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.

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.

The five levels

Where a business sits, and what changes at each step.

It runs on you

The business is you, and everyone knows it.

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 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.

To a buyerVery 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.

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

It runs on habits

The same people do it the same way, most of the time.

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

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

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

It runs on systems

The work is written down, taught, and measured.

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 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.

To a buyerA buyer can see what they are buying. Values move up toward what the profit supports.

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.

It runs on a team

Managers run their parts, and answer for them.

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

To a buyerThe business is genuinely transferable. Buyers pay above the ordinary range for the industry, because the risk of it falling apart is lower.

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

It runs without you

It would keep its value if you left tomorrow.

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 lenderYou choose between lenders rather than hope for a yes.

To a buyerThe 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.

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

Why it matters

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.

Level	What a buyer sees	Rough effect on the multiple	What a lender will do
1. It runs on you	Equipment, a customer list, and a hope the owner stays	Well below the ordinary range	Lends against you personally, in modest amounts
2. It runs on habits	Key-person risk in several places at once	Below the ordinary range	Will look seriously if the reporting improves
3. It runs on systems	A business they can understand and take on	Around the ordinary range	Straightforward commercial lending
4. It runs on a team	A transferable business with management in place	Above the ordinary range	Larger facilities, covenants, acquisition finance
5. It runs without you	An asset that runs itself	The top of the range, and buyers who ignore everything below	You choose between lenders

The seven parts

Seven questions. Pick the line that is true today.

Each part is graded on the same five levels. Read down each list and choose the one that describes how the business actually runs, not how it is meant to.

The owner's place in it

The single biggest driver of what a business is worth, and the one owners judge most generously. Answer it the way your team would answer it.

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.

Money and numbers

Lenders, buyers and your own decisions all run on this. It is also the cheapest part of the ladder to climb.

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.

Winning work

A buyer is buying next year's sales, not last year's. What they want to know is whether the sales arrive because of a system or because of you.

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.

Doing the work

Whether the work is done the same way every time, by whoever is on shift, and whether you would know if it were not.

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.

People

The part that takes longest to build and is hardest to fake in a sale. A buyer will talk to your managers.

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.

Customers and market

How exposed the business is to losing one relationship, and whether you set your prices or the market does.

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.

Risk and records

The part that decides whether a sale or a loan takes three weeks or nine months. It is dull, it is cheap, and it is almost always the thing that holds a deal up.

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

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 free business planner runs this assessment for you, scores each part, names your weakest one and shows what your level does to the multiple your industry ordinarily trades at. It takes about five minutes and there is nothing to enter but seven answers.

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.