The maturity model

The Legatis Business Maturity Model

Five levels, seven parts of the business, and one honest question about each. It measures how much of the business is the owner and how much of it would survive without them, because that is what a lender and a buyer are both really asking.

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The five levels

From owner-operator to owner-independent, and what a level is worth.

Two businesses with identical profit do not sell for the same price, and do not borrow the same amount. The difference is how much of the business is the owner. These are working adjustments to the ordinary multiple for an industry, not a rule and not a valuation: a real price depends on the business, the buyer and the day.

1It runs on youThe business is you, and everyone knows it.Well below the ordinary rangeYour level

What it looks likeYou make the decisions, you hold the relationships, and you know the things nobody has written down. If you stop for a week, the business stops with you. Most businesses start here, and many good ones never leave.

To a buyerEquipment, a customer list, and a hope the owner stays. Very little to sell. A buyer is buying equipment, a customer list and a hope that you will stay. Values sit well below what the profit alone would suggest.

Effect on the multipleWell below the ordinary range.

To a lenderLending is against your personal covenant and whatever security exists, not against the business. Expect a personal guarantee, and expect the amount to be modest.

The one move upWrite down the five things only you know how to do. That list is the whole of the next level.

2It runs on habitsThe same people do it the same way, most of the time.Below the ordinary rangeYour level

What it looks likeThere is a team and a rhythm. Things are done consistently because the same people always do them, not because anyone wrote it down. Quality slips when someone is away or new.

To a buyerKey-person risk in several places at once. A buyer sees key-person risk in several places at once. Offers come with earn-outs and long transition periods attached.

Effect on the multipleBelow the ordinary range.

To a lenderA bank will look seriously at you if the numbers work. Reporting is usually the sticking point: statements arrive late and are not trusted.

The one move upGet monthly financial statements you believe, within three weeks of month end. Almost everything above this level depends on them.

3It runs on systemsThe work is written down, taught, and measured.Around the ordinary rangeYour level

What it looks likeThe important work is documented and new people are trained on it rather than absorbing it. You have monthly numbers you trust. You are still the one who decides, but the business no longer forgets things when you are away.

To a buyerA business they can understand and take on. A buyer can see what they are buying. Values move up toward what the profit supports.

Effect on the multipleAround the ordinary range.

To a lenderThis is where commercial lending gets straightforward. You can produce what a credit analyst asks for without a scramble, which changes both the answer and the rate.

The one move upPut a person, not you, in charge of an area with a number attached to it, and let them be wrong occasionally.

4It runs on a teamManagers run their parts, and answer for them.Above the ordinary rangeYour level

What it looks likePeople below you run areas and are accountable for results, not just tasks. You spend your time on where the business is going rather than on what happened today. The numbers are reviewed against a plan.

To a buyerA transferable business with management in place. The business is genuinely transferable. Buyers pay above the ordinary range for the industry, because the risk of it falling apart is lower.

Effect on the multipleAbove the ordinary range.

To a lenderLenders treat the business as a business. Covenant-based lending, larger facilities and acquisition financing become realistic.

The one move upFix the last dependency. It is usually one customer, one supplier, or one person who cannot be replaced.

5It runs without youIt would keep its value if you left tomorrow.The top of the range, and buyers who ignore everything belowYour level

What it looks likeA leadership team runs the business and would stay through a sale. The records would survive a stranger's due diligence. Revenue is repeatable, and the business improves its own processes without being told to.

To a buyerAn asset that runs itself. The top of the range, and interest from buyers who will not look at anything below this level: private equity, strategic buyers, and management teams who can raise money against it.

Effect on the multipleThe top of the range, and buyers who ignore everything below.

To a lenderYou choose between lenders rather than hope for a yes.

The one move upDecide what you want. At this level the constraint is no longer the business.

Transferable value

Transferable value: the part of the value that leaves with you, and the part that stays

Enterprise value is a defined number: what the whole operating business is worth before anyone asks how it is financed. For a business like yours it is usually estimated as adjusted EBITDA times a market multiple. The maturity model does not change that calculation. It explains why two businesses with the same profit get different multiples.

Enterprise valueThe number a buyer prices: adjusted EBITDA times the multiple for the industry, adjusted for this business's risk. Less net debt, it is what the owners receive.
Transferable valueThe share of that value a buyer can actually take away with them: the systems, the team, the customers and the records that keep producing the profit after you leave. What stays in your head, your relationships and your personal guarantee is not transferable, and a buyer discounts it, defers it into an earn-out, or will not pay for it at all.
Where the maturity level comes inEach level up makes more of the profit transferable, and that is what moves the multiple. Level 1 sits well below the ordinary range for the industry; level 5 sits at the top of it. Same profit, a higher multiple, a larger enterprise value.

So the work on this page is how you raise enterprise value without waiting for profit to grow: you make more of it transferable. The enterprise value calculator shows the defined calculation, and the EBITDA multiple calculator shows what a move along the range is worth.

Take it now

Seven questions. Move each slider to the answer that is true today.

Every answer starts at level 1. Move it up only as far as your team would say is true, not as far as you intend. Your result updates as you go, and nothing leaves your device.

