What a Buyer May Really Be Looking At
Buyers, as part of their due diligence, usually employ accountants to check the numbers and attorneys to both look at legal issues and draft or review documents. Buyers may also bring in other professionals to look at the business’ operations. The prudent buyer is also looking behind the scenes to make sure there are not any “skeletons in the closet.” It makes sense for a seller to be just as prudent. Knowing what the prudent buyer may be checking can be a big help. A business intermediary professional is a good person to help a seller look at these issues. They are very familiar with what buyers are looking for when considering a company to purchase.
Here are some examples of things that a prudent buyer will be checking:
Finance
- Is the business taking all of the trade discounts available or is it late in paying its bills? This could indicate poor cash management policies.
- Checking the gross margins for the past several years might indicate a lack of control, price erosion or several other deficiencies.
- Has the business used all of its bank credit lines? Does the bank or any creditor have the company on any kind of credit watch?
- Does the company have monthly financial statements? Are the annual financials prepared on a timely basis?
Management
- Is the owner constantly interrupted by telephone calls or demands that require immediate attention? This may indicate a business in crisis.
- Has the business experienced a lot of management turnover over the past few years?
- If there are any employees working in the business, do they take pride in what they do and in the business itself?
Manufacturing
- What is the inventory turnover? Does the company have too many suppliers?
- Is the business in a stagnant or dying market, and can it shift gears rapidly to make changes or enter new markets?
Marketing
- Is the business introducing new products or services?
- Is the business experiencing loss of market share, especially compared to the competition? Price increases may increase dollar sales, but the real measure is unit sales.
When business owners consider selling, it will pay big dividends for them to consider the areas listed above and make whatever changes are appropriate to deal with them. It makes good business sense to not only review them, but also to resolve as many of the issues outlined above as possible.
Copyright: Business Brokerage Press, Inc.
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Price or Terms: The Structure of the Deal
An old saying in negotiating the sale of a business goes like this: The buyer says to the seller, “You name the price, and I get to name the terms.”
Another saying used to explain the actual value of the term full price: “If we could find you a business that nets you $250,000 a year after debt service, and you could buy it for $100 down, would you really care what the full price was?”
It seems that everyone is concerned only about full price. And yet, full price is just part of the equation. If a seller is willing to accept a relatively small down payment and carry the balance, a higher full price can be achieved. On the other hand, the more cash the seller wants up front, the lower the full price. If the seller demands all cash, barring some form of outside financing, full price lowers – and, in most cases, the chance of selling decreases as well. Even in cases where outside financing is used, such as through SBA, etc., the lender will do everything possible to ensure that the price makes sense.
Sellers should understand that both what they hope to accomplish in the sale of their business and the structure of the actual sale can dramatically influence the asking price. Price is obviously important, but other factors may be even more important. For example, consider a seller with health issues who needs to sell as quickly as possible. In his case, timing becomes more essential than price. Another seller may place more importance on her business remaining in the community. In her case, finding a buyer who will not move the business may supersede price or certainly influence it.
Likewise, the structure of the deal can both influence price and be a more significant factor than price to either the buyer or the seller. The structure can dictate how much cash the seller receives up front, which may be more important than price for some sellers. On the other hand, sellers should also be aware how much the interest on their carry-back can add up to. If cash is not an immediate concern, monthly payments with an above-average interest rate may be enticing.
These examples all demonstrate the importance of the business broker professional sitting down with the seller prior to recommending a go-to-market price. During this meeting, the broker should find out what is really important to the seller, as these issues may have a direct bearing on the price.
Sellers should look at the following factors and rank them according to importance on a scale of one to five, with five being extremely important.
• Buyer Qualifications
• Full Price
• Amount of Cash Involved
• Financing
• Confidentiality
• Commission/Selling Fees
• Closing Costs
• Exclusive Listing
• How the Business is Shown
• Advertising/Marketing
• How a New Owner Continues the Business
By ranking these items and discussing them with a professional Business Broker, a seller can receive helpful advice from the broker on price, terms, and structuring the sale.
Copyright: Business Brokerage Press, Inc.
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Negotiating the Price Gap Between Buyers and Sellers
Sellers generally desire all-cash transactions; however, oftentimes partial seller financing is necessary in typical middle market company transactions. Furthermore, sellers who demand all-cash deals typically receive a lower purchase price than they would have if the deal were structured differently.
Although buyers may be able to pay all-cash at closing, they often want to structure a deal where the seller has left some portion of the price on the table, either in the form of a note or an earnout. Deferring some of the owner’s remuneration from the transaction will provide leverage in the event that the owner has misrepresented the business. An earnout is a mechanism to provide payment based on future performance. Acquirers like to suggest that, if the business is as it is represented, there should be no problem with this type of payout. The owner’s retort is that he or she knows the business is sound under his or her management but does not know whether the buyer will be as successful in operating the business.
