How this calculator works
Buying a business comes down to three questions, and the asking price alone answers none of them. First, are you paying a sane multiple for the earnings? Second, will the cash flow actually cover the loan after you've paid yourself enough to live on? Third, what does your invested cash truly return once you separate profit from the wage you earn for running the place? This tool answers all three from a handful of inputs, then tells you the highest price a lender would still finance.
The engine of a small deal is SDE — Seller's Discretionary Earnings — the total cash a single owner-operator takes from the business before their own salary, loan interest, taxes, and depreciation. It's the pool everything else is paid from. We split that pool three ways: the bank's annual loan payment, a market salary for you, and whatever profit is left. If the first two exceed SDE, the deal loses money and you'd cover the gap from savings — which the calculator flags in red.
The formulas
The annual loan payment uses standard amortization, where L is the loan (price − down payment), i the monthly rate (APR ÷ 12), and n the term in months:
The debt-service coverage ratio — the number every lender checks — is the cash left after paying you, divided by the loan payment:
Cash-on-cash return is your profit after debt and salary, over the cash you put in:
- Multiple: price ÷ SDE =
2.5×— the normal range for a main-street business is 2–4×. - Debt service: the loan works out to about
$42,152/year. - DSCR: (SDE − your salary) ÷ debt service =
1.66— lenders want at least 1.25. - Cash-on-cash: leftover profit on the cash you put in =
49%a year. - Max bankable price: holding a 1.25 DSCR, you could pay up to about
$384,000and still finance it.
Acronyms used on this page
- APR
- Annual Percentage Rate
- DSCR
- Debt-Service Coverage Ratio
- SDE
- Seller’s Discretionary Earnings
- SBA
- U.S. Small Business Administration
- CoC
- Cash-on-Cash return
Reading the verdict
A DSCR below 1.25 is the single biggest red flag — it means a lender will likely decline, and even self-funded you're running with little margin for a bad month. A multiple above 4× means you're paying for growth or recurring revenue that has to be real, not hoped-for. And a high cash-on-cash return is only as good as the business's durability — leverage cuts both ways, so a 50% return on a fragile, owner-dependent business is riskier than a 25% return on a stable one. Use the max-price figure as your walk-away number at the negotiating table.
Frequently asked questions
What is a good DSCR when buying a business?
Most SBA and conventional lenders want at least 1.25 — the business throws off 25% more cash than the annual loan payment after paying the owner a market salary. Below ~1.15 it's hard to finance; 1.5+ gives comfortable cushion.
What multiple should I pay for a small business?
Most main-street businesses sell for roughly 2–4× SDE. Below 2× can signal risk or heavy owner-dependence; above 4× you're usually paying for growth, brand, or recurring revenue that must actually materialize.
What's the difference between SDE and EBITDA?
SDE adds one owner's salary back into profit, so it suits owner-operated main-street businesses. EBITDA assumes hired management and is used for larger companies. If you're buying a job-plus-business, SDE is the right number — enter it here.
Does this include working capital or capex?
Not directly — enter major one-time needs inside closing costs to see their effect on cash-on-cash. For ongoing capex, trim the SDE you enter so coverage reflects money the business must reinvest each year.