The sliders need JavaScript. Here is every question with all five answers, so you can work through it on paper, and the business reports will do the sums for you.

How long could you step away before the business started to suffer?

If you were ill, on holiday or simply gone, how long would the work, the decisions and the customers carry on without you?

1Nothing important happens without me. A week away and things stop.
2I can be away a week. Two weeks and it starts to show.
3I can be away a month. Someone else makes the decisions I would have made.
4It runs day to day without me. I work on the business, not in it.
5I could be gone a year and customers would not notice.

How good are your financial numbers, and how soon after month end do you get them?

Think about what you actually receive, not what the software could produce: bank balance only, an occasional profit and loss, or monthly statements you trust and plan against.

1I know what is in the bank. The accountant sorts the rest out once a year.
2Bookkeeping is current, and I see a profit and loss a few times a year.
3Monthly statements I trust, within a few weeks of month end.
4Monthly statements against a budget, with the differences explained.
5Monthly reporting, a rolling forecast, and a reviewed or audited year end.

Where does new work come from, and who wins it?

Word of mouth that depends on you, a defined sales process, or a team selling against targets from a pipeline you can forecast.

1Word of mouth and whoever calls. I do the selling.
2Repeat customers and referrals, plus some marketing when it goes quiet.
3A defined offer and a defined sales process. I still close most of it.
4Other people sell, against targets, and we know where the work comes from.
5A predictable pipeline. We can forecast next quarter and be roughly right.

Is the work done the same way every time, whoever does it?

Whether the important work is written down, taught and measured, or carried in the heads of the people who happen to do it.

1Everyone does it their own way. Quality depends on who does it.
2The regulars know how we do it. Very little is written down.
3The important work is written down, and new people are trained on it.
4Written processes, measured, with one person accountable for each.
5Processes are improved on purpose, with numbers showing it worked.

Who, apart from you, could run the business, and how were they hired and trained?

From a couple of people you direct yourself, through defined roles, to managers who answer for their own numbers and a leadership team that would stay through a sale.

1Just me, or a couple of people I direct.
2A small team. I hire when I am desperate and train them myself.
3Defined roles, real job descriptions, and a proper way in.
4Managers who run their own areas and answer for their numbers.
5A leadership team that could run and grow this without me, and would stay.

How much would losing your biggest customer hurt, and who sets your prices?

How concentrated your sales are in a few relationships, and whether you can raise prices without losing people.

1A handful of customers. Losing one would hurt badly.
2A reasonable spread, but one or two matter a great deal.
3No customer is more than about a fifth of sales.
4A good spread and repeat business, and we can raise prices without losing people.
5A known position, with contracts or subscriptions behind much of the revenue.

Are your contracts, insurance and company records in order?

Customer contracts, insurance, licences, employment and shareholder agreements, and whether the file would survive a buyer's lawyers.

1Not much in writing. Handshakes and invoices.
2Insurance and the basics, but customer contracts are inconsistent.
3Contracts, insurance and licences in order, and someone knows where they are.
4Contracts, insurance, employment agreements and a shareholder agreement, all current.
5All of that, plus an advisory board, a written succession plan, and a file that would survive due diligence.

Using it

How to use it

Every owner-led business sits somewhere on the same ladder. The ones at the bottom are not worse businesses: plenty of them make more money than the ones above. They are worth less, and they borrow less, because the value is inside one person's head.

A buyer pays for what keeps running after the cheque clears. A lender lends against what keeps paying after a bad quarter. Both are buying the same thing, and it is not last year's profit.

The point of measuring it is that each level has a small number of specific things that get you to the next one. Most of them cost time rather than money.

Answer as your team wouldThe most common mistake is grading the intention rather than the practice. If it is written down but nobody follows it, it is not written down.
Expect an uneven shapeAlmost nobody is level 4 across all seven. A business that is 4 on operations and 1 on records is normal, and the 1 is what will hold up a sale.
Work the lowest, not the averageThe weakest part sets what a buyer pays and what a lender lends, in the same way the shortest plank sets how much a barrel holds.
One level at a timeSkipping a level does not work. You cannot run on a team before the work is written down for the team to run.
Re-measure once a yearIt moves slowly and deliberately. Measuring it more often just makes it feel like it is not moving.

The assessment on this page does the measuring for you: seven sliders, your level, your weakest part, and a PDF of what to do next. The business reports go further and set your level against the multiple your industry ordinarily trades at.

A model is only useful if it changes what you do on Monday.

This is our own model, built from what lenders and buyers actually ask for. It is general information, not advice, and it is not a valuation: the effect of a level on price is a working adjustment for a conversation, nothing more.

Take the assessment and you get a written report with your level, your weakest part, and the specific move that takes you up one.

Want to work through it with someone? Talk to us. The first conversation costs nothing.

The Legatis Business Maturity Model

From owner-operator to owner-independent, and what a level is worth.

Transferable value: the part of the value that leaves with you, and the part that stays

Seven questions. Move each slider to the answer that is true today.

Your result

Your PDF report

How to use it

A model is only useful if it changes what you do on Monday.

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