Moreover, the owner has taken the business risk while owning the business; why would he or she continue to be at risk with someone else at the helm? Nevertheless, there are circumstances in which an earnout can be quite useful in recognizing full value and consummating a transaction. For example, suppose that a company had spent three years and vast sums developing a new product and had just launched the product at the time of a sale. A certain value could be arrived at for the current business, and an earnout could be structured to compensate the owner for the effort and expense of developing the new product if and when the sales of the new product materialize. Under this scenario, everyone wins.
The terms of the deal are extremely important to both parties involved in the transaction. Many times the buyers and sellers, and their advisors, are in agreement with all the terms of the transaction, except for the price. Although the variance on price may seem to be a “deal killer,” the price gap can often be resolved so that both parties can move forward to complete the transaction.
Listed below are some suggestions on how to bridge the price gap:
- If the real estate was originally included in the deal, the seller may choose to rent the premise to the acquirer rather than sell it outright. This will decrease the price of the transaction by the value of the real estate. The buyer might also choose to pay higher rent in order to decrease the “goodwill” portion of the sale. The seller may choose to retain the title to certain machinery and equipment and lease it back to the buyer.
- The purchaser can acquire less than 100% of the company initially and have the option to buy the remaining interest in the future. For example, a buyer could purchase 70% of the seller’s stock with an option to acquire an additional 10% a year for three years based on a predetermined formula. The seller will enjoy 30% of the profits plus a multiple of the earnings at the end of the period. The buyer will be able to complete the transaction in a two-step process, making the purchase easier to accomplish. The seller may also have a “put” which will force the buyer to purchase the remaining 30% at some future date.
- A subsidiary can be created for the fastest growing portion of the business being acquired. The buyer and seller can then share 50/50 in the part of the business that was “spun-off” until the original transaction is paid off.
- A royalty can be structured based on revenue, gross margins, EBIT, or EBITDA. This is usually easier to structure than an earnout.
- Certain assets, such as automobiles or non-business-related real estate, can be carved out of the sale to reduce the actual purchase price.
Although the above suggestions will not solve all of the pricing gap problems, they may lead the participants in the necessary direction to resolve them. The ability to structure successful transactions that satisfy both buyer and seller requires an immense amount of time, skill, experience, and most of all – imagination.
The post Negotiating the Price Gap Between Buyers and Sellers appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
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Dealing with Inexperience Can Ruin the Deal
The 65-year old owner of a multi-location retail operation doing $30 million in annual sales decided to retire. He interviewed a highly recommended intermediary and was impressed. However, he had a nephew who had just received his MBA and who told his uncle that he could handle the sale and save him some money. He would do it for half of what the intermediary said his fee would be – so the uncle decided to use his nephew. Now, his nephew was a nice young man, educated at one of the top business schools, but he had never been involved in a middle market deal. He had read a lot of case studies and was confident that he could “do the deal.”
Inexperience # 1 – The owner and the nephew agreed not to bring the CFO into the picture, nor execute a “stay” agreement. The nephew felt he could handle the financial details. Neither one of them realized that a potential purchaser would expect to meet with the CFO when it came to the finances of the business, and certainly would expect the CFO to be involved in the due diligence process.
Inexperience # 2 – It never occurred to the owner or his nephew that revealing just the name of the company to prospective buyers would send competitors and only mildly interested prospects to the various locations. There was no mention of Confidentiality Agreements. Since the owner was not in a big hurry, there were no time limits set for offers or even term sheets. It would only be a matter of time before the word that the business was on the market would be out.
Inexperience # 3 – The owner wanted to spend some time with each prospective purchaser. Confidentiality didn’t seem to be an issue. There was no screening process, no interview by the nephew.
Inexperience # 4 – The nephew prepared what was supposed to be an Offering Memorandum. He threw some financials together that had not been audited, which included a missing $500,000 that the owner took and forgot to inform his nephew about. This obviously impacted the numbers. There were no projections, no ratios, etc. This lack of information would most likely result in lower offers or bids or just plain lack of buyer interest. In addition, the mention of a pending lawsuit that could influence the sale was hidden in the Memorandum.
Inexperience # 5 – The owner and nephew both decided that their company attorney could handle the details of a sale if it ever got that far. Unfortunately, although competent, the attorney had never been involved in a business sale transaction, especially one in the $15 million range.
