What’s a Fair Price for This Business?

What’s a Fair Price for This Business?

There’s no universal pricing sheet for small businesses. No standard handbook. No consistent baseline.

When a listing says, “Asking $600K”, the obvious question is: is that number fair — or just fiction?

Brokers love quoting SDE. Sellers toss around dream multiples. And most first-time buyers… wing it.

Let’s fix that.

To figure out if the price is real (and not broker math), you need to understand Fair Market Value — and how it’s actually calculated.

What “Fair Market Value” Actually Means

Let’s clear this up right now:

Fair Market Value (FMV) is not what the seller wants.
It’s not what the broker says.
It’s not what you feel in your gut.

Fair Market Value = what a rational buyer and rational seller would agree to,
→ with full access to info,
→ with no pressure to close,
→ and with a shared understanding of what the business is really worth.

It’s the number that makes sense based on cash flow, risk, and market reality — not personal effort, not potential, not "vibes."

Most small business listings ignore that.

Instead, you get price tags based on:

• “But I worked so hard.”
• “Another guy down the street sold for this.”
• “We see huge potential!”

None of that matters if the cash doesn’t back it up.

If you’re buying a business — especially for the first time — your job is to get to Fair Market Value before you ever write a check or draft an LOI.

That means:

• Verifying real earnings (not padded SDE)
• Understanding risk (customer concentration, owner dependence, lease terms)
• Applying comps from actual sales, not just fantasy listings
• Subtracting real costs you’ll face post-close

The (Actual) Formula Behind Business Pricing

Fair Price = Adjusted SDE × Realistic Multiple ± Deal-Specific Adjustments

Step 1: Adjusted SDE

SDE stands for Seller’s Discretionary Earnings — what the owner claims they pocket after expenses, add-backs, and perks.

But most SDE numbers are bloated. Clean it up:

• Strip out personal expenses
• Add in post-sale costs (like a GM or software)
• Remove anything that won’t transfer to you

Step 2: Realistic Multiple

Not all businesses get the same multiple.

• Local service: 2.0–2.8×
• eCommerce: 2.5–3.5×
• SaaS: 3.0–5.0×
• Brick & mortar with labor headaches: often < 2×

Step 3: Adjust for Reality

Where the Asking Price Gets Fudged

This is where most buyers get played.

They say, “It’s priced based on the SDE times a market multiple.”
But that SDE is often bloated, and the “market multiple” is fiction.

Common tricks:

• Add-back inflation
• Future forecasting
• Effort tax
• Comparable confusion

Reverse-engineer the price. If the earnings are shaky and the multiple is unjustified — that asking price is just an opening bid.

How to Calculate the Real Value

Step 1: Normalize the SDE

Treat the SDE like a used car odometer — assume it’s been tampered with.

Clean it up:

• Strip out sketchy add-backs
• Remove perks
• Add real post-close costs

Step 2: Pick the Right Multiple

Based on:

• Industry
• Market growth
• Recurring revenue
• Owner dependence

Step 3: Adjust for Deal-Specific Factors

The Buyer’s Lens: What You Need to Consider

The same business could be worth $400K to one buyer and $600K to another. The better the fit, the more forgiving the math.

Smart Questions That Reveal If the Price Is BS

Ask these:

• “How did you calculate the asking price?”
• “What’s included in the SDE?”
• “Would this appraise for the asking price with a lender?”
• “How many hours a week do you work?”
• “What capital will I need after closing?”

The answers give you data — and leverage.

The 3-Minute Fair Price Test

Think of this as your BS filter. Before you get dazzled by a broker’s pitch or a seller’s sob story, run the numbers fast and see what the business is actually worth.

Step 1: Adjust the SDE

Start with the claimed Seller’s Discretionary Earnings (SDE), but don’t take it at face value.
Scrub out any fluff:

• Add-backs that won’t really go away
• One-time revenue spikes
• Owner perks you’d keep (like a company car or travel)

Goal: Get to real, repeatable cash flow.

Step 2: Apply a Realistic Multiple

Use comps from similar businesses. Typical small biz ranges:

• Main Street (under $1M SDE): 2–3×
• Premium listings: 3.5–4× (only if growth, brand, and ops are solid)

Goal: Multiply adjusted SDE by a fair market multiple — not wishful thinking.

Step 3: Subtract Real Costs

This is where most buyers get played. You still need to fund:

• Working capital to keep the lights on
• Any major capex coming up
• Inventory if it’s not included
• A buffer for the unexpected

Goal: Land at a number you could defend if your CPA, lender, and gut were all in the room.

Quick Example

Common Seller Traps — and How to Dodge Them

• “It’s priced below replacement value!”
• “We’ve put in years of hard work.”
• “There’s so much potential.”
• “Other listings are priced the same.”

Stories ≠ value. Buy the numbers, not the narrative.

When a “Fair Price” Is Still a Bad Deal

Even fair prices can be bad buys.

Ask yourself:

• Will I be married to this 60+ hrs/wk?
• Could I resell this in 2 years?
• Am I excited — or already drained?
• Is this a smart buy, or just a rationalization?

Final Word: How to Know You’re Not Getting Screwed

If the SDE is clean, the multiple is real, and you can run it without losing your mind — it might be fair.

But if you’re justifying? That’s delusion.

You’re buying cash flow, control, and your next chapter.
Make sure it’s worth the price.

Want Help Breaking Down the Real Value?

Don’t guess the price. Prove it.
Use Acquidex to break down the numbers, flag the risks, and see if the deal’s worth it — before you waste your down payment.

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