How much profit survives the handover?

Hi,

If I were buying a business, I’d want to know how much of its profit depends on the person selling it.

When I ran a travel agency, some customers booked with me personally. They trusted my advice and called me when plans changed. That was valuable while I owned the business. A buyer would still need a reason to believe those relationships would survive my departure.

That’s the issue behind this week’s video: two businesses can show the same earnings and leave their new owners with very different businesses to run.

01 The cheaper listing needs a closer look.

Imagine two auto-repair shops, each reporting $200,000 in verified seller’s discretionary earnings (SDE). That’s a measure of the financial benefit available to one working owner, after supportable adjustments.

I’d be interested in the $200,000 saving. Then I’d look at what I’d inherit.

In Shop A, the owner handles difficult quotes, key customers and staff problems. The equipment needs attention, and the lease has 18 months remaining with renewal uncertain.

Shop B has a service manager, documented processes, recently upgraded equipment and a longer lease with a renewal option.

Those differences could justify paying more. They don’t prove that Shop B is worth its asking price. I’d still need to verify the records, contracts and terms.

02 Work out what changes on day one.

The seller’s earnings reflect how the seller runs the business. My costs might be different.

If I can’t perform their role and need an $80,000 replacement manager, $200,000 of advertised SDE becomes $120,000 before other adjustments, reinvestment and acquisition debt payments. That’s an illustrative buyer-specific adjustment; a working owner who can do the job may have different economics.

I’d also separate two lists:

• Cash needed to take over: the purchase payment, transaction costs, any immediate equipment work, and the inventory and working capital I need to fund.
• Cash the business can keep generating: earnings after realistic staffing and operating costs, with room for necessary reinvestment and financing payments.

A one-time equipment purchase and an annual salary affect the decision differently. Mixing them into one figure makes the comparison harder to understand.

03 Give the next owner something they can rely on.

If I were preparing to sell, I’d start with the parts of the business that still depend on me.

I’d put customer knowledge into shared records, teach someone else to handle important decisions and document how the work gets done. I’d also check which supplier and lease terms can actually continue after a sale.

Then I’d gather evidence that the handover can work: jobs completed without my intervention, customer relationships shared with the team, and financial records a buyer can follow.

That preparation can reduce uncertainty. It doesn’t guarantee a particular price, but it gives a buyer more to assess than my reassurance that “everything will be fine.”

I’d compare what survives the handover before deciding which asking price looks attractive.

Written by Chirag Dhorda, Founder of Nexventure. Get the next edition by email.