Off-Market / The Gap Table
Tool 6 of 18 · Buyer-Ready, Chapter 7
The Gap Table, explained.
One page that shows the difference between what you think your business is worth and what a buyer will actually pay, and why. It is the list a buyer makes about you, written by you first.
Show me how it worksAbout an hour, over a few sittings. A pencil is fine.
Trades business, 19 techs. $3.1M in earnings at about six times: an $18.6M headline.
What it is
Everything a buyer would knock off your price, in dollars.
When a buyer gets serious, their team writes a memo listing everything they will use to lower your price. You never see it. The Gap Table is that memo, written by you first, so nothing on it is a surprise and most of it is fixed before anyone counts it.
Down the left go the gaps: the things a buyer would price against you, one per row, each with a dollar figure. Across the top go the kinds of buyer who would realistically look at a business like yours. At the bottom is the total: your exposure against your headline price.
If you just took the Map, your weakest spot is your first row.
Five words you need
The whole table runs on these.
- 1HeadlineThe price everyone repeats. The number you would say if someone asked what the business is worth.
- 2GapAnything a buyer would use to cut that number: thin paper behind your add-backs, one customer who is too big, a business that runs through you, crews with nothing signed.
- 3LaneA kind of buyer. There are five: a strategic (a company in your trade), a private equity platform, a private equity add-on, a family office and a search fund. Most businesses have three or four live lanes. Each lane prices the same trait differently.
- 4ReadHow one lane prices one gap: premium (they pay up for it), neutral, or discount (they mark you down for it).
- 5MoveWhat you will do about it: fix it, position it (tell the story before they find it) or concede it. Plus the dollars that move in that lane.
How to fill it in
Five steps, one page.
- 1Write your headline at the bottom.The number in your head. Nobody sees this but you.
- 2List your gaps down the left, one per row, each with a dollar figure.Start with your Map result. Use the right ruler for each row: anything that touches earnings prices through the multiple (a $310K add-back you cannot prove, at six times earnings, is $1.86M). Working-capital shortfalls price at face, dollar for dollar. Deal-structure items, like a holdback, price as expected cost.
- 3Head the columns with your live lanes.Not sure which buyers are active for you? Start with strategic, PE platform and PE add-on. That covers most owners.
- 4In every cell, write the read and the move.Premium, neutral or discount, then fix, position or concede, with the dollars. Do not copy one lane’s read across. The same fact can be a premium to one buyer and a discount to another.
- 5Total it and read it as a share of your headline.The total is gross. No single buyer takes every cut, because each lane charges for a different set of rows. The point is the size of what is in play.
A worked example · Walt, the composite owner from the book
An $18.6M headline. A little north of $6M exposed.
Walt owns a trades business with 19 techs. Anchor: $3.1M in earnings at about six times, so an $18.6M headline. His live lanes are strategic, PE platform and PE add-on.
Trades business, 19 techs. $3.1M in earnings at about six times: an $18.6M headline.
| Gap, with dollar figure | Strategic | PE platform | PE add-on |
|---|---|---|---|
| 1The booksAdd-backs of about $310K with thin paper behind them | Discount · Fix$1.86M | Discount · Fix$1.86M | Discount · Fix$1.86M at 6x |
| 2The pegWorking capital in a trough vs. the average, about $450K | Discount · Fix$450K | Discount · Fix$450K | Discount · Fix$450K at face |
| 3The customerOne customer is 24% of revenue | Premium · Positionmay prize it | Discount · Positionabout $1.2M exposed | Discount · Positionabout $1.2M exposed |
| 4The ownerWalt prices every install himself, age 60 | Discount · Fixabout $1.5M | Discount · Fixabout $1.5M | Discount · Fixabout $1.5M (half a turn) |
| 5The crews19 techs, none signed | Discount · Fixabout $300K | Discount · Fixabout $300K | Discount · Fixabout $300K holdback |
| 6The concedeAbout half of revenue is cyclical install work | Discount · Concedeabout $775K | Discount · Concedeabout $775K | Discount · Concedeabout $775K |
| Consolidated vs. headline | A little north of $6M exposed, gross, against the $18.6M headline. About a third. | ||
The customer row is the tell. The strategic reads 24 percent as a premium (it wants that customer). The lender-backed lanes read it as a discount (they see risk). Same fact, opposite reads. And notice what is not on the table: the lawsuit that settled years ago, the dated website and the shop that needs paint. No lane priced them.
Reading your result
Over 15 to 20 percent? That is real money left on the table.
Unprepared deals give back about 18 percent between the letter and the wire. If your total exposure is more than roughly 15 to 20 percent of your headline, a buyer will find that money before you do.
Walt’s was about a third, gross, before the work. Two years of fixes took what actually came off at closing to under 3 percent.
The two mistakes most owners make: treating every buyer as if they value things the same way (they don’t, so the read is per lane), and measuring every row with the same ruler (earnings rows go through the multiple, working capital at face, structure as expected cost).
Your copy
Now do yours.
Want it to do the math? The Buyer-Ready Kit has a Gap Table calculator that totals your exposure as you type, plus the add-back and working-capital tools that feed it. The full walkthrough is in the Official Workbook, pages 20 to 23.
The buyer will write this page either way. Better that you write it first.
Every row you fix before a buyer arrives is money that never gets argued at the closing table. Every row you leave is a number someone else picks.
Haven’t taken the Map yet?
11 questions, about 10 minutes. It finds your weakest spot, which is the first row on your Gap Table.
Take the free Map