A valuation is not an asking price
A valuation estimates what a business is worth. An asking price is a negotiating position that has to attract enquiries, survive a lender's independent view, and leave you somewhere to move. Those are different jobs, and conflating them is where most pricing goes wrong.
The usual practice is to ask modestly above your defensible valuation — enough to leave negotiating room, not so much that qualified buyers never call. Five to ten percent above the midpoint of your range is a common shape. Thirty percent above is not a negotiating position; it is a filter that removes exactly the buyers you want.
Why overpricing costs more than it appears to
Owners treat a high asking price as a free option: start high, come down if nobody bites. It is not free, because time on market is itself information that buyers read.
- Serious buyers screen on price. A business priced 40% above its comparables is filtered out before anyone reads the summary.
- Listings go stale. A business that has been available for nine months invites the question of what everyone else found wrong with it.
- A reduction signals weakness. Cutting the price after six months tells buyers you will cut again, and they wait.
- Your energy is finite. Owners running a business and a sale process simultaneously get tired, and tired sellers accept worse terms.
- Lenders will not follow you. If a buyer needs financing, an appraisal below the agreed price kills or reprices the deal regardless of what you both wanted.
Where a buyer is using SBA or bank financing, the lender will typically require an independent business valuation. If it comes in below the contract price, the lender lends against the lower number — and the buyer must find the difference in cash or the deal is restructured. An asking price your own valuation cannot support runs into this wall around week ten.
The market tells you within six weeks
You do not need to guess whether the price is right. Enquiry behaviour answers it quickly, and each pattern points at something different.
| What you see | What it means | What to do |
|---|---|---|
| No enquiries at all | Priced out of the screen | Reprice, do not wait |
| Enquiries, no NDAs signed | The summary is not persuasive | Fix the materials, not the price |
| NDAs, then silence | Financials disappoint against the ask | Re-examine the earnings basis |
| Offers well below ask | Price is wrong, business is fine | Move, or justify the gap with evidence |
| Offers near ask | Priced correctly | Hold |
| Multiple fast offers | Priced below the market | Do not accept the first one |
If a properly marketed business generates no serious enquiry in six weeks, the price is wrong. Reprice decisively and once. A series of small reductions trains buyers to wait for the next one, and the listing ages through every cut.
Write down why, before anyone asks
An asking price with reasoning behind it survives challenge. A number with nothing behind it becomes a starting bid the moment the first buyer pushes.
Prepare one page: adjusted earnings for three years with the add-back bridge visible, the multiple applied, the comparable evidence supporting that multiple, and an honest note on the two or three factors that argue for the top of the range. Give it to buyers rather than waiting to be interrogated.
| Factor | Argues for the top | Argues for the bottom |
|---|---|---|
| Revenue quality | Contracted or genuinely recurring | Project-based, re-won each year |
| Concentration | No customer above 10% | One customer above 30% |
| Owner role | Manager in place, evidenced | Owner is the top salesperson |
| Trend | Three years of growth | Flat, or a soft final year |
| Documentation | Clean books, written processes | Reconstructed, informal |
| Assets | Modern, maintained | Deferred capital expenditure |
A price you can explain is a negotiating position. A price you cannot is an opening bid you set against yourself.
The number is not the only variable
Two offers at the same price can be worth very different amounts, and a seller who negotiates only on the headline is negotiating on the least informative dimension.
- Cash at closing versus deferred. Certain money now is worth more than contingent money later.
- Earnout share. Consideration tied to performance under someone else's management is frequently paid at less than face value.
- Seller note terms — rate, term, standby, and whether it is secured.
- Escrow size and duration, which is money you have been promised but do not hold.
- Transition obligations. Six months on site is a real cost even though it carries no number.
- Non-compete scope, which may constrain what you can do next.
If a buyer cannot reach your number, trade structure rather than price. A slightly lower headline with more cash at closing and a shorter escrow is often better for you and easier for them. It also preserves the price as a reference point, which matters if the first deal falls through and you go back to market.