Business Acquisition Calculator

Buying a business is underwritten the same way a property is, and most buyers do considerably less arithmetic on it. This page tests whether the target can service its own purchase price and still pay you properly, which is the question that decides whether you have bought an investment or an expensive job. It funds the purchase the way real deals are funded, with a deposit, vendor finance on its own rate and term, and bank debt on another, then adds the two costs buyers routinely forget: the working capital the business needs from settlement day, and the legal, accounting and due diligence fees. Against that it sets the earnings, less a genuine market wage for the role you will be doing, and reports the annual cash flow, the debt service coverage ratio, the cash-on-cash return on the money you actually invested, and how long it takes to get that money back. Two outputs matter most. Break-even revenue tells you how much of the business's turnover could disappear before the structure fails, which matters because customer losses after a change of ownership are common rather than exceptional. And the maximum supportable price gives you a walk-away number to decide before you start negotiating instead of during it.

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Underwrite It, Do Not Just Value It

Most buyers spend their effort on whether the price is fair. That is the wrong first question. A fair price you cannot service will still fail, and a slightly high price on a business that comfortably covers its debt and pays you properly can work perfectly well.

The order that matters is: can it service the debt, will it pay me, and how long until I have my money back. Only then does the multiple become interesting.

Worked Example: $1,000,000 On $411,500 Of Earnings

The business earns $411,500.00 of verified SDE. At $1,000,000.00 the implied multiple is 2.43 times, which sits in the normal range for an owner-operated New Zealand business.

Funding is $250,000.00 of deposit, $150,000.00 of vendor finance at 6% over four years, and $600,000.00 of bank debt at 8.5% over seven. Those repayments are $42,273.05 and $114,022.70 a year, totalling $156,295.75 of debt service.

Take a $120,000.00 wage first, leaving $291,500.00 available to service debt. After the $156,295.75, annual cash flow is $135,204.25.

Coverage is 1.87, comfortably above the 1.25 most lenders require. Return on the $365,000.00 actually invested is 37.04%, and payback is 2.70 years.

The Deposit Is Not The Cash You Need

The single most common funding mistake is budgeting for the deposit and nothing else.

The business needs working capital from settlement day: stock to sell, wages to pay before the first debtors arrive, and the float that the vendor was quietly providing and takes with them. That is $80,000.00 here. Acquisition costs, being legal, accounting and due diligence, add $35,000.00.

So the deposit is $250,000.00 and the cash required is $365,000.00, which is $115,000.00 more. A buyer who arrives with exactly the deposit begins ownership underfunded during the months when they understand the business least. Our Business Cash Buffer Calculator sizes what should sit behind that.

Pay Yourself First, In The Model

Deducting the wage before calculating the return is deliberate, and it is what separates buying a business from buying a job.

Without a wage the same deal shows $255,204.25 of cash flow and a coverage ratio of 2.63. Those numbers are not wrong, they are just describing something different: the combined return on your capital and your unpaid labour, presented as though it were all a return on capital.

If a deal is only viable on the no-wage basis, it is worth naming that plainly. You may still want it, because owning the business you work in has real advantages. But you are buying employment at a price rather than making an investment, and the return figures should not be compared with what the same capital would earn elsewhere.

Break-Even Revenue Is The Risk Measure

Earnings are 22.24% of revenue. Covering the wage and the debt service needs $276,295.75 of earnings, which requires $1,242,155.85 of revenue against the current $1,850,000.00.

The business can therefore lose $607,844.15, or 32.86% of its revenue, before the structure fails. That is a genuinely comfortable margin.

It matters because losing customers after a change of ownership is normal rather than exceptional, particularly where the vendor held the relationships personally. A deal whose break-even revenue sits at 90% of current turnover has almost no tolerance for that, and customer concentration is the first thing to test in due diligence. Our SDE Calculator shows how much of the earnings depend on the owner personally, which is the same risk seen from the seller's side.

Decide Your Walk-Away Price Before You Negotiate

At a 1.25 coverage ratio the earnings support a maximum price of $1,369,032.37, which is $369,032.37 above the asking price.

Treat that as a ceiling, not a target. Paying it would take coverage from 1.87 down to exactly the minimum, leaving nothing for a bad quarter, a rate rise or the customer who leaves in month four.

Its value is that it exists before the conversation starts. Negotiations create pressure to justify a higher number, and a limit calculated in advance from the earnings is considerably more robust than one arrived at across a table. Write it down, and if the price goes past it, the answer is no.

Related NZ Business Buying Calculators

• SDE Calculator: verify the earnings before you rely on them.
• Business Valuation Calculator: whether the price is reasonable.
• Debt Service Coverage Ratio Calculator: the covenant in detail.
• Business Loan Structure Calculator: how to structure the borrowing.
• Business Health Check Calculator: run the target's ratios before you commit.