Three of the five seats are owner-held, and none of the three has a successor

A business can be profitable without being transferable. The test is which of the five critical seats the seller holds and whether anyone is named behind him, and on the worked example in the field guide three of the five are owner-held with no successor named for any of the three.

The first four parts of this method test the business. This part tests the handover, and it is the only part where the finding is about a person who has already agreed to leave. What walks out of the building with the seller is value you paid for and did not receive, and it is measurable before closing rather than discoverable after.

Transferability, not owner dependence

The word matters more than it looks like it should. Owner dependence sounds like a criticism of the seller, so it gets argued about across a table by two people who both feel insulted. Transferability is a property of the business, so it gets tested. Same finding, and one framing produces evidence while the other produces a row.

Where the value sits	What that means
Belongs to the company Documented, held by a seat	A contract, a price file, a procedure, a system, or a named person other than the owner who does the work today
Belongs to the person Undocumented, held in a head	The relationship the customer trusts, the pricing judgment nobody wrote down, the vendor who answers because of who is calling
The honest middle Transferable with work	Most of it. The question is how long the work takes and who is doing it in the meantime

LIMESTONE operational diligence method.

The five critical seats, defined by what each one owns

This is an accountability map rather than an organization chart. A seat is defined by the outcome it owns and not by a title, and a seat the owner holds in addition to his own role is a finding rather than a footnote.

Seat	What it owns	Who holds it	Successor
Revenue and key accounts	The buying relationship: who the customer calls, and who is at the table on price	Owner-held. Dale Ratliff, 28 years	None. No account manager of record on the three owner-held accounts
Pricing and estimating	The price file, the quote, the discount call and vendor pass-through	Owner-held, split. Dale Ratliff and the estimator	None. The estimator, 5 years, holds quoted pricing with no framework and no review
Office and operations	Fill rate, counter service, delivery, inventory accuracy and staffing	Held by the business. Office manager, 6 years	None. The warehouse lead covers a week of execution and does not hold the seat
Purchasing and vendor programs	Replenishment, the buying-group position and the dealer agreements	Owner-held. Dale Ratliff, 28 years	None. Purchasing has no documented procedure of any kind
Books and close	The close, the reporting package, cash and the lender relationship	Held thinly. Bookkeeper, 9 years, 20 hours a week	The outside accountant can backfill reporting. No internal successor

Hoosier Supply Co. (illustrative), a fictional composite; names are fictional. Source: management interviews with all five seat-holders, the representative-of-record report, the owner’s trailing ninety-day calendar and the employment file review.

Three of five owner-held, and none of the three with a named successor. Which is a number you can negotiate against rather than a worry you carry into closing, and the three conditions below are what we would ask for.

The three conditions worth making conditions

Transfer the top-account relationship on a written schedule, with the seller’s economics released against the transfer and not against a calendar date. Retention agreements for the office manager and the estimator, signed as a condition of closing, because nothing holds either of them today. Pricing authority into a named seat with a written framework inside 100 days, which is the seat that decides your gross margin and currently exists only in one man’s judgment.

Relationship ownership, tested against four sources

Asked directly, the owner on our worked example said the business runs without him and offered a two-week fishing trip in 2025 as proof. That is fair evidence and it deserved testing rather than either accepting or dismissing it. Four sources, and none of them an opinion.

The source	What it showed
The calendar Trailing ninety days	61 percent of scheduled time in customer, pricing or vendor meetings. Eleven of fourteen recurring approvals route to him, including every discount above 8 percent and every purchase order above $25K
The absence Two weeks, 2025	Shipping and counter service ran normally. Two project quotes were held for his return, one vendor rebate deadline was missed, and the top account called his mobile twice
The managers, separately Interviewed without him	The office manager described her own decision rights as “anything that doesn’t touch price or a vendor.” The owner had described the same seat as running the place. That gap is the finding
The customers Six reference calls	Four of six named a specific individual rather than the business when asked who they call when something goes wrong

Hoosier Supply Co. (illustrative). Relationship ownership is measured as the share of trailing revenue in accounts where the owner is the relationship of record, from the sales system representative-of-record report cross-checked against the reference calls. Source: LIMESTONE operational diligence file.

Forty-two percent of revenue sits in relationships the owner holds personally. The earnings behind that revenue are real, cash-backed and tested. Whether they travel to a new owner is a separate question, and the fishing trip answered a narrower one than the seller thought it did. Shipping ran without him for two weeks, and pricing and vendor decisions did not.

The management interviews, as a procedure

This is a procedure with a written guide rather than a courtesy call, and it runs after the model is built rather than before. A general conversation produces general answers. Once the model exists you can ask why gross margin moved 140 basis points in the second quarter, and the person who knows will tell you, which also tells you who knows.

Step	What it asks
Who is in the room And who is not	The people who hold or would receive a critical seat, one at a time, without the owner
The decision-rights question The one that does the work	What can you decide on your own, and what has to go to him? Then ask for the last three examples. Compare the answer to how the owner described the same seat, because the gap between the two is the transition risk in one sentence
The accountability chart Seats and outcomes	Draw the five seats and ask each person which they hold. An organization chart shows boxes and titles; this shows who owns a result, which is what you are buying
What they have been told And what they suspect	Most will have guessed already. Find out what they think is happening, and what they intend to do about it, before you are their employer
What is missing, in writing Agreements, not intentions	On our worked example: no employment agreements for the two seats a buyer must keep, and a capable office manager who has never set a price, negotiated a vendor program or held a profit-and-loss statement

LIMESTONE management interview guide, operational diligence.

