Business acquisition calculator

How to use it

1. Enter the asking price and the yearly cash flow from the listing.
2. If you'll hire a manager or pay yourself a salary, enter it as the salary to replace the owner. It comes out of cash flow first.
3. Change the down payment, rate and term to match a quote you've received. The defaults (30% down, 7.5%, 10 years) match BizFisher's model.
4. Optional: add a seller note, closing costs and working capital to see how they change your cash needs and your return.
5. Copy the link to share your result. It keeps your inputs, so a partner, lender or CPA sees exactly what you entered.

How we calculate it

Every number comes from a few plain formulas. Nothing is hidden, and nothing about the seller's figures is checked or adjusted.

• Down payment = asking price × down payment %
• Seller note = asking price × seller note %
• Loan amount = asking price − down payment − seller note
• Monthly payment = L × i ÷ (1 − (1 + i)^−n), where L is the loan amount, i is the yearly rate ÷ 12 and n is years × 12 (the seller note uses its own rate and term)
• Yearly debt service = (loan payment + seller note payment) × 12
• Cash flow available = yearly cash flow − salary to replace the owner
• DSCR = cash flow available ÷ yearly debt service
• Cash left after debt service = cash flow available − yearly debt service
• Your cash in the deal = down payment + closing costs + working capital
• Cash-on-cash = cash left after debt service ÷ your cash in the deal
• Price-to-cash-flow multiple = asking price ÷ yearly cash flow

Income taxes, equipment replacement, loan fees rolled into the loan, rent changes and the seller's add-backs aren't modeled. With the default inputs and nothing optional filled in, results line up with the cash-on-cash and debt coverage figures shown on BizFisher listings, which are estimates on our model. Read our methodology

Worked example

Say a listing asks $500,000 and shows $150,000 of yearly cash flow. With 30% down, you put in $150,000 and borrow $350,000. At 7.5% over 10 years, that's about $4,155 a month, or about $49,855 a year. DSCR comes to about 3.01x, about $100,145 is left after the loan, and cash-on-cash is about 66.8% on our model. Now set aside $60,000 a year to pay a manager: DSCR drops to about 1.81x and cash-on-cash to about 26.8% on our model. That second set of numbers is usually the one to plan around.

Questions about the calculator

What is DSCR?

DSCR, the debt service coverage ratio, compares a business's yearly cash flow with its yearly loan payments. A DSCR of 1.25x means the business brings in $1.25 for every $1.00 of debt payments. Lenders use it to judge whether a business can carry a loan, and many look for about 1.25x or more as a general rule of thumb, though each lender sets its own bar. On this page, DSCR is an estimate on our model using the numbers you enter.

What's a good cash-on-cash return when buying a business?

There isn't one right number. Cash-on-cash compares what's left after loan payments with the cash you put in, so it depends heavily on your salary line, your down payment and whether the seller's cash flow holds up. Many buyers set their own hurdle, such as 20%, because a small business carries more risk than a savings account or an index fund. BizFisher uses 20% on our model as one screening line in the Hunt, not as a recommendation.

How much down payment do I need for an SBA loan to buy a business?

It depends on SBA's current rules, the deal and the lender. SBA-backed acquisition loans are often discussed with a smaller down payment than the 30% our default uses, sometimes with part of it covered by a seller note, and the rules are updated from time to time. Treat any SBA-style numbers you enter here as adjustable examples, and confirm current requirements with an SBA lender.

What's the difference between cash flow, SDE and EBITDA?

Seller's discretionary earnings (SDE) is profit plus the owner's salary and perks and certain one-time costs, and it's common on smaller businesses. EBITDA is profit before interest, taxes, depreciation and amortization, and it usually assumes the owner is paid a salary. Listings often just say cash flow. If the number includes the owner's pay, enter a salary to replace the owner so the results aren't too rosy.

Does this calculator tell me what a business is worth?

No. It shows how the asking price and the published cash flow work with the financing you choose. It doesn't check the seller's numbers or tell you what to offer. Use it to decide which listings deserve a closer look, then review the books with a CPA and an attorney.