Acquisition modeling
Ask what happens when the plan is wrong
A base case tells you what you hope will happen. A downside case shows which assumptions you need to verify first.
Where the cash goes
Annual amounts in USD, before income taxes.
- Stated SDE
- $175,000
- Replacement pay
- −$60,000
- Capex reserve
- −$15,000
- Debt service
- −$72,865
- Annual cash flow
- $27,135
Fictional example: $500,000 price, $175,000 SDE, 10% down, 10.5% loan over 10 years. Change the assumptions in the calculator.
Start with the same fictional acquisition used in the quick-start walkthrough. Asking price is $500,000, SDE is $175,000, the cash down payment is 10%, and the remaining $450,000 is financed over ten years at a hypothetical 10.5% fixed rate. There is no seller note. These are illustrative inputs, not a rate quote or determination of loan eligibility.
Separate earnings from cash available for debt
In Arcane's simplified model, available cash is SDE less replacement compensation and a recurring capital-expenditure reserve. With $60,000 of compensation and a $15,000 reserve, available cash is $100,000 per year before acquisition debt and income taxes.
The calculator assumes level monthly amortizing payments. Monthly payment equals principal × monthly interest rate ÷ (1 − (1 + monthly interest rate) raised to minus the number of payments). For a zero-interest loan, annual debt service is principal divided by years.
Change one input at a time
| Scenario | Change | What the comparison answers |
|---|---|---|
| Buyer case | Remove unsupported add-backs from SDE | Does the price depend on unverified earnings? |
| Financing case | Add two percentage points to the loan rate | How much room is there for a more expensive loan? |
| Staffing case | Add $15,000 to annual replacement compensation | Can the business afford the operator it needs? |
| Equipment case | Add $10,000 to the annual capex reserve | Does the return survive realistic maintenance needs? |
| Combined downside | Use the supported lower earnings and higher costs together | Can the operating plan absorb several problems at once? |
The percentages and dollar changes are practice assumptions. Choose scenarios from the business's actual customer, labor, supplier and equipment risks. Do not treat a 20% revenue decline as a 20% SDE decline; fixed and variable costs behave differently. Build that operating bridge with your accountant first.
Read coverage and residual cash together
Modeled debt coverage is available cash divided by annual acquisition and seller-note payments. Residual annual cash is available cash minus those payments. High coverage can coexist with a small absolute cash cushion, particularly in a small business. An all-cash scenario has no debt-service ratio; it still needs an operating reserve.
The SBA calculator is a separate, simplified initial-acquisition screen. The lender's accepted cash flow, guarantees, equity sources, fees and documentation requirements need their own review. Consult the SBA's 7(a) program page and your lender for the current program.
Save a comparison you can explain
In the workbench calculator, save separately named base and downside cases. Each saved deal contains its entered assumptions in the notes. Copy the results or print them to PDF for discussion, and record the evidence that would make you change the assumptions.
Finish with a decision statement: “This price works only if the verified earnings are at least X and annual replacement cost is no more than Y.” Those conditions can guide the next document request, negotiation or pass reason.