The useful return is the cash remaining under your operating plan divided by the cash you actually invest. A seller’s earnings figure is not the amount available after loan payments, replacement labor and future equipment spending. Use the calculator below to make those steps visible.
Start with a documented earnings basis
Enter adjusted annual owner benefit only after reviewing the underlying accounts and adjustments. If the seller calls a number NOI, EBITDA or SDE, ask exactly what has already been deducted. Interest and depreciation cannot be added back twice. This calculator uses one annual owner-benefit starting point; it does not convert a property’s NOI into business earnings.
For an owner-operated case, decide what work you will perform and how many hours it requires. For a hired-manager case, include the full cost of replacing owner tasks. The resulting return should be interpreted alongside the work, guarantees and capital you commit. Use the earnings normalization worksheet first if the starting figure is uncertain.
Include the whole acquisition cash requirement
Cash invested includes the purchase price less modeled acquisition debt, plus cash fees, initial improvements and initial working capital. Those items are not interchangeable. Initial working capital is cash committed to the business; future incremental working-capital needs reduce annual available cash. Annual maintenance capex is a reserve for equipment replacement, separate from initial improvements and ordinary repairs already included in earnings.
How payments and coverage are calculated
The model amortizes a fixed-rate loan monthly. The entered interest rate is nominal annual percent, divided by 100 and by 12 to obtain the monthly rate. At zero interest, payment equals principal divided by months. Maturity must equal the amortization period in this tool; a balloon structure needs a separate model. Fees are treated as cash paid up front, not hidden inside an effective interest rate.
Annual cash before debt = adjusted owner benefit − replacement management
− maintenance capex − incremental working capital
Annual cash after debt = cash before debt − scheduled annual debt payments
Cash-on-cash return = annual cash after debt / total buyer cash invested
The displayed operating coverage uses adjusted owner benefit less replacement management. Post-reserve coverage also deducts capex and incremental working capital. A lender may define its DSCR numerator, permitted adjustments and other debt differently. Neither result is an approval. SBA program limits and eligibility are separate from the loan arithmetic. US Small Business Administration: 7(a) loans
A complete fictional example
| Input | Fictional assumption |
|---|---|
| Purchase price / acquisition loan | $1,000,000 / $800,000 |
| Rate / amortization / maturity | 9.5% nominal / 120 months / 120 months |
| Cash fees / initial improvements / initial working capital | $25,000 / $20,000 / $35,000 |
| Adjusted annual owner benefit / replacement management | $300,000 / $70,000 |
| Annual capital reserve / incremental working capital | $25,000 / $0 |
These assumptions produce a monthly payment of $10,351.80 and annual debt service of $124,221.66. Total cash invested is $280,000. The $205,000 before debt becomes $80,778.34 after debt, a 28.8494% cash-on-cash return. This is a worked calculation using invented inputs, not a market rate quote or a typical return.
Read the downside before relying on the base case
The downside controls change operating earnings and interest rate. An earnings reduction is not automatically equivalent to the same percentage revenue reduction: fixed and variable costs behave differently. Use the P&L and an operating model to derive a suitable stressed earnings number. A higher-rate case illustrates a different financing assumption; it is not an automatic forecast of a variable-rate loan.
Negative cash flow is displayed as a negative result. Coverage is not applicable with no debt, and cash return is undefined with no positive cash investment. Simple payback is shown only for positive cash flow and assumes unchanged results. It ignores time value, sale proceeds and changes over the ownership period.
What the tool does not decide
- Whether the reported revenue and add-backs are supported.
- Whether a lender will approve the borrower, site or structure.
- Taxes, appraisal value, future sale proceeds or a real-estate capitalization rate.
- The cost of a hidden environmental issue or equipment failure.
Inputs stay in browser memory and are not placed in URLs or analytics. Export a local CSV or print the result if you want a record; reset clears the current inputs. Do not enter identifying information or document contents. A saved scenario is a planning aid, not a valuation report.
Test cash timing as well as annual earnings
Build a monthly cash runway plan to identify the low cash month, document the cash floor and compare a downside case.
Connect condition findings to funding
Plan equipment replacement reserves and closure exposure with actual quoted scope and explicit payment timing.
Price owner replacement work and review coverage
Price owner replacement work and review coverage with a fictional worked case, explicit assumptions and a usable evidence worksheet.
Compare funding sources and balloon terms
Compare funding sources and balloon terms with the method, private tool and reproducible fictional case. Reconcile periods and amounts before carrying a result into another model.
Sources and scope
Official and original sources checked October 17, 2026. These sources support the identified rules and methods; they do not verify a particular business or property.
- US Small Business Administration — 7(a) loansProgram purpose, maximum, eligibility overview and lender application; not a loan offer.
Continue your review
Verify the revenue · Normalize earnings · Model the cash flow