The buyer checklist: what gets scored
| Factor | What buyers want to see | Red flag | How to fix it before selling |
|---|---|---|---|
| Earnings quality and trend | Profit that ties to tax returns and bank deposits, with a flat or rising trend over recent years. | Add-backs the buyer can't verify, a one-time spike in the latest year, or profit that only exists after heavy adjustments. | Document every add-back with invoices or payroll records, and let the trend speak for itself rather than selling off a peak year. |
| Recurring revenue | Service contracts, subscriptions, maintenance agreements or repeat customers who reorder on a schedule. | Every month starts at zero and depends on winning new one-off jobs. | Convert repeat customers to written agreements, add maintenance or service plans, and track renewal and retention rates. |
| Customer concentration | Revenue spread across many customers, so losing any one doesn't threaten the business. | One or two customers account for a large share of sales, especially without a contract. | Grow other accounts, put the big customer under a multi-year contract, and make sure the relationship sits with your team, not just you. |
| Owner dependence | The business runs for weeks without the owner: sales, scheduling, quoting and key relationships are handled by others. | The owner is the top salesperson, the only estimator, the license holder and the person every customer calls. | Hand off sales and operations to named people, write down how the work gets done, and take a real vacation to prove it. |
| Management depth | A second layer of managers with clear roles who will stay after the sale. | Everyone reports to the owner, and no one else has authority to make decisions. | Promote or hire a general manager or operations lead, give them real authority, and let buyers meet them. |
| Gross margin | Stable or improving margins that hold up against industry peers and show pricing power. | Margins sliding year after year, or margins that swing with no clear explanation. | Review pricing, cut unprofitable work or customers, and be able to explain any year where margin moved. |
| Growth | Steady growth with a believable path to more: new territories, services, customers or capacity. | Flat or declining sales with no plan, or a growth story that relies on the owner's personal effort. | Write a short growth plan with specifics, and show the early results of any initiative you've started. |
| Records and clean books | Accrual-basis financial statements, reconciled monthly, that match the tax returns. | Personal expenses run through the business, cash sales off the books, or financials that don't match the returns. | Move to a qualified bookkeeper or CPA, stop running personal costs through the company, and consider a sell-side quality of earnings review. |
| Capital expenditure needs | Equipment, vehicles and systems that are maintained and not due for a large replacement soon. | Aging fleet or machinery the buyer will have to replace right after closing. | Keep a fixed-asset list with ages and maintenance history, and replace or budget for big items before going to market. |
| Working capital | Receivables collected on time, inventory that turns, and a normal level of working capital that's easy to agree on. | Old receivables, obsolete inventory, or wide month-to-month swings that make the peg hard to set. | Collect or write off old receivables, clear dead inventory, and track working capital monthly so you know your normal level. |
| Contracts and licenses | Customer, supplier and franchise contracts and permits that can be assigned to a new owner or carry over in a stock sale. | Key contracts with change-of-control clauses, or licenses held personally by the owner that can't transfer. | Read every major contract for assignment terms, get consents lined up, and put a qualifying employee on any required license. |
| Real estate and lease | A lease with enough remaining term and renewal options, or owned real estate with a clear plan to sell or lease it to the buyer. | A lease that expires soon after closing, can't be assigned, or a landlord who won't cooperate. | Negotiate an extension or renewal option now, and decide whether you'll sell the property or lease it to the buyer. |
| Key employees | Experienced people who know the customers and the work, and who are likely to stay. | One technician, estimator or salesperson the business can't run without, with no agreement to stay. | Cross-train, document their knowledge, and consider retention bonuses that pay out after a sale. |
How buyers actually score a business
Every buyer is answering the same two questions: how much cash will this business produce after I own it, and how confident am I in that number? The price is the earnings figure times a multiple. The earnings figure comes from your books after the buyer accepts or rejects your adjustments. The multiple reflects risk and growth: the more reliable and transferable the earnings look, the higher the multiple a buyer will pay.
That is why the checklist above matters. Each factor either supports the earnings figure or moves the multiple. Clean records protect the earnings figure. Recurring revenue, a spread-out customer base, a management team and transferable contracts raise the multiple, because they make the future cash flow more certain. A red flag rarely kills a deal on its own, but it gives the buyer a reason to lower the price, ask for an earn-out, or ask you to carry a seller note so you share the risk. See earn-outs and seller notes for how those structures work.
Buyers also score how hard the business will be to take over. A business that needs the owner for every sale, every quote and every key relationship is worth less to someone who is not that owner.
