Profitable and sellable sound like the same thing. They aren't. Profit tells you what the company earned for you last year. A sellable business is one where a stranger can see how it will keep earning for them after you've handed over the keys. You can have plenty of the first and surprisingly little of the second.
My name is Dan Delaney, Founder & CEO of Seek & Find Financial. A lot of my work sits right in the gap between those two words, helping owners see their company the way a buyer will before a buyer ever does. Below is the checklist I'd want you to run on your own business.
Investing involves risk, including possible loss of principal. No investment strategy can ensure financial success or guarantee against losses. Past performance may not be used to predict future results. Provided content is for overview and informational purposes only, reflect the opinions of the author, and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice.
This information is being provided only as a general source of information. These views may change as market or other conditions change. This information is not intended and should not be used to provide financial advice and does not address or account for an individual’s circumstances. Past performance does not guarantee future results and no forecast should be considered a guarantee. Please seek the guidance of a financial professional regarding your particular financial concerns.
Investment advisory services offered by duly registered individuals through Seek & Find Financial LLC, a Registered Investment Adviser. Licensed Insurance Professional.
Profit measures income. Sellability measures value.
Christopher Snider's book Walking to Destiny describes several shifts in how owners need to see their companies. One of the most useful is the move from income to value. Income is what the business pays you. Value is what someone else would pay for the right to own it going forward. They're related, but they're scored on different sheets.
Imagine a $15 million industrial supply distributor in Lake County. Fasteners, safety gear, MRO supplies for local plants. The owner pays himself very well, the company has been profitable for twenty years, and by the income measure he's winning. Then a buyer looks closer and sees that 40% of gross profit comes from three plant accounts he personally manages, that vendor rebates aren't documented anywhere, and that a big chunk of inventory hasn't moved in two years. Same profit. Much lower value.
The checklist below is built to surface exactly that kind of gap.
The sellable business checklist
Go through each item honestly. A yes means a buyer would likely see strength. A no or a not sure is where your work is.
1. Your earnings hold up after a buyer's adjustments
Buyers recast your numbers. They add back some owner expenses and question others. If your profit depends on below-market rent from a building you own, a family member on payroll who doesn't really work there, or a one-time contract, expect the adjusted number to look different. Know your normalized earnings before someone else calculates them for you.
2. Gross margin is explained, not just reported
For a distributor, margin is the story. Can you show margin by product line, by customer and by vendor? Can you explain why it moved last year? A buyer trusts margins they can see the reasons behind.
3. No single customer or supplier holds the keys
If one plant, one line card or one exclusive vendor agreement drives a big share of profit, a buyer will price in the risk of losing it. Spreading that base out takes time, which is why it belongs near the top of the list.
4. Inventory is real, counted and moving
Slow or obsolete stock inflates the balance sheet and gets written down in diligence. Regular cycle counts, a clear aging report and a plan for dead stock all make the asset side believable.
5. Someone besides you owns the big accounts
Relationships are often the most valuable thing a distributor has, and the least transferable when they run through the owner. Pair a sales lead with every major account now. Let customers get used to calling someone else.
6. Key agreements can actually transfer
Vendor agreements, leases and customer contracts sometimes can't be assigned to a new owner without consent. Find out which ones have that language. This is squarely a conversation for your attorney, and better to have years ahead than in the middle of a deal.
7. Working capital is predictable
Buyers usually expect a normal level of working capital to stay with the company. If receivables and inventory swing wildly, the negotiation gets harder. Steady collection habits and sensible stock levels make this part of the deal much easier.
8. Your team would stay
Would your warehouse manager, inside sales reps and purchasing lead stick around under new ownership? A buyer is paying for the people who keep orders flowing. Fair pay, clear roles and in some cases a retention plan your advisors help design can make a real difference.
9. Systems run the day, not memory
Pricing rules, reorder points and customer terms should live in your ERP and written procedures, not in your head. If you're the one who knows which customer gets which price, that knowledge is value that can't transfer yet.
10. You know what you need from a sale
This one isn't about the company. It's about you. How much do you need, after taxes and costs, to fund the life you want? Owners who know their number negotiate better and are less likely to accept a deal out of pressure.
Turning the checklist into a plan
Most owners end up with three or four soft spots. That's normal. Rank them by how much a buyer would care and how long each one takes to fix, then start with the slow ones. Customer concentration and leadership depth take years. Cleaner reporting can take months.
Our more detailed business sale checklist goes item by item through the documents buyers ask for, and our guide on preparing your business for sale covers the bigger sequence. The SBA's guidance on closing or selling a business is also a useful plain-language overview of the mechanics.
Why this gap matters at home
When income is strong and value is thin, your family's lifestyle depends on you continuing to show up. That works until it doesn't. If you got sick or simply ran out of energy, a profitable company that can't be sold leaves your spouse with a business to run or a fire sale to manage.
A sellable business turns that around. The value becomes something your family can actually count on, whether you sell, pass it on or keep owning it with a strong team in place.
Frequently asked questions
Can a very profitable company still be hard to sell?
Yes, and it happens more than people think. If profit depends heavily on the owner, a few customers or terms that won't survive a change in ownership, buyers will discount it, add an earnout or pass. Profit opens the door. Transferability is what gets you paid for it.
How long does it take to make a profitable company sellable?
It depends on the gaps. Cleaning up reporting might take a few quarters. Reducing customer concentration or building a leadership team that runs without you often takes two to five years. That's why starting early matters so much.
Should I change how I pay myself before a sale?
Possibly, but it's not something to decide on your own. How owner pay and perks show up on the books affects how buyers recast earnings and can have tax consequences. Work through it with your CPA well before you go to market.
Run the check on your whole stool
This checklist covers one leg of the stool, the value of the business. The other two matter just as much: whether you're personally and financially ready for life after the sale, and whether you have a real plan for what that life looks like. If you'd like a private, one-on-one Three-Legs Check that looks at all three, send me the word "STOOL" through the contact page. Reading this in The Long View? Just reply STOOL. We work mainly with owners age 45 to 70 whose businesses are worth roughly $10 million to $20 million, in Valparaiso, Chesterton, the rest of Northwest Indiana and the Chicago area.
Investing involves risk, including possible loss of principal. No investment strategy can ensure financial success or guarantee against losses. Past performance may not be used to predict future results. Provided content is for overview and informational purposes only, reflect the opinions of the author, and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice.
This information is being provided only as a general source of information. These views may change as market or other conditions change. This information is not intended and should not be used to provide financial advice and does not address or account for an individual’s circumstances. Past performance does not guarantee future results and no forecast should be considered a guarantee. Please seek the guidance of a financial professional regarding your particular financial concerns.
Investment advisory services offered by duly registered individuals through Seek & Find Financial LLC, a Registered Investment Adviser. Licensed Insurance Professional.
