Ask a founder who's thinking about selling what they want for their business, and you'll get a number. Fast. Usually specific. Sometimes with a soft “or thereabouts” attached to give them room.
Ask them how they arrived at it, and the answer gets vague. The most honest founders will admit they don't quite know. It's what feels right. It's what they need. It's what their friend got. It's a round figure that would make the whole thing worth it.
This is normal, and it's also the source of most of the pain that follows. Because a number that came from the wrong place can't be defended when the buyer starts asking questions — and a number that can't be defended is a number that gets negotiated down, hard, or produces no serious offers at all.
An X thread from a mid-market operator captured the pattern in one line:
Sellers anchor to what they've invested. Buyers anchor to what they'll earn. Those two numbers are rarely close.
— X, sell-side advisory commentary
Founders don't like hearing this because it sounds dismissive of the years they put in. It isn't. The years are real, the sacrifices are real, the emotional equity is real. None of them are relevant to the price a buyer will pay. That's not a moral judgement, it's just how the transaction works. The buyer is pricing what happens next, not what happened before.
The useful question, then, isn't “what do you want for the business?” It's where did that number come from, and would a stranger with capital agree with you?
Where founders' numbers actually come from
In our experience, almost every founder's asking price traces back to one of five sources. Each of them is a specific kind of wrong, and each of them fails in the room in a specific way.
The peer's headline sale
A friend or a competitor sold their business for X, so this one should be worth at least that. The problem isn't the comparison — comparisons are how valuation works. The problem is that the founder almost never has the full picture of what that peer's deal actually was. The headline number usually includes earn-outs, rollover equity, and structured payments contingent on future performance. The cash-at-close figure is often 40 to 60% of the announced number. And the multiple that produced it reflected specific circumstances — a strategic buyer with synergies, a rare recurring-revenue profile, an auction with three bidders — that don't apply to the current situation.
A founder who anchors to a peer's headline sale walks into the process with a number that's structurally too high, and doesn't know why. Buyers can see it in the first meeting. They discount the seller as unrealistic and either walk away or plan to negotiate hard.
The round figure
Two million. Five million. Ten million. Round numbers exert a strange gravity on founders — they feel like natural stopping points. But no business is actually worth a round figure. Real businesses are worth some function of their earnings, growth, risk profile, and the specific buyer's willingness to pay. A round number is a wish, not a valuation. When the buyer asks “how did you arrive at that?”, the founder who says “it seemed like the right number” has effectively announced that they haven't done the work.
The retirement math
The founder needs a certain amount to retire on. They add up what they'd need to live comfortably for thirty years, subtract their existing savings, and arrive at what the business “needs to sell for.” This one is emotionally the hardest to talk to a founder about, because the need is genuine. But it's also entirely irrelevant to the buyer. Your retirement plan is not their problem, and framing your price against it — even implicitly — signals that you're negotiating from a position of weakness, which invites lower offers, not higher ones.
The multiple from an article
The founder read that businesses in their sector sell for 5–7x EBITDA, so they multiply their EBITDA by 6 and there's the number. The problem is that industry multiples are ranges for a reason. Where a specific business falls in that range depends on dozens of factors — recurring revenue percentage, customer concentration, growth rate, margin trend, management depth, geographic risk, and buyer type. Two businesses in the same sector with the same EBITDA can sell for 3x and 8x based on those factors. The founder who picked the middle of the range without doing the work has, again, produced a number they can't defend.
The number they need to feel it was worth it
The most human of the five, and often unspoken. The founder has spent fifteen years building this. It has to be worth something — something big enough to justify the years, the missed weekends, the marriage strain, the health issues. So the number is the number that would make it retrospectively worthwhile. This is the source that produces the most stubborn asking prices, because the founder can't lower it without also lowering their own sense of the years behind it. That's a hard trade to make, and many founders can't make it, which is why their businesses sit on market for eighteen months.
Where defensible numbers come from
A number that survives a serious buyer's scrutiny rests on something specific. It comes from a defensible normalisation of the earnings, applied against a multiple that reflects the actual characteristics of the business, cross-checked against real recent transactions in comparable situations.
