We have high profitability, but our margins are driven by a sudden post-pandemic surge in a legacy product line that is now normalizing. How do we present our historical earnings trajectory on our runway so buyers do not categorize our past success as a non-recurring fluke?

Question

Tyler Smith · Accepted Answer

A sudden spike in earnings is both a blessing and a challenge when preparing for a sale. If a buyer views your recent high profitability as a temporary anomaly, they will apply a steep discount to your valuation or structure a deal heavily weighted toward a risky earnout. You must proactively address this on your exit runway by establishing a clear bridge of normalized earnings. Work with an external transaction advisor to conduct a sell-side quality of earnings assessment. This audit will help you isolate the financial impact of the temporary product surge from your core operating performance. By separating the revenue and cost of goods sold associated with that specific product line, you can present a clean, adjusted EBITDA model that demonstrates the steady, predictable growth of your core business. Simultaneously, use your V/TO® to articulate the strategic transition away from that legacy product. Show the buyer how you are reallocating those windfall profits into your modern, scalable service offerings. Document how your customer acquisition costs and lifetime values are improving in these growing segments. By presenting a transparent, data-backed narrative that explains the spike, you build trust with the buyer. When you show them that the cash from the legacy surge was systematically reinvested into building a stronger operational foundation, they will value your forward-looking pipeline rather than dismissing your past success as a fluke.