Thirty to forty-five minutes each, with the owner’s written agreement, and nobody is asked to keep a confidence from the person who employs them today. The way a manager responds to being asked is itself information.

The transition taper, function by function

SBA doubled the consulting window from twelve months to twenty-four. The seller may not stay on as an officer, director, stockholder or employee, and he may be engaged as a consultant “for a period not to exceed 24 months (in aggregate, including any extensions),” “with the express goal of helping that buyer transition into the new business.” That window is the whole instrument, so write down what happens inside it before the ink dries.

Window	The shape	What it means in practice
Month 0 to 3	He leads, you shadow	Introductions to the top ten accounts and every vendor program, with you in the room and him doing the talking
Month 4 to 9	You lead, he is available	You take the calls and the quotes. He answers the phone when you ring. Pricing decisions route through your seat under the framework
Month 10 to 18	Scheduled, not on call	A day a month, on the calendar. Two full cooling seasons is what actually tests whether a distribution relationship survived the change
Month 19 to 24	On request only	A retainer against named questions. If you still need him weekly at month twenty, the transition did not happen

LIMESTONE method. The twenty-four-month consulting window is SBA SOP 50 10 8.1, Appendix 15.

Eighteen months, and the reason is structural

The transferable asset in a distribution business of this size is a set of buying habits that reset once a year, at the start of the cooling season. A relationship that survives one season under new ownership has not yet been tested. One that survives two has. That is the arithmetic behind eighteen months, and it is why a twelve-month agreement measured on the calendar proves nothing.

The mismatch that kills these arrangements

The owner plans to teach and the buyer plans for the owner to keep running it, and neither says so. Write the taper down function by function, with the month each one moves, and have both parties sign the same page. Then read the constraint. The operational read here wants an earnout tied to retention of the top account through two cooling seasons, and SBA prohibits seller earnouts on a 7(a) change of ownership. A consulting agreement with a defined taper and a buyer rebate are what remain available.

What arrives in the first quarter after closing

Diligence stops at closing and the first hundred days are their own guide. Four things arrive often enough that they belong at the end of this one, and all four are cheaper to plan for in week two of exclusivity than in week two of ownership.

What arrives	Why
Payroll comes in higher Than the model says	Sellers give raises during diligence, out of guilt or out of retention anxiety, and they are rarely in the numbers you were given. Ask for the payroll register again, dated the week before closing, and compare it to the one you modeled
You have no credit For one to three years	A new entity has no trade history. Suppliers who gave the seller thirty days will ask you for a deposit or a personal guarantee, and the working capital effect of that is immediate and usually unmodeled
Working capital runs to roughly double What you modeled	The peg plus the credit wall plus the seasonal trough, which on this business is January rather than the June you closed in
Your own seat is unfilled You are three people now	Three of the five seats were owner-held and you are holding them. The honest question for the first hundred days is which one you give away first, and to whom

Observed by LIMESTONE across its own engagements.

How this was built, and where it stops

The twenty-four-month consulting window, the officer and employee restriction and the earnout prohibition are quoted from SOP 50 10 8.1, Appendix 15. The five-seat map, the four sources, the interview guide and the taper are our own operational diligence method. Hoosier Supply Co. is a fictional composite used across our published samples so one set of findings can be tested in public; every name and figure attached to it is illustrative.

Two limits. This is not employment law advice, and a retention agreement is drafted by counsel rather than by us. And the seats framework is ours rather than a standard. It is how we have found the risk, and a different firm would cut it differently, which is worth knowing when you compare two scopes.

Questions we hear

Who checks whether a business runs without the owner?

Nobody, unless you buy it, and that’s the honest answer. A quality of earnings tests whether the earnings are accurate and says nothing about whether they transfer, and the procedures do not overlap at all. A business valuation prices the earnings and does not test the handover either. Your lender requires both and requires nothing about owner dependence. So the work is operational diligence, and it is a separate engagement that runs alongside any quality of earnings scope. If you are not buying it, the two procedures that carry most of the value on your own are the reference calls and the owner’s calendar for the trailing ninety days.

Any tips for the first face-to-face meeting with a potential seller?

Ask him what he does on a Tuesday. Not what his role is, what he actually did last Tuesday, hour by hour. It’s a friendly question and it produces the calendar finding six weeks before you could get the calendar. Then ask who decides a price when he is away, and listen for whether the answer is a name or a shrug. Three things not to do: do not open on price, do not bring a list, and do not tell him what you plan to change. You are there to find out how the business runs and to be somebody he would sell to, and those are the same visit.

Is anyone using AI for due diligence?

We use it, and we’ll tell you exactly where. It collects and organizes documents, summarizes long files, and checks our own arithmetic. It does not make the calls, read the room in a management interview, or decide whether a cost recurs. The work on this page is judgment about people, and the part a buyer is paying for is somebody willing to put their name against that judgment in front of a credit committee. A report nobody will defend out loud is not worth what it costs to produce, however it was produced.

Does anyone have any good quality of earnings stories?

The one that stays with us is not a fraud. An owner told us the business ran without him and offered a two-week holiday as proof, and he believed it. His calendar showed 61 percent of his scheduled time in customer, pricing and vendor meetings, and eleven of fourteen recurring approvals routing through him. During the two weeks he was away, shipping and counter service ran fine, which is what he remembered. Two project quotes waited for him, a vendor rebate deadline was missed, and the top account called his mobile twice, which is what he did not. Owners under-report this one consistently and they are not being dishonest about it. A man who has answered the phone for twenty-eight years genuinely does not notice that he is the phone. The calendar notices.