A buyer is buying the probability that the profit carries on after you have handed over the keys, and every question in due diligence is an attempt to price that probability. Value is maintainable profit multiplied by a number, and six pillars set the number.
That is why two businesses earning identical profit can be worth very different money. Profit work is additive — an extra ten thousand pounds of profit is worth an extra ten thousand pounds of profit. Pillar work is multiplicative, because the multiple applies to every pound of profit at once.
Nothing here is a valuation. Real multiples vary enormously by sector, size, structure and who is buying, and a number for your business comes from an adviser who has seen your accounts. This model shows which levers move that number.
The six pillars
1. Profit quality
Profit quality is how believable the profit is. Can it be traced to invoices, contracts and a consistent margin, or does it need explaining? Every add-back you ask a buyer to accept is an argument you have to win, and buyers discount what they cannot verify. A business run to minimise tax rather than to demonstrate earnings has made a decision with a price attached, and the price is paid at exit.
2. Owner independence
If the business needs you in it daily, a buyer is purchasing a job with your name still on it. The test is how long you could be uncontactable before something broke.
3. Recurring revenue
Recurring revenue is money that arrives without being re-won. It includes contracts, retainers, service plans, subscriptions, or a book of customers reordering on a rhythm you can evidence in the data. Contracted revenue arrives with the risk already removed, which is why it is treated so differently from a strong year of one-off project work.
4. Spread of risk
Buyers price concentration as risk. One customer at a large share of turnover means the buyer is acquiring a relationship they have never met. The same applies to a sole supplier with no alternative, one salesperson who holds every account, and a landlord who can end the lease inside eighteen months.
5. Documented systems
This pillar asks whether the way you do things exists outside people’s heads. It covers the handful of processes that decide quality, cost and delivery, written plainly enough that a competent new starter could follow them.
6. Proven growth
Buyers look for a pipeline with numbers in it, marketing that produces enquiries on a predictable basis, and a market with visible room. Buyers pay for a future they can see the mechanism for.
Why this matters if you are never selling
Every one of the six also describes a business that is easier, calmer and safer to own.
A buyer pays for the same things that make the business work for you.
How to use it
Score all six out of ten, then take the two lowest
Do it on your own in twenty minutes. Work on the two lowest over the next eighteen months, even if another pillar is more enjoyable.
Run the fortnight test
Write down exactly what would break if you were uncontactable for two weeks starting Monday. Do not fix it yet. The list is the diagnosis.
Measure your concentration
Work out your largest customer as a share of turnover, your top three combined, your largest supplier, and any single person who holds relationships or knowledge nobody else has.
Split last year’s revenue into contracted and re-won
What share arrived without you having to sell it again? If the answer is none, that is your biggest available move, and it often starts with an offer you already deliver informally and have never charged for as a contract.
List every add-back
Write down every personal cost sitting in the business that you would ask a buyer to ignore. Take one off the list this quarter.
Document one process a month
Start with the one that goes wrong most often: two sides of A4, written by the person who does it and checked by you.
Common mistakes
The first mistake is leaving all of it until you decide to sell. A buyer wants to see owner independence over two or three years, recurring revenue that has renewed at least once, and concentration that has come down. Twelve months of hurried tidying invites either a lower offer or an earn-out that keeps you in the building for another three years.
The second mistake is treating the business as a personal current account for a decade and then trying to unpick it in a hurry.
The third is believing that a business which cannot run without you proves how valuable you are. To a buyer, it lowers the value.
Questions to ask yourself
- Out of 10, how much of what you have built could be handed to somebody else and still work?
- If you had to sell within eighteen months, which pillar would cost you the most money, and what would it take to start on it now?
- What share of last year’s revenue would have arrived if you had done no selling at all?
- Which of the six are you avoiding because fixing it means giving up something you enjoy doing?
This is the basis of the exit and value work inside Business Coaching. The Planning Hierarchy is how a two-pillar programme becomes something that happens on a Tuesday, and Organisational Health is what makes the owner-independence pillar hold once you step back.
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Common questions
Why does the multiple matter more than the profit?
Because profit work is additive and pillar work is multiplicative. An extra ten thousand pounds of profit adds ten thousand pounds of profit, and at a given multiple it adds a fixed amount of value. Move the multiple and you have changed what every single pound of profit is worth, all at once. That is why an owner who spends a hard year grinding out extra margin often moves the value of the business less than an owner who spent the same year getting the quoting out of their own hands and converting ad-hoc work onto contracts.
Which pillar should I start with?
Score all six and start with your two lowest, not the one you find most interesting. If two pillars come out level, take owner independence first: a business that cannot run without you caps what every other pillar can be worth, because a buyer is pricing the risk that the thing they are buying walks out of the door. Run the fortnight test as a diagnosis: write down precisely what would break if you were uncontactable for two weeks starting Monday. The list converts straight into a work plan. Documented systems and recurring revenue are the two that make owner independence stick once you have started.
Is any of this relevant if I never intend to sell?
Yes. Read the six pillars as a description of a business that is easier and safer to own rather than as a sale checklist. Owner independence means you can take a holiday. Recurring revenue keeps cash coming in during quiet months. Spread of risk means one phone call cannot remove a large slice of your income. Documented systems mean a resignation is an inconvenience rather than a crisis. Proven growth means the pipeline exists without you personally chasing it. A buyer pays for the same things that make the business work for you.