How can I determine the fair market value of my business before selling?

If you're thinking about selling your small business, one of the first questions you'll need to answer is also one of the most important: What is it worth?

It’s tempting to throw out a number based on gut instinct, what a competitor sold for, or how much you’ve invested over the years. But that kind of guesswork can backfire—badly. Buyers are savvy, lenders rely on data, and mispricing your business (in either direction) can cost you serious time and money.

That’s why understanding your business’s fair market value is the foundation of a successful sale. 

In this guide, we’ll break down what fair market value actually means, how it’s calculated, and why it plays such a critical role in your deal outcome. We’ll also show you how Baton’s free valuation tool gets it right—within 10% of actual sale price—so you can enter the market with confidence.

What Is Fair Market Value?

Fair market value (FMV) is the price a willing buyer would pay and a willing seller would accept for a business when both have reasonable knowledge of the facts and are under no pressure to buy or sell.

In plain terms: it’s what your business is likely to sell for in today’s market—not what you hope it sells for, not what you sunk into it, and not what a friend’s business sold for last year. It’s grounded in actual financial performance, adjusted earnings, comparable transactions, and industry norms.

FMV is often confused with “book value” (what’s on your balance sheet) or a personal estimate of how much your time and sweat are worth. But serious buyers want evidence, not emotion. They’ll look at your financials, your customer base, your margins, and your risks. And if the numbers don’t match the price tag, they’ll walk.

That’s why sellers who want to get to the closing table need to know how to determine fair market value of a business before selling. It’s not just about getting it right for yourself—it’s about getting it right for the market.

How to Determine Fair Market Value of a Business Before Selling

Valuing a small business isn’t an exact science, but there are proven methods that professionals use to come up with a reliable range. Here are the ones most relevant to small business owners, especially those operating under $10 million in annual revenue.

1. Seller’s Discretionary Earnings (SDE)

This is the go-to method for valuing owner-operated businesses. SDE starts with your net profit and then adds back certain expenses that are unique to you—the owner. That might include your salary, personal perks run through the business (like a car lease or cell phone), one-time expenses, and interest or depreciation.

Why add those back? Because a buyer wants to know how much total benefit they could expect to gain from owning the business. SDE reveals that number.

Let’s say your net income last year was $100K, but you also paid yourself $80K, expensed a $10K vacation as a retreat, and depreciated $20K in equipment. Your SDE would be $210K. A buyer looking at this business would evaluate it based on that earning power—not just the $100K on your tax return.

SDE also feeds directly into industry multiples, which we’ll cover shortly.

2. EBITDA

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It’s more commonly used for larger or investor-acquired businesses, and it removes most discretionary spending to show the company’s core operating performance.

If you’re running a business that’s not heavily tied to the owner (say, you’ve already hired a GM and have systems in place), EBITDA might be a more appropriate metric. 

That said, most businesses sold on Baton’s platform are valued using SDE, since they’re still owner-run.

3. Comparable Sales and Industry Multiples

Valuators also look at how similar businesses have sold recently. These comps give insight into market demand and what buyers are paying. The comparison could be based on industry, revenue size, geography, or business model.

More commonly, this data gets boiled down into multiples—a number that gets applied to your SDE or EBITDA. For example, if coffee shops in your region are selling for 2.8x SDE, and your SDE is $200K, your ballpark fair market value might be $560K.

These multiples vary widely depending on factors like:

• Industry risk and growth trends

• The repeatability of revenue

• Customer concentration

• Profit margins

• Owner involvement

Understanding these factors is crucial for accurately valuing a business and making informed investment decisions.

Why Fair Market Value Isn’t Just a Math Problem

Even with the right formulas, landing on a fair market value requires judgment—and the stakes are high.

Overpricing your business can scare off serious buyers before they even sign an NDA. It creates longer time on market, missed opportunities, and eventual price reductions that leave you negotiating from a weaker position. On the flip side, underpricing means you leave hard-earned equity on the table. You might close fast—but you won’t get what your business is truly worth.

Buyers are looking at dozens of businesses. If your price doesn’t line up with financial performance or market comps, they’ll pass—or worse, dig in and start questioning everything else about the deal.

Accurate valuation also affects deal structure, bank financing, and the closing time. Get it right, and everything flows smoothly. Get it wrong, and you risk wasting months on a deal that falls apart at the finish line.

How Baton Delivers a Better Valuation—Fast

At Baton, we don’t believe in back-of-the-napkin guesses or inflated promises. Our valuation tool combines real financial data, verified comps, and current buyer behavior to give you a realistic number—typically within 10% of your actual sale price.

That number is more than a datapoint. It’s the starting line for a smart sale.

When you list your business for sale through Baton, you don’t have to second-guess your price. Our business valuation team reviews every submission, so you’re backed by both tech and expert insight. We help you see what buyers will see—and that transparency builds trust from day one.

What Financials Do You Need to Prepare?

You don’t need a full audit to get started, but you do need clean, accurate records. 

Here’s what most valuation tools—and serious buyers—will want to review:

• Profit and Loss (P&L) statements from the last 2–3 years

• Federal tax returns covering the same period

• Owner compensation details, including perks or personal expenses

• One-time costs or non-recurring revenue that should be excluded from future performance

• Inventory levels and current asset values (equipment, vehicles, etc.)

• Outstanding debt or financial liabilities

• Customer concentration (e.g., if one client accounts for 40% of your revenue, that’s a risk factor)

• Recurring revenue or subscription-based income that adds predictability

Organizing this information upfront not only helps determine your business’s fair market value but also shortens the diligence process once a buyer is ready to move forward.

Know What You’re Worth—Then Sell Smarter

You’ve put years of work into your business. Don’t let the sale be an afterthought.

Understanding how to determine fair market value of a business before selling isn’t just a financial exercise—it’s how you set yourself up for a smoother, faster, and more profitable exit.

With Baton Market, you don’t need to hire a broker, pay a retainer, or wait months to get real numbers. Our valuation process is fast, accurate, and built for small business owners who want transparency without the noise.

Want to price your business with confidence? 

Baton’s free valuation gives you everything you need to get started—without the guesswork.