Transferability Check

How Buyers and Banks Test If Your Business Is Transferable

Most owners feel transferability as a gut feeling: “The business would struggle without me” or “It basically runs itself.” Buyers and banks don’t work with feelings. They look for specific signals in your numbers, contracts and organisation to decide whether your company is a transferable asset or just a bundle of personal relationships.

This article walks through how an investor-operator and a bank actually “test” your business before any serious conversation about price or leverage even starts.

Why transferability is the first filter

Before a buyer talks about valuation, and before a bank talks about loan size, they ask a simpler question:

Can this company keep working if the current owner steps back for real?

If the honest answer is “probably not”, most professional buyers quietly move on. For them, a non-transferable business is hard to finance, hard to stabilise and too dependent on one person’s energy and relationships.

Without basic transferability:

• buyers don’t submit serious offers or add very heavy conditions;

• banks refuse to support the deal or cut leverage to a level that kills it;

• negotiations get stuck in discussions about you personally, not about the business.

That’s why transferability is the first filter. If it fails, nothing else really starts.

How a buyer-operator screens your business

As an operator-buyer, I usually look at three core blocks:

1. Dependence on the owner

2. Quality of management and systems

3. Stability of cash flow

If these three blocks look solid, everything else — valuation, deal structure, bank discussion — becomes much easier.

1. Owner dependence: who really holds the keys?

Here the questions are simple and uncomfortable:

• Who negotiates prices and terms with your top 5–10 customers?

• Who can approve a discount or exception?

• Who handles serious complaints or crises?

• Who do key suppliers call when something goes wrong or stock is short?

If the honest answer to most of these is “me”, a buyer assumes that removing you for 3–6 months will change revenue, margins and team morale.

A more transferable business looks different:

• Key customers know and trust at least one non-owner decision-maker.

• There is a clear escalation path for problems that does not end with your mobile phone.

• Suppliers deal with a role (purchasing, operations) rather than just your name.

No one expects you to be invisible. But if the whole company still “conducts electricity” only through you, buyers see it as fragile.

2. Management and systems: is there a real “machine”?

The second block is about whether there is a basic management system beyond the owner.

Buyers look for signs like:

• A visible second line of 1–3 managers (sales, operations, finance/admin).

• Regular meetings where numbers and priorities are discussed without you driving every point.

• Simple written processes for order flow, complaints handling, credit limits, approvals.

• Basic systems (CRM, ERP, accounting software) that more than one person understands and uses.

We are not looking for a perfect corporate structure. We are looking for a machine that someone else can operate.

If important decisions are born in informal chats with you, planning lives in your head and a couple of Excel sheets “only you understand”, the business fails this test.

3. Cash flow: can the business carry debt?

Finally, a buyer looks at cash generation:

• Level and stability of EBITDA (operating profit before interest, tax and depreciation).

• EBITDA margin over several years, not just one “good year”.

• Behaviour of working capital — are receivables and inventory under control, or is cash always tight?

• Concentration on a few large customers or one key supplier.

We think in terms similar to what banks use: Debt Service Coverage Ratio (DSCR) — how many times free cash flow covers yearly loan repayments. If the safety margin is thin, any temporary weakness in results makes the deal risky.

A company with solid, predictable cash flow is much easier to finance and much more attractive to an operator-buyer.

How banks test your business

Banks look at transferability from a different angle, but the questions are connected. Their main concern is:

Where does loan repayment really come from, and how reliable is it?

They are not trying to own your assets. They want predictable cash flow from a clean, understandable business.

1. Quality of financial statements

A bank credit team will check:

• At least 3 years of financial statements, prepared by a professional accountant or auditor.

• Consistency between management accounts, tax returns and bank statements.

• Clear separation between business and personal expenses.

“Excel based on memory” and a visible share of turnover outside official accounts are strong red flags. Even if “everyone in the industry does it”, the bank can only lend against what it can see and explain internally.

2. Source of repayment

The bank wants to see a specific, realistic source of repayment, usually:

• Operating cash flow from your business (after normal salaries and costs),

• Over a realistic time horizon for the loan.

If the repayment plan assumes every year is perfect, or quietly assumes you will keep working for free in the background, the bank will either say no or sharply reduce the loan amount.

3. Concentration and dependence

Credit teams are sensitive to concentration risk:

• Do 2–3 customers generate 40–60% of revenue?

• Is there a single critical supplier with no real alternative?

• Does production depend on one machine or one site?

This is not always a deal-breaker, but it demands strong contracts, healthy margins and clear contingency plans. Without them, banks see too many single points of failure.

4. Legal and collateral checks

The final block is legal:

• Are key customer and supplier contracts signed, valid and clear?

• Are there any hidden liens, disputes or obligations?

• What can be taken as collateral (assets, real estate, receivables, guarantees), and is it legally clean?

If important arrangements are only verbal, or asset ownership is unclear, the bank has very little to lean on. That directly limits how much leverage a buyer can use in acquiring your company.

A simple 3–6 month self-test

You don’t need a formal due diligence to start seeing your business as buyers and banks do. One thought experiment is enough:

Imagine you disappear from the company for 3–6 months. No calls, no emails, no “just checking”.

Ask yourself:

• Revenue: Will revenue drop, stay flat or grow? Who will protect key accounts if a competitor approaches them?

• Decisions: Who will approve prices, discounts and credit limits? Do they understand your logic, and are they formally authorised?

• Team: Who will lead the team day-to-day? Will they cooperate, or start a power struggle?

• Cash: Who watches cash flow weekly and understands what happens if a major customer pays late?

• Contracts: What do your top 10 customer and supplier contracts actually say about volumes, prices, notice periods and termination?

This is almost the same checklist a buyer and their bank will run — just with more documents, spreadsheets and emails.

If honest answers are vague or uncomfortable, it’s not a verdict. It’s a list of improvement points you can work through over the next 12–24 months.

Common red flags that stop deals

Some patterns almost always slow or block transactions:

• Everything goes through the owner. No second line, no delegated authority, unclear roles.

• Key arrangements are verbal only. Large customers and suppliers rely on “gentlemen’s agreements” with you personally.

• Significant turnover is off the books. A meaningful share of business in cash or parallel channels that never enters the P&L.

• Financials are stitched together manually. Numbers for buyers and banks are patched from different sources instead of flowing from a single accounting system.

These red flags don’t just cut valuation. They make the business hard to explain and control, so serious buyers or banks prefer to step away.

The positive side: most of these points can be fixed if you start early and move step by step, instead of trying to “polish everything two months before a deal”.

If You’re an SME Owner 60+

If you’re 60+ and thinking about a sale, you can fill in the short owner form on my website to receive an indicative price for your business based on current EBITDA. It’s non-binding and simply a first step: if there is a potential fit, we can continue the conversation and move to more detailed questions. 

👉Seller Form Step-1 link here>>