Results — The seller was placing almost his entire net worth in the hands of his nephew and an attorney who had no experience in putting transactions together. The owner decided to call most of the shots without any advice from an experienced deal-maker. Any one of these “inexperiences” could not only “blow” a sale, but also create the possibility of a leak. The discovery that the company was for sale could be catastrophic, whether discovered by the competition, an employee, a major customer or a supplier .
The facts in the above story are true!
The moral of the story – Nephews are wonderful, but inexperience is fraught with danger. When considering the sale of a major asset, it is foolhardy not to employ experienced, knowledgeable professionals. A professional intermediary is a necessity, as is an experienced transaction attorney.
What’s a Fair Asking Price for a Small Business in Indiana?
By Troy Frank, Owner — Indiana Equity Brokers
Estimated read time: 7 min
The short answer: A fair asking price for a small business in Indiana is typically 2 to 3 times the seller’s discretionary earnings (SDE) for Main Street businesses, and 3 to 5 times EBITDA for larger companies. The right number depends on your industry, revenue consistency, customer concentration, and how transferable the business is without you. Sellers who set an evidence-based asking price close faster and at higher net proceeds than sellers who anchor to what they need or hope to get. A professional valuation is where pricing should start.
Most sellers come to the table with a number in mind. That number usually comes from one of three places: what they’ve put into the business over the years, what they need to retire, or what a friend got for a business in a different industry a decade ago.
None of those inputs tell you what your business is actually worth to a buyer today.
Pricing a privately held business is more art than arithmetic, but it isn’t guesswork. There are specific methods buyers and their advisors use to evaluate small businesses in Indiana, and understanding them is the single most useful thing a seller can do before they go to market.
How Buyers Actually Value Small Businesses
Buyers don’t care what you paid to build the business. They care about two things: how much cash the business generates, and how much risk they’re taking on.
That’s it. Every valuation method circles back to those two questions.
Seller’s Discretionary Earnings (SDE)
For Main Street businesses (roughly those under $1–2 million in annual profit) the standard valuation method is a multiple of Seller’s Discretionary Earnings (SDE). SDE is the total cash the business generates for a full-time owner-operator, including net income plus owner’s salary, benefits, depreciation, and any personal expenses run through the business.
In Indiana, most Main Street businesses trade at 2 to 3 times SDE. A business generating $300,000 in SDE would typically be priced between $600,000 and $900,000. The multiple depends on factors like revenue trends, customer concentration, lease terms, staff stability, and industry.
Businesses at the lower end of that range tend to have one or more of these: owner-dependent operations, a single major customer, short lease terms, or inconsistent earnings. Businesses at the upper end have documented systems, loyal customer bases, long leases, and year-over-year growth.
EBITDA Multiples for Larger Businesses
For businesses generating over $1 million in annual profit, buyers typically shift to an EBITDA multiple (Earnings Before Interest, Taxes, Depreciation, and Amortization). National market data shows the median private company transaction closed at approximately 3.5x EBITDA at the end of 2025. Stronger businesses in growing sectors can command 4–6x.
The difference between a 3x and a 5x multiple on $1 million EBITDA is $2 million. That gap isn’t random; it’s driven by the specific value drivers a buyer sees in your business.
Why Sellers Overprice and What It Costs Them
Overpricing is the most common and most expensive mistake sellers make. It doesn’t feel like a mistake. It feels like negotiating room.
Here’s the problem: buyers in the Main Street market aren’t haggling. They’re doing the math. When they see a business priced at 4x SDE in an industry that trades at 2.5x, they don’t make a low offer. They move on. They assume the seller is either uninformed or unrealistic, and neither is a good sign.
What typically happens to overpriced listings: they sit. After 6–9 months with no serious offer, the seller cuts the price. Now the listing has a discount flag attached to it, and the next wave of buyers wonders what’s wrong. The seller ends up negotiating from a weaker position and often nets less than they would have with a realistic price at launch.
At Indiana Equity Brokers, we’ve tracked this pattern across hundreds of transactions. Sellers who list at fair market value close faster, attract more qualified buyers, and face less renegotiation during due diligence.
If you want to understand the specific factors that drive a higher multiple for your business, our post on what makes a business worth more breaks it down in detail.
The Four Prices Every Seller Should Know
Before you list, you should be clear on four distinct numbers. They’re not the same, and confusing them will cost you.
1. Appraised value. The number a professional valuator or experienced broker assigns based on your financials and comparable transactions. This is your baseline and the anchor for everything else.
2. Your go-to-market price. What you actually list the business for. This is typically 10–15% above appraised value to leave room for negotiation without appearing unrealistic. Going higher than that signals a seller who hasn’t done their homework.
