Acquisition tools / 02
Deal Decline Stress Test
What happens to your cash flow when business earnings fall each year?
Deal assumptions
Year 1 uses current SDE. Decline compounds from Year 2. Debt payments stay fixed for the loan term.
- Down payment
- $100,000
- Loan amount
- $900,000
- Multiple
- 3.3x SDE
- Annual debt payment
- $142,723
- Year 1 take-home
- $157,277
- Underwater by
- Year 9
- Year 10 cash flow
- -$26,497
Fixed each year
52.4% margin
First negative cash flow year
You OWE money to operate
MODERATE RISK
Late-term pressure. Consider negotiating a lower price, more equity or better loan terms.
Cash flow through the loan term
Year-by-year projection
| Year | SDE | Debt service | After debt | Margin % | DSCR |
|---|---|---|---|---|---|
| 1 | $300,000 | $142,723 | $157,277 | 52.4% | 2.10x |
| 2 | $270,000 | $142,723 | $127,277 | 47.1% | 1.89x |
| 3 | $243,000 | $142,723 | $100,277 | 41.3% | 1.70x |
| 4 | $218,700 | $142,723 | $75,977 | 34.7% | 1.53x |
| 5 | $196,830 | $142,723 | $54,107 | 27.5% | 1.38x |
| 6 | $177,147 | $142,723 | $34,424 | 19.4% | 1.24x |
| 7 | $159,432 | $142,723 | $16,710 | 10.5% | 1.12x |
| 8 | $143,489 | $142,723 | $766 | 0.5% | 1.01x |
| 9UNDERWATER | $129,140 | $142,723 | -$13,583 | -10.5% | 0.90x |
| 10 | $116,226 | $142,723 | -$26,497 | -22.8% | 0.81x |
- Total cash flow (10yr)
- $526,737
- Total losses (negative yrs)
- -$40,079
- Year 1 DSCR
- 2.10x
Cumulative cash flow after debt
2 negative years
Meets modeled 1.25x threshold
The calculators and financial tools provided by The Business Buyer Blueprint are for educational and illustrative purposes only. Take-home is SDE after debt, before taxes, reinvestment and other adjustments. Risk labels describe this scenario, not a recommendation or loan approval. A DSCR of 1.25x does not by itself establish SBA compliance. Verify the deal and lending requirements with qualified professionals.
Stress-test every deal before you make an offer.
The Business Buyer Blueprint is the 12-module training I use to find, value, verify and make offers on businesses.