The normalisation is the first step and the one founders most often get wrong. Buyers look at “seller's discretionary earnings” or “adjusted EBITDA” — the true underlying cash generation of the business, stripped of one-off items and add-backs and the founder's personal expenses that won't transfer. Getting this number right requires honesty. Every add-back that isn't defensible will get challenged by the buyer's team, and every challenge that lands will erode credibility on everything else in the pack.
The multiple is the second step. It isn't a single number — it's a range with a location. Where the business falls in that range depends on the factors we mentioned: recurring revenue, customer concentration, growth, margin trend, management depth, sector tailwinds, and the specific buyer's strategic interest. A serious advisor can walk through each of these factors with the founder and honestly place the business on the range. The exercise usually surprises founders in both directions — some businesses are worth more than the founder thought, many are worth less.
The transaction comparables are the third check. What did similar businesses actually sell for recently — not the headline announcements, but the real cash-at-close numbers, adjusted for size and structure? This data isn't easy to get, but competent advisors have access to it, either through databases or through their own deal flow. It's the reality check that anchors the multiple in the actual market rather than in theory.
When those three exercises produce a number, that number is defensible. The founder can walk into a meeting, explain how they got there, and have the conversation with a serious buyer without losing credibility.
Why the honest number is usually different from the wanted number
Here's the uncomfortable part.
When founders go through this exercise properly, the defensible number is almost always lower than the number they walked in with. Sometimes materially lower — 20 to 40% lower, occasionally more. This is not because valuations are pessimistic. It's because the wanted number came from one of the five sources above, and those sources systematically produce numbers that are too high.
The founders who handle this well treat the new number as information. It's what the business is actually worth today, and it points to a specific set of choices. Sell at that number now. Or take twelve to twenty-four months to change the factors that would move the multiple — build recurring revenue, reduce customer concentration, hire a second-in-command, professionalise the financials — and go to market at a higher defensible number later. Both are reasonable choices.
The founders who handle it badly reject the information. They insist the number is wrong, keep the higher asking price, and go to market anyway. Then they spend twelve to eighteen months learning the same lesson the hard way, at the cost of a stale listing that eventually sells for less than the honest number would have gotten at the start.
A comment on r/smallbusiness described this pattern precisely:
By the time they've been on market for a year, they'll take 30% less than they turned down at month two. That's the tax on refusing to hear it early.
— r/smallbusiness
The peer comparison, done honestly
Since peer comparisons are the most common source of wrong numbers, they're worth spending a moment on separately.
Peer comparisons aren't bad. They're one of the primary tools of valuation. What's bad is the way founders usually do them — by anchoring to the headline number of a single visible deal without any of the surrounding detail.
An honest peer comparison looks different. It starts by identifying not one but ten or fifteen genuinely comparable transactions. It adjusts the headline numbers to cash-at-close equivalents where possible. It notes the specific characteristics of each business — growth rate, recurring revenue mix, buyer type, geography — that pushed the multiple up or down. And it places the current business somewhere in that distribution based on how it actually compares, not on where the founder wishes it would land.
Done this way, peer comparison produces a range rather than a point. And the range is almost always wider and lower than the single-comparable version produced. That's not a flaw of the exercise. It's the exercise working properly.
The uncomfortable read
If you're within eighteen months of a possible sale, the useful exercise isn't guessing what your business is worth. It's writing down the number you currently have in your head and interrogating where it came from.
If it came from a peer's headline sale, you have work to do to understand what that peer actually got. If it came from a round figure or from retirement math, you have a wish rather than a valuation. If it came from a multiple you read in an article, you have half the exercise done — the other half is placing your specific business on the range honestly, which almost nobody does alone.
Only when the number rests on something the buyer will also be able to see is it a number worth holding onto. Everything else is negotiation ammunition for the other side.
The best time to find this out is before you go to market, when you still have time to either change the business or reset your expectations. The worst time is six months into a stale listing, when the only remaining move is to drop the price and pretend it was the market's fault.
If you'd like an honest read on where your number came from and what the defensible version looks like — not to lower your ambition, but to make sure the ambition rests on something a buyer will also see — a private conversation is the fastest way to do it. Book a private consultation and we'll walk through the number with you.
A note on the sources
The observations in this piece draw on public discussions across r/smallbusiness and r/SellMyBusiness, X threads from lower-middle-market M&A operators, and PaperToaster's own valuation work. Quotes are lightly edited for length.