Price Justification Formulas - The Blueprint System

Turn their asking price into your buying price using math they can't argue with

The Master Valuation Formula

Base Value = (Adjusted EBITDA × Industry Multiple) + Asset Value + Working Capital - Risk Adjustments - Required CapEx - Transition Costs = Maximum Purchase Price

Step 1: Calculate TRUE Adjusted EBITDA

Start with Reported Net Income

Reported Net Income	$250,000
ADD BACK:
+ Interest	$30,000
+ Taxes	$45,000
+ Depreciation	$25,000
+ Amortization	$5,000
+ Owner Salary (excess)	$80,000
+ Personal Expenses	$35,000
SUBTRACT:
- Manager Replacement	($60,000)
- Normalized CapEx	($20,000)
= Adjusted EBITDA	$390,000

Step 2: Apply the RIGHT Multiple

Step 3: Multiple Adjustments (The Negotiation Levers)

Business Type	Revenue Size	Base Multiple
Service (Recurring)	< $1M	2.0 - 3.0x
Service (Recurring)	$1-5M	3.0 - 4.0x
Service (Project)	< $1M	1.5 - 2.5x
Construction/Trades	$1-5M	2.5 - 3.5x
Manufacturing	$1-5M	3.0 - 4.5x
Distribution	$1-5M	2.5 - 4.0x

Reduce Multiple For:

Risk Factor	Adjustment	Your Script
Customer Concentration >30%	-0.5x	"Single customer risk requires discount"
Declining Revenue	-0.5x to -1.0x	"I'm buying tomorrow's cash flow, not yesterday's"
Owner Dependence	-0.5x	"Transition risk affects value"
Lease Expires <2 years	-0.3x	"Location uncertainty is expensive"
Old Equipment	-0.3x	"CapEx requirements reduce price"
No Management Team	-0.5x	"I have to build systems from scratch"

Step 4: Asset Value Calculations

Fair Market Value (FMV) Method: - Equipment: Get dealer quotes or auction comps - Vehicles: KBB trade-in value (not retail) - Inventory: Cost, not retail - Real Estate: Separate appraisal Liquidation Value Method (for negotiation): - Equipment: 40-60% of book value - Vehicles: 70% of KBB - Inventory: 50-70% of cost - FF&E: 20-40% of book

Working Capital Calculation

Target Working Capital = Current Assets (normalized) - Current Liabilities (normalized) - Cash - Debt Typical Target: 10-15% of annual revenue Actual vs Target = Purchase Price Adjustment

Example Working Capital Negotiation:

Business has $1.2M revenue

Target WC: $150,000 (12.5%)

Actual WC at closing: $80,000

Price Reduction: $70,000

The "Justifiable Price" Presentation

Your Spreadsheet to Seller:

Adjusted EBITDA	$390,000
Industry Multiple (base)	3.0x
Risk Adjustments	-0.8x
Adjusted Multiple	2.2x
Enterprise Value	$858,000
+ Equipment (FMV)	$120,000
- WC Adjustment	($70,000)
- Deferred CapEx	($50,000)
Maximum Price	$858,000

Advanced Justification Tactics

The "Comparable Sales" Attack

Create a table showing:

5-10 similar businesses that sold
Their revenue, EBITDA, and sale price
Calculate implied multiples
Show yours is at/above average

Source: BizComps, Pratt's Stats, or broker data

The "Future Cash Flow" Reality Check

Year 1 Cash Flow: $390,000 - Debt Service (at their price): $240,000 - Your salary: $60,000 - Growth CapEx: $30,000 = Owner Benefit: $60,000 ROI at their price: 12% ROI at your price: 28%

Your line: "I need at least 25% cash-on-cash return for this risk level"

Seller Psychology Price Formulas

Formula 1: The "Walk Away" Number

Their Ask: $1,200,000 Your Max: $850,000 Gap: $350,000 Offer: $750,000 cash + $150,000 seller note (5 years) + $100,000 earnout = $1,000,000 "headline price"

They get to say they got $1M, you pay based on performance

Industry-Specific Adjustments

The Ultimate Price Crusher

Industry	Key Metric	Typical Range	Price Impact
HVAC	Service vs Install Mix	Goal: 60%+ service	+0.5x if achieved
Landscaping	Contract vs Residential	Goal: 70%+ contract	+0.3x if achieved
Cleaning	Customer Retention	Goal: 90%+ annual	+0.5x if achieved
Construction	Backlog Coverage	Goal: 6+ months	+0.3x if achieved

The "Lender Reality" Move

Your script:

"I want to pay your asking price, but here's the problem: SBA will only lend based on cash flow. At your price, the debt service coverage ratio is 0.9x. They require 1.25x minimum."

"Either we need to find $100k more EBITDA, or adjust the price to make the lending work."

Result: Blame the bank, not your offer

Quick Reference Multiples

Rules of Thumb by Industry:

Plumbing: 2.5-3.5x EBITDA or 40-50% of revenue
HVAC: 3.0-4.0x EBITDA or 35-45% of revenue
Landscaping: 2.0-3.0x EBITDA or 30-40% of revenue
Cleaning: 2.5-3.5x EBITDA or 50-70% of revenue
Auto Repair: 2.0-3.0x EBITDA + inventory
Manufacturing: 3.5-5.0x EBITDA + equipment