How the Deal Analyzer works
Price = SDE × purchase multiple. Total project cost adds closing costs and working capital, because you have to fund those too.
Sources: your equity is a percentage of total cost; the seller note is a percentage of price; the senior loan covers the rest.
Cash available for debt = SDE − replacement salary − capex. This is the honest number: SDE assumes the owner works for free.
DSCR (debt service coverage ratio) = cash available ÷ annual debt service on both loans. Below 1.00x the business cannot pay its debts from operations.
How to read the result
- Red (below 1.00x): the deal does not work as structured. Lower the price, extend terms, add equity or move part of the price into an earnout.
- Amber (between 1.00x and your target): it pays, but with little cushion for a bad quarter. Lenders may push back.
- Green (at or above target): the structure works on paper. The next job is proving the SDE is real in diligence.
- Cash-on-cash and payback describe your return on the equity you put in, after all debt service. They ignore taxes and principal paydown.
Questions
What DSCR do lenders require?
Requirements vary by lender, loan program and deal. Ask your lender for their minimum and use it as the target in this tool.
Why subtract a replacement salary from SDE?
SDE includes one owner’s compensation. If you will draw a salary or hire a manager, that cost is not available to pay debt.
Does this include taxes?
No. The analyzer works on pre-tax cash flow, as most acquisition screening does. Talk to an accountant about tax and structure.
Educational content, not advice. Bootstrapper.com publishes general information for education. It is not legal, tax, accounting, lending or investment advice and does not consider your circumstances. Calculator outputs are illustrative estimates. Rules, rates and programs change; confirm details with qualified professionals before making decisions.
Formulas are simplified and tested in an open test suite. Spotted an error? Email hello@bootstrapper.com.