Earnings quality: the number the buyer will actually use
Owners usually present seller's discretionary earnings (SDE) or adjusted EBITDA, which add back the owner's pay, personal expenses and one-time costs. Buyers accept add-backs they can verify and reject the rest. Every rejected add-back reduces the earnings figure, and the price falls by that amount times the multiple.
What buyers test: do the financial statements match the tax returns, do revenue figures match bank deposits, are expenses recorded in the right period, and is the latest year representative or a peak? Larger buyers often commission a quality of earnings review, an accounting review that rebuilds your earnings from the underlying records. Smaller buyers and their lenders do a lighter version of the same work. Either way, the buyer's number is the one that sets the price.
- Keep a written schedule of every add-back with the evidence behind it: invoices, payroll records, a one-time legal bill, a family member's salary for work they didn't do.
- Don't count on cash sales that never reached the books. If it isn't on the tax return, most buyers and lenders won't pay for it.
- Be ready to explain any year that looks different: a large one-off job, a lost customer, a pandemic-era swing, a price increase.
- Separate personal and business spending well before a sale, so fewer adjustments are needed in the first place.
Transferability: will the business work without you?
Owner dependence is the single most common reason a profitable small business sells for less than its owner expects. A buyer is not paying for your personal effort; they are paying for the business that remains after you leave. If customers buy because of you, if you are the only person who can quote a job, or if the operating license is in your name, the buyer has to assume some of that value walks out the door with you.
Buyers look for proof that the business runs without the owner: a manager who handles day-to-day decisions, salespeople who own customer relationships, written procedures, and a track record of the owner being away without problems. Key employees matter for the same reason. If one estimator or technician holds the knowledge, the buyer will want that person to commit to staying, and may make part of the price depend on it.
Revenue quality: recurring revenue and customer concentration
A dollar of recurring revenue is worth more to a buyer than a dollar of one-time revenue, because the buyer can count on it next year. Service agreements, maintenance contracts, subscriptions and long-standing repeat customers all count. Buyers will ask for renewal rates, how long customers stay, and how much revenue was under contract going into each year.
Customer concentration works in the other direction. If one customer accounts for a large share of sales, losing that customer could wipe out a big part of the profit, so buyers discount for it. They will ask whether there's a contract, when it renews, who manages the relationship, and whether the customer could be lost because of the sale itself.
- Build a simple customer report: revenue by customer for each recent year, with contract status and renewal dates.
- If one customer is large, extend the contract before a sale and move the relationship to someone other than you.
- Show retention over time, not just this year's top-line number.
How each buyer type weighs these factors
Not every buyer scores the checklist the same way. Knowing who is likely to buy your business tells you which items matter most.
Individual buyers using SBA financing. Many smaller businesses are bought by individuals using an SBA 7(a) loan. SBA lists changes of ownership as an eligible use of 7(a) proceeds, caps a 7(a) loan at $5 million, and requires the business to be creditworthy and show a reasonable ability to repay [1]. In practice that means the lender looks hard at historical cash flow, tax returns and whether the debt can be serviced from the business's own earnings. SBA's change-of-ownership lending rules were updated in SOP 50 10 8.1, effective October 1, 2026 [2], so equity injection and seller-financing requirements should be confirmed with the buyer's lender rather than assumed. Records and clean books carry extra weight here, because the lender has to underwrite them. SBA also tells buyers to have an attorney and accountant review financial statements, tax returns, contracts and leases, and to check that licenses and permits will transfer [3].
Search funds. A searcher is usually one or two people, backed by investors, looking for one business to buy and run themselves. They tend to want stable, recurring cash flow, a fragmented industry and a business with room to grow, and they plan to step into the owner's role. That makes them more tolerant of owner dependence than other buyers, as long as you're willing to support a real transition. They still need clean books, because their investors and lenders will check them.
Private equity, platform vs add-on. A private equity firm buying a platform wants a business large enough to build on, with a management team that stays, reliable financials and a growth plan. Management depth and earnings quality are critical. An add-on is a smaller business bought to bolt onto a platform the firm already owns; the platform supplies management and systems, so the buyer cares more about customers, territory, technicians or capabilities than about your back office. A business too small to be a platform can still be a strong add-on. See is my business big enough for private equity for how size affects which role you'd play.
Strategic acquirers. A strategic buyer is a company in your industry or a related one. They weigh fit and synergies: your customers, products, locations, licenses or people that make their business stronger. They may pay for things a financial buyer discounts, such as a key customer list, and discount things a financial buyer values, such as your back-office staff they'll replace.
