Dr. Paul Borosky, DBA, MBA
Business Plan Writer & Financial Projections
What Is a Fair Price to Pay for a Small Business?
A Fair Price Is One the Business Can Pay Back.
The listing says the business earns $180,000 and asks three times that. It sounds reasonable until you look at what the seller did for free and which customers are really the seller’s friends. Business plan writer Dr. Paul Borosky, DBA, MBA, breaks down how to test an asking price against what the business will earn for you.
Last Updated: 11/08/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Definition
What Is a Fair Price for a Small Business?
Short Answer
A fair price for a small business is one its future earnings can pay back for the new owner. It is set by adjusting the seller’s reported profit for the owner’s unpaid work, one-time costs, and customers likely to leave with the seller, then comparing the price with those adjusted earnings and checking that any loan payment fits comfortably.
Fair price test = price ÷ adjusted earnings, then loan payment ÷ adjusted earnings
Doctor Owl, in Plain English
“The seller is pricing the business he ran. You are buying the business that is left when he walks out. Price that one.”
How This Guide Works
Need the answer fast? Read the Short Answer above and the numbered steps. Want the full picture? Follow Colt, a horse who runs forest tours from Dr. Paul’s Fabled Forest Business School Series, as he buys a tour desk whose value turns out to live with its seller. His story shows up in a few short gold notes along the way. The math sits in one section, clearly marked.
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Meet Colt: A Horse Who Bought a Desk
Some lessons stick better as a story. Dr. Paul’s Fabled Forest Business School Series teaches business through a forest full of small business owners. Doctor Owl, a dry-witted consultant who lives in the Lone Oak, helps them fix the same problems real owners face.
Today he meets Commander Colt, the forest’s mayor and tour operator, standing proudly beside an old ferry booking desk he has just bought. The desk had earned its old keeper about thirty coins a month for years. What nobody priced was how much of that came from the keeper’s own handshakes with five boat captains.
Why It Matters
How Are Small Businesses Usually Priced?
Most small businesses are listed as a multiple of profit: two, three, or four times what the seller says the business earns. The multiple gets the attention. The profit number deserves more.
Seller profit often includes work the owner did without a wage, costs that will not repeat, and customers who come because of the owner personally. Adjust for those, and the same price can look very different. Price against earnings is the test that matters.
In the Fabled Forest
Within two weeks of the sale, three of the desk’s five captains stopped booking through it. The handshakes had been with the old keeper, a cormorant, not with the desk.
Adjust the Earnings
What Should You Adjust in a Seller’s Numbers?
- Add back one-time costs. A move, a lawsuit, or a repair that will not happen again.
- Subtract a wage for the seller’s work. Someone has to do what the owner did, and they will want to be paid.
- Remove profit at risk. Customers who are the seller’s friends or depend on the seller personally.
- Check the trend. Use several years, not the best season. See due diligence.
In the Fabled Forest
The desk’s ledger held thirty years of names and not a single price. What the buyer was really paying for was a set of relationships, and most of them had retired with the seller.
Check the Payment
How Does Purchase Price Show Up in a Funding Request?
If you are borrowing to buy, the loan payment has to fit inside the adjusted earnings with room to spare. Lenders often look for earnings of about 1.25 times the annual payment or more. If the asking price fails that test, it is not a fair price for you, whatever the multiple says.
Use the gap to negotiate: a lower price, part of the price paid later from earnings, or the seller staying on to transfer relationships. Show the math in your funding request.
In the Fabled Forest
Colt negotiated a short handoff: the old keeper sat at the desk two mornings a week for two months and walked him to every captain. Earnings recovered to about 26 coins a month.
The Numbers
Adjust the Seller’s Earnings
Illustrative example: a dental lab is listed for $540,000, three times last year’s $180,000 profit. The owner did the hardest work himself without a wage.
| Line | Amount | What it means |
|---|---|---|
| Seller’s reported profit | $180,000 | The number on the listing |
| Add back one-time costs | +$10,000 | A move and a lawsuit that will not repeat |
| Subtract a market wage for the owner’s work | −$70,000 | Someone has to do the hard cases |
| Remove profit at risk | −$40,000 | Two clients who are the owner’s friends |
| Adjusted earnings | $80,000 | What the buyer can expect |
| Loan payment at the asking price | $77,070 a year | 90% of $540,000, 10 years, about 10% |
| Coverage | 1.04 times | Many lenders look for about 1.25 |
Step 1: Real multiple. $540,000 ÷ $80,000 = 6.75 times adjusted earnings, not 3.
Step 2: Payment test. $80,000 ÷ $77,070 = 1.04. Almost every dollar of earnings goes to the loan.
Step 3: A price that fits. At about $448,000, the payment drops to about $64,000 a year, and coverage reaches 1.25.
Illustrative only. Interest rates, terms, and the coverage a lender wants vary. Recompute with your own numbers.
Step by Step
How Do You Work Out a Fair Price for a Business?
Four steps before you make an offer.
Get several years of real numbers.
Tax returns and bank statements, not just the listing sheet.
Adjust the earnings.
Add back one-time costs, subtract a wage for the owner’s work, and remove profit at risk.
Compare price with adjusted earnings.
That is the real multiple.
Test the loan payment.
Adjusted earnings divided by the annual payment. Aim for about 1.25 or better.
In the Fabled Forest
Doctor Owl’s scroll for Colt asked what he was really buying and what would walk out the door with the seller.
Colt’s Full Story
What Was the Desk Really Worth?
This page gives you the short version. The book gives you the whole story: a brass bell and an old stool, a ledger full of names and no prices, three captains who drifted away, and a cormorant in a straw hat who sat at the desk two mornings a week.
Every chapter of Growth for Small Businesses works the same way. One owner, one problem, one real idea you can use on Monday, plus a one-page worksheet to do it.
A Business Plan Writer’s View
What Does a Plan Writer Adjust in a Seller’s Numbers?
Dr. Paul Borosky, DBA, MBA · Business Plan Writer
When Dr. Paul writes an acquisition plan, he rebuilds the seller’s earnings line by line before he touches the price. He adds back true one-time costs, subtracts a market wage for every job the owner did without pay, and removes revenue tied to the seller personally. Then he runs the loan payment against what is left. Lenders do the same math in underwriting, so a plan that already shows it, and shows a price that clears their coverage test, moves faster. When the asking price does not fit, the plan shows the buyer’s counteroffer and why, which gives the buyer a stronger negotiating position.
FAQ
What Else Do Buyers Ask About Price?
How do you know if a business is fairly priced?
What multiple do small businesses sell for?
What is debt service coverage when buying a business?
Keep Going
Where Can You Learn More About Buying a Business?
This term comes from Book 7, Growth for Small Businesses. New to a term on this page? Every one is in the growth glossary.
Written by Dr. Paul Borosky, DBA, MBA, business consultant and author with 14+ years of experience and 1,000+ clients served. Need the expansion written up for a lender? See business plan writing services.
This page is for general educational purposes only. It is not legal, financial, employment, or other professional advice. Figures are illustrations. The Fabled Forest and its characters are fictional. For decisions about your own business, consult a qualified professional.