Hey everyone, I’m looking for some advice about selling my small business and I’m feeling a bit frustrated. I run a small dog daycare and boarding business, and I’ve been in talks with a serious potential buyer let’s call him Buyer A for a while. I also have another person interested, Buyer B, but I’m just starting the NDA process with them. Here’s the situation: I’ve been completely transparent with Buyer A, giving them all my financials, profit and loss statements, and revenue projections. I also explained add backs — basically business expenses that shouldn’t count against profit because they’re one-time or owner-specific. For example, I had to install a fence, put down gravel, and wrap a vehicle for branding. These are all business expenses, not personal, and they’re one-time improvements, so they should be added back when calculating a fair valuation. The revenue numbers I shared with Buyer A are: • 2023 (Year 1): $30,000 • 2024 (Year 2): $105,000 • 2025 (current year, on track): $135,000 • 2026 (projected, low capacity): ~$300,000 • 2027 (projected, full growth potential): ~$500,000 Some important context: • The growth over the past two years came entirely organically, with zero marketing spend. • Even the projections for the next couple of years don’t include any marketing, and they assume the business is operating at around 60% capacity. So these are conservative estimates the business could make even more at full capacity. Here’s where it’s getting frustrating: • Buyer A is not valuing the business based on seller’s discretionary earnings, which is how you’re supposed to calculate it (net income after add backs). Instead, he’s only looking at the net income before add backs, which significantly undervalues the business. • On top of that, he’s subtracting $25,000 for a school bus I purchased for the business which is the first of its kind in our city even though he doesn’t even want the bus if we were to go through with the sale. So basically, he’s ignoring legitimate add backs, not factoring in the true potential of the business, and arbitrarily subtracting the cost of an asset he doesn’t even intend to use. It feels like he’s nitpicking line items instead of looking at the bigger picture, and it’s really frustrating after all the work I’ve put into building this business. To be totally honest, I’m burnt out running this business alone, it takes up all of my time, and I’m desperate to sell before the end of the year so I can move on with my life. I’m not going to put up a front I’ll admit that I’m ready to negotiate if I have to but I also want to protect the value I’ve built. I think asking $100,000 is completely fair, and the lowest I’d probably go is $90,000. Anything like $50,000 feels like he’s trying to take advantage of how overwhelmed I am. I’m hoping Buyer B might be a better experience, but I also want to make sure I’m being realistic and not letting Buyer A’s approach shake me too much. Also, I was told by a CPA that it’s fair to ask for $150,000-$200,000 to start based on the SDE for the next two years and I decided not to even do that because it would be well over $200,000. I decided to take the SDE from the next two years and the past two years and find the average between the 2 numbers which turned out to be around 120k Has anyone dealt with a buyer who completely misses how valuations are supposed to work or nitpicks numbers unfairly? How do you handle this without lowering your value or getting taken advantage of when you’re ready to move on? For a more detailed insight, here is a part of the conversation that buyer A and I had regarding the valuation : Buyer A: morning! ok - got a couple questions. lol - TY for the new documents. - Specific to 2024, you had sent me yearly revenue at $15,190. New revision shows $22,511. Your tax return shows $16,771 on taxable income (line 74). These are wildly different numbers. - Still on 2024, you're claiming ~46% on add backs. On the [17] note, for ex, it mentions loan repayments and the fence installation. I understand these are business expenses, not add backs. On your message above, you mentioned fence, gravel, wrap, owner salary... these are all business expenses. - on the forecast between 2025 to 2027, you're expecting a revenue grow from $133,000 in 2025 to $545,000 in 2027. That's a 410% increase, and very optimistic. - Lastly, you mention in your email that you believe the fair valuation is $201,000. Does it mean this is the new price? Last we spoke, you mentioned 100k, but that 80k would work, and that you're flexible etc. I've sent a ~70k offer, and you asked for some changes. I'm just wondering where we are in terms of numbers. Me: Good morning great questions and points I hope my answers can provide you with more clarity 1. I think you mean for 2024 I sent you a statement which had net income of 15k (not revenue). The difference between my financial statements and the CRA tax return mainly comes down to documentation. At tax time, I could only include expenses that had official receipts or invoices. Some legitimate business costs like transfers, smaller purchases, and cash payments weren’t claimed because I didn’t have full receipts. So the CRA numbers reflect what was provable for tax purposes, not the full financial picture of operations. 