accountant.
C (0): Unaudited, with revenue recognised early, or work-in-progress and stock treated differently from one year to the next.
4. Do you know where your cash is going?
A (5): A rolling 13-week cash forecast, plus a model that links profit, balance sheet and cash together.
B (2.5): One to three months of basic cash forecasting, but debtor days, creditor days and stock turn aren't tracked.
C (0): Cash is managed by looking at the bank balance.
5. Who actually runs your finance function?
A (5): A commercial CFO or head of finance presents the numbers to the board without you in the room.
B (2.5): A capable financial controller or bookkeeper handles the day job, but you build anything commercial.
C (0): You are the finance director (banking, payroll approvals, reporting, all of it).
See Bayside Advisory service: Exit Readiness, and Fractional CFO
Area 2: Your management team (25 points)
The single most expensive question in this audit is question 6. Buyers are not buying your business; they are buying it without you in it.
6. Could the business run without you for six weeks?
A (5): Yes. Six weeks away, with no effect on revenue, delivery or client retention.
B (2.5): The team runs day to day, but you're pulled in for escalations, technical problems and any significant decision.
C (0): Work stops, or slows badly, when you're not there.
7. Who owns the client relationships?
A (5): A commercial team owns sales end to end. No client relationship depends on you.
B (2.5): The team wins new business, but your largest customers expect to see you at least once a year.
C (0): You are the main source of new business, and you personally hold the relationships behind most of the revenue.
8. What keeps your senior people after the sale?
A (5): Key non-founder managers are tied in through EMI options, growth shares or formal retention arrangements.
B (2.5): Senior managers receive discretionary bonuses, but hold no equity and have no long-term incentive.
C (0): Nothing formal is in place.
9. Is there a board, or just meetings?
A (5): Monthly board meetings with a proper board pack, minuted decisions, tracked actions, and at least one independent voice in the room.
B (2.5): Regular management meetings, but informal agendas and decisions rarely written down.
C (0): Meetings happen when there's a crisis or a filing deadline.
10. What happens if a function head resigns tomorrow?
A (5): Every function (operations, sales, technical, finance) has someone trained and ready to step up immediately.
B (2.5): Partial cover. Losing one or two senior people would disrupt the business for three to six months.
C (0): Single points of failure across several departments.
See Bayside Advisory service: Management Team Strengthening
Area 3: Your customers and revenue (20 points)
11. How concentrated is your customer base?
A (5): Your largest customer is under 10% of revenue, and your top five are under 30% combined.
B (2.5): Your largest customer is 10-25% of revenue, or your top five are 30-50%.
C (0): Your largest customer is above 25% of revenue, or your top five are above 50%.
12. How much of next year's revenue can you already see?
A (5): More than 60% comes from multi-year contracts, recurring licences or committed service agreements.
B (2.5): Revenue is repeat and relationship-led with strong retention, but nothing is contracted beyond the current year.
C (0): Project by project, with little visibility beyond about 60 days.
13. Are your margins holding?
A (5): Gross margin has held or improved over three years, and you can show the price increases you've put through.
B (2.5): Margins are tracked, but cost inflation has squeezed them because price rises went through late.
C (0): Margin varies widely by job or customer, there's no standard costing model, and discounting isn't monitored.
14. Do you know who you're losing?
A (5): You track churn and net revenue retention monthly by customer cohort, and net retention is above 100%.
B (2.5): Lost clients are reviewed at year end, but there's no cohort analysis and no formal retention measure.
C (0): Churn isn't tracked. Losses get covered by new work.
Bayside Advisory Service: Exit Planning & Strategic Value Creation
Area 4: Your contracts and housekeeping (15 points)
This area rarely changes the price. It routinely delays completion and every week of delay is a week the buyer can find something else.
15. Does the company own what it sells?
A (5): Trademarks, patents, code, domains and brand names are registered to the company, and every employee and contractor has signed an IP assignment.
B (2.5): Nobody disputes who uses what, but some older contractor agreements have no clear IP assignment clause.
C (0): Core IP, code, domains or the brand sit in your personal name, or with a developer who never signed a contract.
16. Do your contracts survive a change of ownership?
A (5): Material customer and supplier agreements are on your standard terms, with change-of-control clauses that let a sale proceed cleanly.
B (2.5): Mostly standard terms, but several large accounts are on the customer's paper and need their written consent to a sale.
C (0): Key relationships run on verbal agreement, expired contracts, or terms that let the customer walk away when you sell.
17. Is the company's paperwork clean?
A (5): Cap table, statutory registers, Companies House filings, and the history of share issues and transfers are complete and reconciled.
B (2.5): Some historic filings need tidying, but share ownership and dividend history are undisputed.
C (0): Unresolved share promises, missing stock transfer forms, or inter-company loan balances that have never been squared off.
Area 5: Your growth story (15 points)
18. Why you, and why now?
A (5): A defensible position in a defined niche, with real barriers to entry and evidence of the return your clients get.
B (2.5): A strong regional reputation, but you compete on service quality rather than anything a competitor couldn't replicate.
C (0): What you sell is close to a commodity, and you regularly compete on price in open tenders.
19. Where does the next phase of growth come from?
A (5): A pipeline you trust in a CRM, a clear view of the market you can address, and the capacity to grow 15%+ a year without acquisitions.
B (2.5): Prospects look good, but new sectors or regions are still an idea rather than something you've proved.
C (0): The core market is mature or shrinking, and growth would need significant speculative investment.