Holding companies. Long-term holding companies buy to own businesses indefinitely rather than sell them in a few years. They tend to favor durable, steady cash flow over fast growth, and they care about culture, continuity and keeping the team in place. Recurring revenue and low capital needs matter a lot to them.
Why size changes what buyers pay
Size changes the multiple. In Axia Growth's comps dataset, the median Professional Services sale in the Under $500K SDE band closed at 4.4x SDE, while the median in the $10M+ EBITDA band closed at 11.0x EBITDA [4]. Those two figures use different earnings measures, because small businesses are priced on SDE (which includes the owner's pay) and larger ones on EBITDA (which doesn't), so they aren't a like-for-like ratio. The direction is still the point: bigger, less owner-dependent businesses attract more buyer types and command higher multiples. The multiples index shows every sector and size band with at least 10 sales, and SDE vs EBITDA explains the two measures.
The mechanism is straightforward. A larger business usually has a management team, more customers and more predictable earnings, so it carries less risk per dollar of profit. It also qualifies for more buyer types: private equity platforms, larger strategics and holding companies compete alongside individual buyers. More qualified buyers means more competition for the deal. Growing earnings into a higher size band is one of the few levers that raises both parts of the price at once.
How to prepare: a 12 to 24 month checklist
Most of the factors buyers score take time to change. Customer concentration, management depth and the earnings trend can't be fixed in the month before you go to market. We suggest starting a year or two ahead, in roughly this order:
- Two years out: get your books onto an accrual basis with a qualified bookkeeper or CPA, stop running personal expenses through the business, and get a rough sense of value with the value range calculator.
- Two years out: identify who would run the business without you. Hire or promote a general manager or operations lead and start handing over sales, quoting and key accounts.
- Eighteen months out: put recurring customers under written agreements, extend any contract with a large customer, and start reporting retention and renewal rates.
- Eighteen months out: review your lease. Negotiate an extension or renewal option, and decide what happens to any real estate you own.
- One year out: read every major customer, supplier and franchise contract for assignment and change-of-control terms, and confirm which licenses and permits will transfer and which need a qualifying person.
- One year out: clean up working capital: collect or write off old receivables, clear obsolete inventory, and start tracking your normal monthly working capital.
- One year out: list your equipment and vehicles with ages and maintenance history, and replace or budget for big items a buyer would flag.
- Six months out: build a schedule of every add-back with evidence, and consider a sell-side quality of earnings review if your business is large enough to attract private equity.
- Six months out: put retention agreements in place for key employees, and assemble your due diligence folder. See the due diligence checklist for what goes in it.
- Before any buyer conversation: know your number. Compare your earnings to the multiples index and read asking price vs sale price so you can judge an offer when it arrives.
Red flags that surface in due diligence
A buyer who likes your business at the letter of intent stage will still test everything in due diligence. Problems found late hurt more than problems disclosed early, because they undermine trust in everything else. The issues that most often cause a price cut or a broken deal are the ones on the checklist: earnings that don't tie to the tax returns, a customer who turns out to be leaving, a lease that can't be assigned, a license that can't transfer, or a key employee who won't stay.
The fix is to find these issues before the buyer does. Run your own review of the checklist, disclose what you can't fix, and have an explanation ready for what's left. A known issue with a plan is a negotiation point. A surprise is a reason to walk away. For the tax side of how a deal is structured, read taxes when selling a business, and if you're deciding whether to hire representation, see should I use a business broker and selling a business without a broker.
What Axia does and doesn't do
Axia Growth works for buyers. Private equity firms, search funds, strategic acquirers and holding companies set their acquisition criteria, and Axia finds privately held companies that fit, calls their owners and introduces the interested ones to the buyer. Axia is engaged and paid by the buyer. Owners pay Axia nothing [5].
Axia does not represent sellers. It does not value businesses, negotiate terms, structure deals, or take part in due diligence or closing, and it holds no business-broker, real estate or securities license [5]. If a buyer's criteria fit your business, a conversation tells you what that buyer looks for, but you should bring your own attorney, accountant or advisor to anything serious. Read how it works or visit the owners page for more.
Know your number before a buyer asks
The checklist tells you what moves the price. The multiples index shows median EBITDA and SDE multiples by sector and size band [4], and the value range calculator applies them to your earnings in about a minute. Knowing your range first makes a low offer easy to spot.