What Is the Difference Between Business Valuation and Asking Price?
A business valuation is an objective, data-driven estimate of what your business is worth based on financial analysis, market comparisons, and industry benchmarks. An asking price is a strategic number you choose to list your business at. One is analytical; the other is tactical.
Think of it like real estate: a home appraisal tells you the market value. The listing price is what you put on the sign. Pricing too high means the house sits and gets stale. Pricing too low means you leave money on the table. The same dynamics apply to business sales, except the stakes are 10-100x higher.
Why Fair Market Value Is Not the Same as What You Deserve
Fair Market Value (FMV) is defined as the price a willing buyer and willing seller would agree upon, both having reasonable knowledge of the relevant facts and neither being under compulsion. It's not what you need for retirement. It's not what you feel the business is worth after 25 years of sweat equity. It's what the market will pay.
This disconnect is one of the biggest reasons deals fall apart. According to the IBBA, 50% of sellers have unrealistic price expectations when they first enter the market. Most come down to earth after 6-9 months of no offers, but by then they've lost their best window.
"The hardest conversation I have with business owners isn't about their business's weaknesses. It's about the gap between what they think it's worth and what the market will actually pay. Closing that gap early is the most important step in a successful exit."
-- Matt Sitek, Founder, FuturePath Ventures
How to Set the Right Asking Price for Your Business
The optimal asking price balances three factors: attracting serious buyers, leaving room for negotiation, and avoiding market fatigue.
- 1
Get a Data-Driven Valuation First
Start with your fair market value as the baseline. Use a certified appraiser or, for preliminary planning, our free valuation tool. Never set an asking price based on what you 'feel' the business is worth.
- 2
Analyze Comparable Sales
Review recent sales of similar businesses in your industry and region. BizBuySell and DealStats provide transaction data. Understanding what similar businesses actually sold for (not what they listed at) gives you market context.
- 3
Factor in Your Market Position
Are there multiple buyers competing for businesses like yours? Price at or slightly above FMV. Is buyer demand soft? Price closer to FMV to attract attention early.
- 4
Build in Negotiation Room
Most businesses sell for 85-95% of asking price. If your FMV is $2M, listing at $2.2M-$2.3M gives you room to negotiate while staying within a credible range.
- 5
Consider Your Timeline
If you need to sell quickly (health, burnout, market shift), pricing at FMV or slightly below generates faster interest. If you can wait, pricing higher and testing the market is reasonable.
The Real Cost of Overpricing Your Business
BizBuySell data shows that businesses listed for more than 20% above their market value take 2-3x longer to sell and ultimately close at 5-15% below what they would have received with proper initial pricing. The market punishes overpriced listings.
Properly Priced Business
- FMV: $2,000,000
- Asking price: $2,200,000
- Time to sell: 6-9 months
- Final sale price: $2,000,000-$2,100,000
Overpriced Business
- FMV: $2,000,000
- Asking price: $2,800,000
- Time to sell: 18-24 months
- Final sale price: $1,700,000-$1,900,000
The overpriced business not only took longer to sell, it sold for less than the properly priced one. Time on market creates a negative signal that experienced buyers exploit during negotiation.
Know Your Fair Market Value Before You Set a Price
Our free valuation tool gives you a data-driven starting point in under 5 minutes. Get your estimate, then work with an advisor to set the right asking price.
Pricing Your Business FAQ
How much above valuation should I set my asking price?+
A common approach is 10-15% above your appraised fair market value to leave room for negotiation. However, this depends on market conditions, buyer demand, and your business's unique characteristics. In a seller's market with strong buyer interest, you may not need to add any cushion. In a buyer's market, pricing at or slightly above valuation attracts more serious inquiries.
What happens if I price my business too high?+
Overpriced businesses sit on the market, which creates a stigma. Brokers and buyers track how long listings have been active. After 6-12 months without a sale, buyers assume something is wrong and adjust their offers downward. You may end up selling for less than your original valuation, not more. This is called 'market fatigue.'
What happens if I price my business too low?+
Pricing below fair market value can generate quick interest, but you risk leaving money on the table. If you receive multiple offers quickly, that's a signal your price was too low. A better approach: price at fair market value and let competitive tension among multiple buyers drive the final price upward.
Who determines the fair market value of my business?+
For a defensible number, hire a Certified Business Appraiser (ASA, CBA, or ABV credentialed). For preliminary planning, you can use market data (BizBuySell, IBBA reports) or free valuation tools. Brokers often provide 'opinions of value,' but be aware they may be motivated to inflate the number to win your listing.
Do buyers always try to negotiate below the asking price?+
Almost always. The average small business sells for 85-95% of the initial asking price, according to BizBuySell. Buyers expect to negotiate, and offers below asking are standard practice. This is why pricing strategy matters: you need to account for negotiation while avoiding the market fatigue that comes from overpricing.
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