20. What plan does a buyer inherit?
A (5): A costed three-to-five-year plan showing how a buyer doubles or triples profit: through pricing, technology, acquisitions, or whichever levers apply.
B (2.5): Leadership knows the opportunities, but nobody has put numbers to them.
C (0): No growth story beyond carrying on as you are.
Bayside Advisory services: Exit Planning , Acquisition Support and Financial Modelling
Your score
Add up your points and find your band. The discount ranges below are illustrative: they show the direction and rough scale of what buyers typically do with each level of risk, not a formula. Every deal turns on its own facts.
| Score | How a buyer sees it | Typical consequence |
|---|---|---|
| 85-100Ready | A prepared asset. You can run a competitive process with several bidders. | Little or no discount. Upper-quartile multiple for your sector, most of it paid at completion. |
| 65-82.5Close, with friction | A credible target, but there are things to argue about. | Roughly 1x-2x off the multiple. Real money left on the table. Around 12 months of preparation would recover most of it. |
| 40-62.5Significant leakage | Material dependencies. The buyer prices for the risk of them being right. | Roughly 2x-3.5x off the multiple, plus a restrictive earn-out. High chance of a price cut during diligence. |
| Below 40Not yet a transaction | Institutional buyers will pass. The problems sit across several areas at once. | A sale process now is likely to fail publicly. Fix the business first. |
What "value leakage" actually costs
Value leakage is the gap between what your business could be worth to a prepared buyer and what actually lands in your bank account at completion.
Here is what it looks like on an illustrative business making £3m of adjusted profit. These figures are an illustration of the mechanics, not a benchmark.
| Prepared business | The same business, unprepared | |
|---|---|---|
| Adjusted profit the buyer accepts | £3.0m | £2.7m: £300k of adjustments disallowed for lack of evidence |
| Multiple applied | 8.5x | 7.0x: 1.5x removed for founder dependency and customer concentration |
| Headline enterprise value | £25.5m | £18.9m |
| Paid at completion | £25.5m | £16.9m: £2.0m pushed into a three-year earn-out |
| Difference in cash at completion | - | £8.6m |
Two things are worth pulling out of that table.
First, the £300k of disallowed adjustments cost £2.1m, not £300k. Anything that changes your profit figure gets multiplied by the multiple. At the 7x applied here, every £100k of adjustments a buyer's accountants disprove takes £700k off the price. At 8x it's £800k. This is why evidence for your adjustments is the highest-return paperwork in the business.
Second, the £2.0m earn-out isn't lost, but you only get it by staying and hitting targets set by someone who now owns the business. Owners who accept an earn-out on a business they weren't ready to sell often find the same operational gaps that caused the earn-out are the reason they miss it.
Plain English: five terms your buyer will use
Quality of earnings (QoE). The buyer's own investigation into whether your reported profit is real and repeatable. Usually the first thing they commission.
Add-back / normalisation. An adjustment you make to reported profit to show what the business really earns, removing one-off costs, or personal costs that a new owner wouldn't carry. Buyers challenge every one you can't evidence.
Re-trade. Reducing an agreed price after diligence, using something found in diligence as the reason.
Earn-out. Part of the price, paid later, only if the business hits agreed targets after you've sold it.
Escrow / retention. Part of the price held back in a third party's account for a period, in case a warranty you gave turns out to be wrong.
Frequently asked questions
What is exit readiness?
Exit readiness is the state of having removed the things a buyer would otherwise discount you for - before you go to market. In practice it means evidenced accounts, a management team that runs the business without the owner, contracts that transfer cleanly, and a growth plan a new owner can execute. It is not the same as wanting to sell.
What do private equity buyers look for in a mid-market business?
Three things, in this order: whether the profit is real and repeatable, whether the business runs without its founder, and whether there is a credible plan to grow it substantially over the next three to five years. Headline turnover matters far less than owners expect.
Why do buyers reduce the price after they've already made an offer?
Because an offer is made on the information you provided, and diligence tests it. When testing finds unevidenced profit adjustments, key-person dependency, customer concentration or contract problems, the buyer re-prices the risk rather than withdrawing. They have already spent money on advisers, and they want the deal at a lower price.
How much does founder dependency reduce a business valuation?
There's no fixed figure, and any adviser who gives you one is guessing. What is consistent is the direction: the more the business depends on one person, the more of the price moves out of completion cash and into deferred consideration the seller has to earn. In our experience it is the single most common reason an owner receives materially less than the headline number they were quoted.
How long does it take to get a business ready for sale?
Typically 12 to 24 months for the changes that move the price: building out a management layer, evidencing your adjustments, converting relationships into contracts, and demonstrating the result for long enough that it looks like a trend rather than a tidy-up. Financial and contract housekeeping can be done faster. Reducing owner dependency cannot.
Should I do this before or after I decide to sell?
Before. Every fix in this audit takes time to become credible. A buyer wants to see two years of clean accounts, not two months. Owners who start this work when the offer is already on the table have no leverage left.
Review your score with us
If you scored below 85, the gap between your score and 100 is a number with a pound sign attached to it. It is worth knowing what that number is while you can still do something about it.
In a confidential 45-minute conversation, we will:
Go through your scores area by area against what mid-market buyers are actually accepting right now.
Identify the three issues costing you the most value, and what each one is likely worth.
Set out a realistic 12 to 24 month plan to close them.
No commitment, no charge, and you'll leave with a clearer view of your position whether or not you work with us. Every initial conversation is strictly confidential.