What is Business Exit Readiness?
Business exit readiness is a measure of how prepared a business is to be sold, passed to a successor, or otherwise transitioned out of owner control at fair market value. It covers the operational, financial, legal, and team dimensions buyers assess during acquisition due diligence: revenue consistency, profit margins, owner dependency, documentation, customer concentration, recurring revenue, team strength, legal cleanliness, growth trajectory, and financial reporting. BizBuySell data shows that exit-ready businesses sell for 2-3x higher multiples than owner-dependent peers of the same size, and complete sales 40-60% faster with fewer deals collapsing in diligence. Most SME owners dramatically overestimate their readiness, the average score is just 31 out of 100, and the gap between belief and reality is usually where exit value is destroyed.
The Formula
Business Exit Readiness Score = Sum of 10 category scores (Revenue Consistency, Profit Margins, Owner Dependency, Documentation, Customer Concentration, Recurring Revenue, Team Strength, Legal Cleanliness, Growth Trajectory, Financial Reporting)
Above 70 indicates a business ready to sell at a strong multiple. Between 40-70 suggests 12-24 months of focused preparation needed. Below 40 means the business is not yet sellable at fair value.
Worked Example
A 58-year-old founder of a $5.2M revenue specialist manufacturing business was ready to retire and wanted to sell within 18 months. Revenue was strong and growing 12% per year. The founder assumed the business would easily command a 5x EBITDA multiple ($3.1M on $625k EBITDA). A business exit readiness assessment revealed why that assumption was dangerous.
- Revenue Consistency: $5.2M with 12% growth (10/10), excellent
- Profit Margins: 12% net margin, slightly above industry (7/10)
- Owner Dependency: Founder handles all key customer relationships, does final quality checks, signs every quote above $5k (1/10)
- Documentation: Nothing documented, all processes in the founder's head and the long-serving ops manager's head (1/10)
- Customer Concentration: Top customer 45% of revenue, has been loyal for 15 years (1/10)
- Recurring Revenue: 0%, all transactional project work (1/10)
- Team Strength: No management layer, everyone reports directly to the founder (1/10)
- Legal Cleanliness: Minor issues, one ongoing EEOC complaint, outdated supplier contracts (4/10)
- Growth Trajectory: Consistent 10-15% annual growth (7/10)
- Financial Reporting: Annual CPA-reviewed statements only, no monthly management accounts, no KPI dashboards (4/10)
- Total score: 37/100, not ready for exit
📌 The assessment revealed the business would sell for 1.5-2.5x EBITDA ($940k-1.56M), not the 5x the founder expected, a $1.5-2.2M valuation gap driven by owner dependency, documentation, and customer concentration. The founder delayed the exit by 24 months and executed a pre-sale grooming plan: hired a general manager at $110k (12 months), documented all processes and SOPs (4 months), systematically diversified the top customer from 45% to 22% of revenue by developing three new accounts (18 months), introduced service contracts converting 25% of revenue to recurring, and upgraded financial reporting to monthly management accounts with GAAP-aligned reviews. When the business finally listed, the score had climbed from 37 to 74. It sold for 4.8x EBITDA ($3.0M), $2M more than the un-groomed valuation, with 24 months of extra work worth roughly $1M per year in opportunity cost. The lesson: exit value is set by readiness, not by revenue.
Why This Matters
Valuation multiplier
Exit-ready businesses sell at multiples 2-3x higher than owner-dependent peers of identical size. BizBuySell data across thousands of small business transactions shows the single biggest driver of exit value is not revenue or profit, it is whether the business can run without the owner. A $625k EBITDA business that scores 70+ on exit readiness typically sells for $2.5-3.75M; the same business at 30 sells for $940k-1.56M. Pre-sale grooming is the single highest-ROI work a business owner can do, often worth 10-20x the consulting investment.
Buyer confidence and deal completion
Unprepared businesses see 40-60% of deals collapse in due diligence according to M&A broker data. Buyers discover owner dependency, missing documents, legal issues, or financial surprises and walk away, leaving sellers with no deal, wasted legal fees, and a damaged market position. Exit-ready businesses close 80-90% of agreed deals because diligence confirms rather than contradicts the pitch. Every unprepared dimension is a deal risk.
Deal completion speed
The difference between an exit-ready sale and an unready sale is typically 6-12 months in completion time. Faster deals mean less time in limbo, lower legal and broker costs, less disruption to the business, and lower risk of external events derailing the sale. Time kills deals, every extra month increases the chance of buyer fatigue, market shifts, or competitor moves. Use the Financial Health Score to assess the foundation before exit planning.
Common Mistakes
❌ Owner dependency
The most expensive mistake in small business exits is assuming the business "runs itself" when in reality the owner is the business. Buyers are not buying a founder, they are buying a system. If the owner holds the key customer relationships, makes all the decisions, and is the only person who knows how the business works, the buyer is essentially starting over. Reducing owner dependency is a 12-24 month project and the single biggest valuation lever.
❌ No documented processes
Most small businesses have no written process documentation, it all lives in the founder's head and long-serving employees. In diligence, this is a red flag that discounts valuation by 15-30%. Buyers need to know the business can be operated by someone else. Documenting core processes (customer acquisition, delivery, operations, finance, HR) is a 90-day project with a massive ROI on exit.
❌ Customer concentration risk
Having one customer over 40% of revenue is nearly a dealbreaker for most buyers. It creates existential risk, if that customer leaves after acquisition, the business collapses. PE buyers will walk or apply 30-50% discounts. Diversifying the customer base is a 12-24 month project but one of the highest-ROI pre-exit moves for concentrated businesses.
Industry Benchmarks
| Category | Good | Average | Poor |
|---|---|---|---|
| Lifestyle business (owner-operated, sub $1M revenue) | Score 50+, basic documentation, some team, clean financials, 2-3x SDE multiple | Score 25-45, owner-dependent, minimal documentation, 1-2x SDE | Score below 25, unsellable at fair value, distressed-price only |
| Growth business ($1M-10M revenue) | Score 65+, management team in place, documented processes, recurring revenue, 4-6x EBITDA | Score 35-60, partial readiness, 2-4x EBITDA | Score below 35, significant grooming required before exit |
| PE-ready business ($10M+ revenue) | Score 80+, full management team, audited GAAP financials, diversified customers, recurring revenue, 6-12x EBITDA | Score 55-75, strategic buyer territory, 5-8x EBITDA | Score below 55, not PE-investable, strategic sale at lower multiple |
Source: BizBuySell Insight Report
Benchmark data sourced from BizBuySell Insight Report.