2. I realize my earlier explanation may have oversimplified things. After doing more research and consulting with a CPA familiar with small business acquisitions, I want to explain this more accurately. In short, add-backs are not just personal expenses they are discretionary or non-recurring expenses that do not reflect the ongoing operational costs a new owner would assume. They are added back to net income to calculate Seller’s Discretionary Earnings (SDE) which represents the true earning power of the business under new ownership. There are three main categories that apply in my case: A.) Owner Discretionary or Personal Expenses: These are items that benefited me personally but were paid through the business like personal loan repayments, credit card payments, or vehicle financing used for both personal and limited business purposes. These are valid add-backs because they don’t provide any operational benefit to the business itself and would not continue under new ownership. B.) Non-Recurring or One-Time Expenses: These are expenses that are not expected to repeat in future years, such as: • the fence installation and gravel work, • the bus, bus wrap design • initial equipment or facility setup. These are considered add-backs because they were one-time capital improvements that won’t need to be redone every year. A buyer would benefit from them but wouldn’t have to re-spend that money annually so they don’t represent ongoing costs. C.) Owner’s Compensation / Imputed Salary: Although I don’t pay myself a formal salary, any “owner draws” or money I took from the business for personal use would normally be treated as part of SDE. Buyers typically add back the owner’s salary (or an equivalent amount) to calculate the business’s total cash flow potential, because they may choose to pay themselves differently or hire someone at a different rate. In simple terms these adjustments are made to show you what the business would have truly earned if it were run purely for profit, without my personal spending habits or one-time startup costs factored in. Even though some of the items (like the fence or bus) technically qualify as business expenses for tax purposes, *in valuation they are reclassified* as add-backs because they are non-recurring, owner-specific, or discretionary and therefore not part of the business’s ongoing cost structure. That’s why the SDE calculation is always higher than the net income it reflects the cash flow potential a new owner can expect to control. 3. Regarding the revenue projections, I understand they may appear ambitious at first glance, but I believe they’re actually quite realistic. The projections haven’t changed significantly from the earlier version I shared a few weeks ago. Annual revenue is still projected in the low 300K range for 2026 and the high 500K range for 2027. If you refer to the detailed breakdown I sent in my previous email (the email I sent with the photos of revenue projections that were done by me), by 2027, approximately $254,000 would come from maintaining an average of 20 daycare dogs per day (5 days a week), another $200,000 from boarding 10 dogs (7 days a week), and an additional $52,000 from grooming services. Together, that’s a total of just over $500,000 in annual revenue, which only utilizes about 60% of the facility’s capacity leaving plenty of room for further growth. Additionally, I don’t believe these numbers are unrealistic considering that my company grew from $30,000 in revenue in 2023 to $105,000 in 2024 a 208% increase in just one year achieved entirely through organic growth, flyers, word of mouth and *zero paid marketing or partnerships*. Given this trajectory and the addition of scalable services like teeth cleaning and grooming, I feel these projections are conservative and well within reach. 4.) Also, just to clarify the valuation point when we first discussed the $80K–$100K range, I had never worked with a CPA or been introduced to the concept of Seller’s Discretionary Earnings (SDE). At that time, my estimate was based purely on revenue, not on the more accurate SDE-based approach. After consulting with a CPA and reviewing the business’s past, current, and projected performance, I learned that valuation is typically driven by a combination of historical and future net income not just gross revenue like I thought at first. Following that guidance, I took the average of the past and future SDEs to determine a more accurate figure, which came to approximately $200,000. Of course, that number is not set in stone it’s simply the best estimate of fair market value based on professional input and realistic growth expectations. I’m absolutely open to discussing it further and finding a number that feels fair to both of us. Buyer A: on the valuation, I unfortunately think we're too far apart to come to an agreement. With that initial 80k less the bus 25k, I'd be at 50k-55k -- it'd be easier to find common ground between 50k and 80k. It's unlikely we'll find common ground between 50k and 200k. lol I really really really wish you lots of success, the doggos deserve it, and I'm always here if I can help in anyway, but I won't update the offer at this time. Me: I completely understand where you’re coming from. I don’t want to push something that doesn’t feel right for either of us, but I do want to say that the 200K figure was never a hard number it was more of an upper-end reflection of the business’s long-term potential, not necessarily an expectation for this deal. That said, I do believe there’s still room to find something mutually fair, especially considering how established my company client base is and the fact that everything’s already turnkey and generating consistent revenue. If you’re open, I’d love to have a quick chat this week to explore a structure that might work better for both of us (for example, partial upfront + performance-based installments). No pressure at all I appreciate the time and respect you’ve given this conversation, and I’ll always hold your company in high regard either way. No response from buyer a after this