Asking Price vs. Fair Value: Negotiating What a Business Is Really Worth in Ontario

Every business listed for sale in Ontario comes with an asking price. That number tells you what the seller hopes to get — it doesn't tell you what an independent professional would say the business is actually worth, or what a lender would be comfortable financing. Understanding the difference between asking price and fair value, and where the gap between them typically comes from, is one of the most useful negotiating skills a buyer can bring to the table.

This article looks at why that gap exists, how buyers investigate and test it, and how the difference gets resolved, or doesn't, before a deal closes.

The Asking Price Is a Starting Position, Not a Verdict

A seller sets an asking price for all kinds of reasons: a professional valuation, an amount they need to retire comfortably, informal advice from other business owners, or simply what a similar business down the street reportedly sold for. None of those reasons automatically make the number defensible. Treat the asking price the way you'd treat any opening position in a negotiation — a signal of what the seller wants, to be tested against the facts.

Where the Gap Usually Comes From

A meaningful gap between asking price and a defensible fair value tends to come from a small number of recurring sources:

• Aggressive "add-backs." Sellers often add back personal or discretionary expenses to inflate reported profitability. Some add-backs are legitimate; others stretch the definition of a one-time or personal cost.
• Personal goodwill. Some of the business's success may be tied to the current owner's personal relationships, reputation, or hands-on involvement — value that doesn't necessarily transfer to a new owner.
• No independent valuation. A business marketed at a price based on the seller's own instinct, rather than a professional valuation, has no external check built in.
• A seller's target number, worked backward. Some sellers start from how much they need after taxes and debt are paid off, and set the asking price to hit that number, rather than starting from the business's actual performance.
• Optimistic forward projections. An asking price built on where the business is "about to be," rather than where it has actually been, is inherently harder to justify.

How Buyers Test an Asking Price

1. Request multiple years of financial statements and tax returns, not just the most recent year, to see the trend behind the number being presented.
2. Have an accountant normalize the earnings, reviewing every add-back individually rather than accepting the seller's summary figure.
3. Review the customer base and material contracts to judge how much of the earnings is durable versus dependent on relationships that may not survive a change of ownership.
4. Check the asset-based floor — what the business's tangible assets are worth, net of liabilities — as a sanity check against an earnings-based number that may be inflated.
5. Consider an independent valuation for anything beyond a very small purchase, particularly where financing, family, or business partners are involved.

Turning the Gap Into a Negotiation Strategy

Once you have your own view of fair value, the gap between that number and the asking price becomes the subject of negotiation rather than a reason to walk away outright:

• A letter of intent (LOI) typically proposes a price that is non-binding — it sets the framework for due diligence, while certain other clauses, such as confidentiality and exclusivity, are often made binding even at this early stage.
• An offer can be made conditional on due diligence, so the price can still move, or the deal can end, if what you find doesn't support the number.
• A working capital adjustment built into the purchase agreement lets the final price track the business's actual financial position at closing rather than an estimate made weeks earlier.
• A holdback or earn-out can let both sides move forward without fully resolving a genuine disagreement about value — part of the price is paid later, contingent on performance or the absence of post-closing claims.

When the Gap Can't Be Closed

Sometimes due diligence confirms that the asking price simply isn't supportable — the add-backs don't hold up, a key customer is at real risk of leaving, or the assets are in worse condition than represented. At that point, a lower counteroffer backed by specific findings is usually more productive than a vague objection that "it feels too expensive." If the seller won't move and the numbers don't support the price, walking away is a legitimate outcome, not a failure.

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