THE VALUE WORKSPACE / Acquisition cash flow

Pressure-test
an acquisition.

Model purchase funding, debt payments, management costs, and an earnings decline before relying on a headline cash-flow number.

Set the purchase and operating assumptions

Illustrative terms only. This is a single fully amortizing loan model—not an SBA quote or lender underwriting.

Business purchase price ($)Operating business purchase consideration.

Acquisition costs financed in project ($)Enter project costs once, excluding amounts already included in price.

Additional working capital ($)Incremental cash needed beyond working capital already included in the purchase.

Buyer cash equity ($)Reduces borrowing across total project uses.

Annual loan interest assumption (%)Fixed annual rate; fees and variable-rate changes are excluded.

Amortization term (years)A fully amortizing loan with monthly payments. No balloon.

Annual earnings before owner replacement ($)Use SDE if you subtract replacement management below. Do not enter managed EBITDA and subtract the same manager twice.

Additional replacement management ($)Only costs missing from the earnings input.

Annual maintenance capex reserve ($)Recurring capital spending reserve, not depreciation.

Earnings decline for downside case (%)Applied to the earnings input; management and capex remain fixed.

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UNDERSTAND THE METHODOLOGY

Reconcile funding before estimating cash flow

Project uses = purchase price + acquisition costs + incremental working capital.
Loan = project uses − buyer equity.
Monthly payment = P × r ÷ [1 − (1 + r)⁻ⁿ], where r is the monthly rate and n is months.
Available cash = earnings − additional management − maintenance capex.
Residual cash = available cash − annual debt service.
Illustrative coverage = available cash ÷ annual debt service.

At zero interest, the payment is principal divided by the number of monthly payments. With no borrowing, coverage is shown as “No debt service” rather than an infinite ratio.

Test the downside without hiding fixed costs

The downside case reduces the earnings input by your chosen percentage. Management compensation and capex stay fixed. This is a scenario, not an operating forecast or a lender’s DSCR calculation.

Continue your research

Understanding Working Capital Requirements in Business Acquisitions →Due Diligence Checklist: What to Scrutinize Before Buying Any Business →

Sources & scope

BizBuySell: cash-flow, SDE and EBITDA calculator ↗ — Explains the distinction between owner earnings and managed-business earnings.

Sources explain concepts, not the example inputs. Default multiples, fees, rates, and reserves are illustrative assumptions, not market quotes. Read our methodology policy.