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Why Most Businesses for Sale Are Overpriced And How Buyers Get Trapped

If you’ve spent any time browsing business listings in Canada, you’ve probably noticed something strange.

Almost every business is described as:

• “Highly profitable”
• “Turnkey”
• “Easy to operate”
• “Growing”
• “Priced to sell”

And yet…
Most of these businesses don’t sell.
Or worse — they sell, and the buyer later realizes they massively overpaid.

Here’s the uncomfortable truth:

Most businesses listed for sale are overpriced.
Not by a little — but often by a lot.

This isn’t always intentional. But without proper valuation and due diligence, buyers get trapped paying for a version of the business that doesn’t actually exist.

Let’s break down why this happens — and how to avoid it.

Why Business Asking Prices Are Rarely Based on Reality

Unlike residential real estate, there is no public pricing standard for small business sales.

Asking prices are often set based on:

• Seller emotion
• Broker optimism
• “Rule of thumb” multiples
• One strong year of performance
• Desired retirement number
• What the seller needs, not what the business is worth

In many cases, the asking price has nothing to do with fair market value.

The #1 Reason Businesses Are Overpriced With Inflated EBITDA

Most listings are priced using some version of Adjusted EBITDA.

The problem?
That EBITDA number is often recast aggressively to make the business appear more valuable.

Common issues include:

• Adding back the full owner salary when the owner works full-time
• Adding back recurring expenses labeled as “one-time”
• Ignoring maintenance capex
• Ignoring declining margins
• Ignoring increased labour costs
• Ignoring lease escalations
• Ignoring debt service reality

On paper, the business looks amazing.
Under scrutiny, the EBITDA collapses.

And when EBITDA collapses — so should the price.

Seller Motivation vs. Buyer Reality

Sellers are emotionally attached to their business. That’s human.

They often believe:

• “I worked hard, so it must be worth more”
• “The next owner can run it better”
• “This is what I need to retire”
• “My broker said this price is reasonable”

But buyers don’t buy effort.
They buy future cash flow, stability, and risk-adjusted return.

If the business cannot realistically support:

• debt payments
• owner income
• reinvestment
• growth

…then the asking price is fantasy — not valuation.

Why Brokers Aren’t Incentivized to Price Accurately

This part surprises buyers.

Business brokers are typically paid only if the deal closes.
They are not valuation professionals.

That creates a natural bias:

• Higher asking prices attract sellers
• Listings are priced to “test the market”
• Price reductions happen after months of no traction
• Buyers are expected to negotiate

This doesn’t make brokers dishonest — but it does mean asking price ≠ value.

How Buyers Get Trapped Into Overpaying

Buyers usually overpay because of one (or more) of these traps:

Emotional Attachment

They fall in love with the idea of ownership and ignore warning signs.

Financing Pressure

They get a conditional approval and rush to close.

Incomplete Due Diligence

They rely on summaries instead of source documents.

Trusting Seller-Projections

They pay for “potential” instead of proven performance.

Fear of Missing Out

They believe another buyer is waiting — often untrue.

What Fair Market Value Actually Means

Fair market value is not:

• what the seller wants
• what the broker listed
• what another buyer might irrationally pay

Fair market value is:

The price a knowledgeable buyer and seller would agree to, under no pressure, based on verified financial performance and risk.

That requires:

• normalized EBITDA
• risk-adjusted multiples
• industry benchmarking
• assessment of owner dependency
• analysis of operational and tax risk

Anything less is guesswork.

The CEPA Approach to Cutting Through Overpricing

At MiAccounting, we approach valuation differently.

As CEPA-certified advisors, we don’t ask:

“What’s the asking price?”

We ask:

• Is this business transferable?
• Is the cash flow sustainable?
• Can it support debt and income?
• How fragile is it without the owner?
• What risks reduce its multiple?
• What would a rational buyer pay?

Using CEPA methodology, we apply:

• Normalized EBITDA analysis
• Value Acceleration Methodology™
• Intangible capital assessment
• Business risk scoring
• Industry multiple calibration

This often reveals a hard truth:

The business is good — but the price is wrong.

Red Flags That Signal an Overpriced Business

Watch for:

• EBITDA heavily dependent on add-backs
• One “exceptional” year driving price
• Declining margins hidden by revenue growth
• Owner doing everything
• Short or expensive leases
• High staff turnover
• Incomplete tax filings
• Resistance to sharing documents
• “It’s priced for growth” explanations

Each red flag should reduce value — not be ignored.

The Smart Buyer Mindset

Smart buyers don’t ask:

“Can I buy this business?”

They ask:

“Should I buy this business at this price?”

Those are very different questions.

The smartest buyers:

• detach emotionally
• verify everything
• negotiate from data
• walk away when the numbers don’t work

That’s how you avoid regret.

Final Takeaway: Price Is a Claim, Value Is Proven

Most businesses for sale are not bad businesses.
They’re just mispriced.

Without proper valuation and due diligence, buyers end up:

• overleveraged
• underpaid
• stressed
• disappointed

Before you accept an asking price as “reasonable,” have it verified.

👉 MiAccounting helps buyers determine what a business is truly worth — not what it’s listed for.
We protect your capital, expose risk, and help you negotiate from strength.

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