How to tell if a business's asking price is too high

The number on a listing sounds like a fact. "$900,000, priced to sell" reads like something somebody checked, but the seller picked it, usually with help from a broker, and neither of them has their own money riding on it. So how do you tell if a business's asking price is too high before you spend weeks chasing it? Run three checks in order. Most of the time they settle it in under an hour.

Check one: is the implied multiple higher than similar deals sell for?

Every asking price implies a multiple. Divide the price by the SDE (seller's discretionary earnings, which is roughly everything the business pays the owner) and you have it. A $900,000 price on $260,000 of claimed SDE works out to about 3.5x.

That number only means something next to what businesses of the same size have sold for. The International Business Brokers Association's Market Pulse survey put the median at about 2x SDE for businesses that sold for under $500K in the first quarter of 2026, 2.8x between $500K and $1M, and 3.3x between $1M and $2M. Above that, deals are mostly priced on EBITDA instead. Our post on what's a fair multiple for a small business goes through those numbers in more detail.

A multiple above the median for its bracket can still be fair. A business that runs without the owner and has clean books is worth more than one that doesn't. The seller should be able to point to reasons like that, and the next two checks will show you whether they hold up.

Check two: does the SDE behind the price hold up?

A fair multiple on an inflated SDE still gives you the wrong price. Sellers pad SDE with add-backs that fall apart when you look closer, like a "one-time" repair that shows up three years in a row, personal travel with no receipts, or family members on the payroll who don't work in the business. How to tell a legitimate add-back from an inflated one goes through the test for each line.

Rebuild the SDE from the tax returns and bank statements before you accept the seller's multiple. If the real SDE comes in lower, the same asking price works out to a higher multiple, and that gets harder to defend.

Check three: does the price still work with the lender's math?

A price can sit inside a reasonable multiple range and still be too high for you if the cash flow can't cover the loan payment. Before a lender counts any cash flow toward the loan, they take out a salary for the manager who will do the seller's job. What's left has to cover the yearly loan payments at least 1.15 times over. We explain that floor in the SBA loan reality check.

This is where a smaller rebuilt SDE hurts twice. It raises the multiple, and it shrinks what's left to pay the loan once that salary comes out. Run the deal through the 60-second lender-math check before you spend more time arguing about the multiple. If it doesn't clear 1.15, the price is too high for you whatever the multiple says.

A worked example: a $900,000 HVAC listing

The seller claims $260,000 of SDE on a $900,000 asking price, which is about 3.5x. The median for deals between $500K and $1M is about 2.8x, so this one is on the high side. The business does have a working foreman, though, so it's worth a closer look before you pass on it.

Rebuilding the SDE turns up $50,000 of truck "repairs" that come back every year and $15,000 of travel with no documented business purpose. Take those out and the real SDE is $195,000. The same $900,000 price is now a 4.6x multiple, far above the 2.8x median. On the multiple alone, this listing is priced for a better business than the one for sale.

The lender math is worse. At 10% down the loan is $810,000, and on a 10-year SBA loan at 9.75% the payment comes to about $10,600 a month, or $127,100 a year. The owner writes every estimate and makes every sale, so budget $75,000 for a manager to replace them. That leaves $120,000 of the real SDE to pay the loan, which covers the payment 0.94 times, well under the 1.15 floor. On the seller's $260,000 it would have covered 1.46 times and passed. You can run the same numbers in the lender-math check. This listing fails on the multiple and on the lender math.

What do you do if the price is too high?

Use the work you just did. A rebuilt SDE with the documents behind it and the survey multiples for that size of deal make a much stronger counteroffer than asking for a lower number, and they're harder for a seller or broker to brush off. From there you have three moves. You can counter at the price the real numbers support, cover the gap with a seller note or an earnout tied to performance, or walk away.

In the HVAC example, the rebuilt numbers clear the 1.15 floor at about $735,000 with 10% down. That gives you a number you can defend in a counteroffer. If the seller won't move and a seller note can't close the gap, walking away is a good outcome. The full valuation walkthrough is built to help you screen out deals like this before you get attached to one.

The SBA's guide to buying an existing business gives the same advice in fewer words: ask about the existing cash flow and do your due diligence before you commit.

FAQ

Is a listing's asking price what the business is worth?

No. It's where the seller wants to start, usually set with a broker's help, and neither of them has their own money on the line. What businesses that size have sold for, from survey data like the IBBA's, tells you more than the number on the listing.

Should I just offer 20% less and see what happens?

A round discount is a guess, and sellers treat it like one. A counter built from the rebuilt SDE and the survey multiples is much harder to wave off. Doing that work also tells you whether you should be pushing back at all.

Does a high multiple always mean the price is too high?

No. A business that runs without the owner, has customers spread across many accounts, and has clean books you can verify can fairly sell above the median multiple for its size, because its income is more likely to last. What matters is whether the business can back up the multiple.

What if the multiple looks fine but the loan still doesn't work?

Then the price is still too high for you. What you can afford depends on the deal and on you, and a price a lender won't finance at a reasonable down payment is a hard ceiling.

Educational content, not financial, legal, or tax advice for your situation. Confirm specifics with your own CPA and attorney.