3. Your walk-away price. The lowest number you’ll accept. Know this before you get an offer — not during the emotion of a negotiation. Sellers who don’t know their floor make worse decisions at the table.
4. Your “wish price.” What you’d love to get in a perfect world. Keep this private. Sharing it with buyers, or letting it drive your listing price, is how sellers end up with stalled deals.
The final sale price almost always lands between the go-to-market price and the walk-away price. In some cases (particularly when a business is priced aggressively and attracts multiple offers) it lands above list. That’s rare, but it happens. We’ve seen it with service businesses in the Indianapolis metro where buyer demand has been strong over the past several years.
What Buyers Look at Beyond the Numbers
Pricing isn’t only about earnings. Buyers evaluate risk. The same $300,000 in SDE looks very different depending on where it comes from.
Customer concentration is one of the biggest valuation discounts we see. If 40% of revenue comes from one customer, buyers know one phone call can change the picture overnight. That risk gets baked into the multiple — downward.
Owner dependency is another. If you’re the business (if your relationships, your expertise, and your presence are the product) a buyer is paying for something they may not be able to replicate. Businesses with documented systems, a capable management layer, and customers who buy from the company (not just from you) command significantly higher multiples.
Revenue trends matter more than any single year. A business showing three consecutive years of growth is worth more than a business with flat or inconsistent earnings, even if last year’s numbers look the same.
Lease terms are often overlooked. A 10-year lease with favorable renewal options is an asset. A lease expiring in 18 months with an uncertain landlord is a liability that can kill a deal entirely. We’ve written about how landlords can affect a business sale and it’s something every seller should think through before listing.
How to Get a Realistic Valuation Before You List
The worst time to find out your business is worth less than you thought is after you’ve already told your employees you’re selling.
Start with a professional opinion of value. At Indiana Equity Brokers, we provide a free business valuation for every seller we work with, not as a sales tactic, but because sellers who understand what their business is worth make better decisions about when to sell, how to price it, and whether to spend time increasing value before going to market.
Formal third-party appraisals from a certified business valuator typically run $2,000–$10,000 for a small business, depending on complexity. For most Main Street sellers, that’s not necessary before listing. A broker’s market-based valuation is sufficient. For sellers in litigation, estate planning, or partnership buyouts, a certified appraisal carries more legal weight.
Whatever approach you take, the goal is the same: enter the market with a number you can defend, not just a number you can live with.
Frequently Asked Questions
What is a fair asking price for a small business in Indiana? A fair asking price for a small business in Indiana is typically 2 to 3 times the seller’s discretionary earnings (SDE). For a business generating $250,000 in annual SDE, a fair market range would be $500,000 to $750,000. The exact multiple depends on industry, revenue stability, customer concentration, lease terms, and how owner-dependent the business is. Businesses with strong systems and diversified revenue command higher multiples.
How do you calculate the value of a privately held business? The most common method for Main Street businesses is a multiple of Seller’s Discretionary Earnings (SDE) — the total cash benefit available to a full-time owner, including net profit, owner’s salary, depreciation, and add-backs for personal expenses run through the business. Larger businesses (typically over $1M in annual profit) use EBITDA multiples instead. Both methods require clean, well-documented financials for buyers to accept the number.
Why do some businesses sell for more than others with similar revenue? Revenue alone doesn’t determine value, but risk does. Two businesses generating the same revenue can have very different valuations if one has recurring contracts, a trained management team, and a loyal customer base, while the other depends entirely on the owner’s personal relationships. Buyers pay more for businesses that are transferable, predictable, and not dependent on the seller staying involved.
What happens if I price my business too high? An overpriced listing typically sits on the market without serious offers. After several months, sellers reduce the price, but the listing now carries a price-cut history that signals problems to new buyers. The result is usually a longer sale process, more renegotiation during due diligence, and a lower final net than a well-priced listing would have generated from day one.
Do I need a formal appraisal before selling my business in Indiana? For most Main Street sellers, a formal certified appraisal isn’t required. An experienced broker’s market-based opinion of value grounded in comparable transactions is usually sufficient to set a defensible asking price. Formal appraisals ($2,000–$10,000) are more appropriate when the valuation will be used in legal proceedings, estate planning, or partnership disputes.
Get the Number Right Before You Go to Market
Pricing your business isn’t a guess, but it shouldn’t be a formula either. The right asking price requires someone who knows your industry, knows the current buyer pool, and has closed deals at similar valuations recently.
If you’re in Indiana and you’re thinking about selling whatsoever, a confidential conversation about your business’s value costs nothing and takes about 15 minutes. Troy Frank has helped more than 880 Indiana business owners navigate this process, from initial valuation through closing.
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