Asking price and sale price: why they differ, and how to read the gap

The asking price on a listing is what the seller hopes to get. The sale price is what an informed buyer agrees to pay after checking the business, written into a contract with conditions and adjustments. This guide explains why the two differ, why sale prices are hard to find, and how each side can work with the gap. For how prices are worked out, start with how small businesses are valued.

Three numbers, not one

• The asking price. The seller's opening position, often set with a broker's advice, before any buyer has tested the figures. On BizExchange it is a fixed price, "offers over", a range or "Price not published".
• The sale price. The price in the signed contract. business.gov.au says that once a price is agreed you need a contract to give it legal force, and the contract will outline the final cost and method of payment.
• The amount paid at settlement. The sale price plus anything charged on top, such as stock, and plus or minus the contract's adjustments.

Why the two prices differ

There is no typical gap. It varies from sale to sale, and comes from a handful of sources.

• The seller's expectations. A seller may price from what they have put in or what they need to retire on. A buyer prices from the profit they can verify and the risk they take on. business.gov.au says goodwill is difficult to calculate and that, in the end, the value is what the marketplace or buyer is willing to pay.
• The broker's advice. An appraisal reflects the broker's view of the market, but the seller decides the price.
• Room to negotiate. Some sellers ask more than they expect to accept, so they have something to give.
• What due diligence finds. Unproven add-backs, weaker recent months, ageing equipment or a key customer at risk change the profit or the risk, and offers move with them.
• The lease. A short remaining term, a rent review or a landlord yet to consent to an assignment makes a business riskier to buy.
• Finance. What a buyer can borrow limits what they can pay (see what lenders look for). Some deals trade price for terms through vendor finance or an earn-out.
• Time on the market. The longer a business stays listed, the more buyers may wonder why, and the more room they may feel they have.
• What is included. Stock charged on top, equipment that is leased or financed, and items the seller keeps all change what the price buys.

Why sale prices are hard to find

Asking prices are public because sellers advertise them. Sale prices usually are not: a small business sale is a private agreement, and the agreed price is not generally published.

business.gov.au lists comparing a business with similar businesses for sale or recently sold as a common valuation method, and notes it is not a formal valuation but can give an idea of market price. Listings tell you what sellers ask, not what buyers paid.

What the BizExchange Asking Price Report measures

The BizExchange Asking Price Report is a quarterly report built only from listings on BizExchange. It covers median asking prices nationally, by state and territory and by industry, the median asking price to profit, how many businesses were for sale and how long they have been listed.

A figure is published only when it rests on a minimum number of listings; smaller groups show as not enough data. Listings without a published price and franchises are left out, a range counts at its midpoint and "offers over" at the stated figure. The full method is on the methodology page.

The report does not measure sale prices, and its method says plainly that asking prices are not sale prices. When sellers mark a listing sold, they can choose to tell us the price. Once enough have, the report shows the median sold price, the sold price as a share of the last asking price and the days to sell, in aggregate only. These figures are reported by sellers, are not audited and may not represent the whole market. Use the report as context, not as a valuation of any one business.

Setting an asking price

• Start with a valuation you can explain. business.gov.au says there is no one set valuation method, that you may need to negotiate the method with a buyer, and that buyers may value your business independently. A price backed by a stated profit basis, a method and records is easier to defend. What's my business worth? gives a quick estimate.
• Use comparable listings, knowing their limits. They show what you compete with, but they are unverified asking prices, and no two share the same lease, location and staff. Compare Multiples only on the same profit basis.
• Leave reasonable room. Keep the price within what your valuation supports. A figure you cannot explain gives buyers a gap to close before they engage.
• Weigh the risk of overpricing. A price well above what the business supports may draw fewer serious enquiries and leave the listing stale, and a later cut can prompt buyers to ask what changed.
• Be accurate about what the price covers. business.gov.au says information you give when negotiating must be accurate and true, and you must not engage in misleading or deceptive behaviour. The ACCC says information on prices must be accurate, truthful and based on reasonable grounds, and gives a price that leaves out GST or other costs as one way price claims can mislead. Say whether stock is extra, and ask your solicitor how the rules apply.

Reading a price as a buyer

Our guide to reading a business-for-sale listing covers each field. On the price itself:

• Rework the Multiple. It is the asking price divided by the published profit. Recalculate it on the profit you have verified, such as after a manager's wage if you will employ one.
• Add up your outlay. "Plus stock at valuation" means stock is paid for on top. Check which equipment is owned, and whether the price includes GST.
• Read "offers over" and ranges for what they are. Both describe what the seller hopes for. Neither is a valuation or an agreed price.
• Ask early when no price is published. Learn the figure, and how it was reached, before paying for due diligence.

From asking price to sale price

• Make your offer in writing. Set out the price, what is included, the stock basis, the deposit, conditions and timeframes. An offer tied to verified profit and named risks is easier to weigh than a bare number.
• Make it subject to conditions. business.gov.au says a sale contract sets out any conditions both sides must meet for the sale to go ahead. Common ones are finance, due diligence and the landlord's consent.
• Adjust after due diligence. If the checks find something new, you can renegotiate, seek protection in the contract, or end the contract under the condition if its terms allow. See our due diligence guide.
• Agree the deposit. business.gov.au lists the deposit among the things to agree. Ask your solicitor who holds it and when it is refundable.

The price can still change at settlement

The contract price is not always the amount that changes hands. Common adjustments:

• Stock. Counted and valued on or near settlement day under the contract.
• Rent and outgoings. Apportioned at the settlement date, so each side pays for its own period.
• Customer deposits and vouchers. Accounted for where the buyer must supply work or goods the seller was paid for.
• Employee entitlements. business.gov.au says the contract should cover who pays them. See employees when a business is sold.
• GST. The ATO says no GST is payable on the sale of a going concern if certain conditions are met. If they are not, business.gov.au notes a GST-registered seller may need to include GST in the price of individual assets. See GST and the sale of a going concern and ask your accountant.

Agree how each adjustment works when you sign, so neither side is surprised on the day.