The Math Behind "Should I Buy This Business?" Answered in 30 Seconds
I'm showing you mine. Bring yours.
Shoutout to Martez Jones, CPA for this week’s question:
“What is your ideal cash flow after debt service coverage before even considering an acquisition? For example, owner’s monthly benefit after all expenses of a $1M business (gym) is $20k/month. Your debt coverage eats half of that. Would you consider buying?”
DSCR: The One Number Between You and Financial Ruin
DSCR. Debt Service Coverage Ratio.
Sounds like something a finance bro mumbles to sound smart at a cocktail party. But this ratio is the difference between owning a business and owning a second job that hates you.
It answers one question: Can this business pay its debts and still put money in my pocket?
DSCR = SDE (Seller’s Discretionary Earnings) ÷ Annual Loan Payments
A DSCR of 1.0 means the business makes exactly enough to cover debt. You work for free. Congratulations, you just bought yourself a volunteer position.
1.25x gives you 25% breathing room. 1.5x gives you 50%.
Typically banks require 1.20x minimum. They want to know they’ll get paid. They don’t care if you can afford groceries.
I won’t touch anything below 1.5x.
Here’s why.
The Post-Acquisition Revenue Dump Everyone's Too Scared to Mention
I’m part of a community of 2,000+ ETA entrepreneurs. People who’ve actually bought businesses. Who’ve lived through the first 90 days of ownership.
What they keep telling me: revenue dips after acquisition. Almost always.
Day one, something breaks. Key employee quits. Customers get nervous about the new owner. Your best client decides to “wait and see” before renewing.
Makes total sense.
You’re the new guy. You don’t know where they keep the printer paper. The team is quietly deciding whether you’re competent or a clown. Clients are watching. Vendors are skeptical. Everything you touch feels slightly wrong.
Buy at 1.20x DSCR - again, the bank’s minimum - and suddenly you’re underwater. Sweating. Making desperate moves because rent is due and the numbers aren’t working.
At 1.5x, you can take a punch. Revenue drops 15%? You’re still breathing. Still making decisions from logic instead of panic.
I choose that cushion out of pattern recognition.
Shut Up and Watch Me Do the Math 🤓
Hypothetical deal:
SDE: $150,000/year
Purchase Price: $375,000 (2.5x multiple)
SBA Loan: 10% down ($37,500) + 10% working capital ($37,500)
Amount Financed: $337,500
Terms: 10% interest, 10 years
Quick note on SBA: they want a minimum 10% down PLUS 10% for working capital. Make sure you budget for both.
Annual debt service on $337.5K at those terms? About $53k/year. That’s ~$4.4k leaving your account every month whether you had a good week or not.
DSCR check:
$150,000 ÷ $53k = 2.8x
That’s a GREAT DEAL. Almost to fortress level! You could lose a third of your revenue and still cover the loan.
Take-home after debt: $96k. $8k/month hitting your pocket.
Now, that’s a deal worth chasing, to me.
Now Here's a Deal I'm Actually Balls Deep In
Yeah. It’s a gym.
I know. I’ve said no heavy customer service. No retail. Gyms break my own rules.
But I’ve wanted to own a gym since I was started taking fitness seriously - close to 15 years. Before my home setup, I was there six days a week anyway. Not this actual gym, but you get what I’m saying. I love the iron. The community. The 0500 regulars who nod at you like soldiers passing in a trench.
Some deals you chase because the math works. Some you chase because 18-year-old you is screaming from inside your chest.
This one might be both.
Some numbers:
What | Amount
Gross Revenue | $635,969
SDE | $158,659
Asking Price | $499,000
Multiple | 3.14x
Monthly Rent | $12,500
Square Footage | 12,000 SF
Employees | 1 FT + 11 PT trainers
FF&E Included | $160,000
Regular bro gym plus scheduled classes → spin, HIIT, that kind of bs. Part-timers are trainers running sessions.
Financing structure I’m exploring:
My equity injection: ~$30K ( 10% ) + $30k ( 10% operating )
SBA loan: ~$300K
Seller note: $149K at 7% over 4 years
Notes:
SBA takes priority lien
Seller subordinates
My lender - one of the largest SBA shops in the country - does these hybrid deals constantly
Debt service breakdown:
SBA piece: $300K at 10% over 10 years = ~$47,600/year
Seller note: $149K at 7% over 4 years = ~$42,800/year
Total annual debt service: ~$90,400
DSCR: $158,659 ÷ $90,400 = 1.75x
✅ Clears my 1.5x requirment ✅
Annual take-home after debt: $68,259 — about $5,688/month.
Obviously, not Lambo money. But fk lambos anyway, … Bros, I’d own a gym!
Real equipment. Real members. A team already doing the work.
My favorite part: That seller note disappears in four years, which would bump take-home by $42K overnight 💪
One Thing's Pissing Me Off About This Deal …
That multiple.
$499K asking price on $158K SDE = 3.14x. My ceiling is 3x.
So … time to bust out some Chris Voss negotiation techniques.
The seller financing gives me leverage. They want this to close too and that note doesn’t pay them unless I succeed. So we’re aligned ( another reason I like seller notes ).
The deeper I get into due diligence, the more ammo I’ll find.
Deferred maintenance
Seasonality they didn’t mention
Member churn they glossed over
Every discovery becomes a new chip on the table
My goal is to push for $475K or lower. We’ll see who blinks.
Stay tuned 🍿!
The Dead Simple Framework So You Don't Buy Something Stupid
Before you offer on anything:
Calculate total annual debt service ( all loans, all notes )
Divide SDE by that number
Below 1.5x? Walk. Or renegotiate until it isn’t.
Don’t let excitement do your math. The deal that bankrupted many before you looked incredible on the spreadsheet too.
Stop Scrolling. This Is Where You Decide If You're Serious or Just a Tourist
Everything above is free ( No shit, bear … ). Use it. Share it. Teach it to your buddy who’s been talking about buying a business for three years but hasn't pulled the trigger. I bet he doesn’t even know about this haha!
But if you’re serious about actually doing this and not just reading about it, like your buddy, I’ve built a toolkit.
Cool shit I’ve built that paid BuyBros get ( so far ):
🧮 The DSCR Calculator Spreadsheet: Plug in purchase price, SDE, down payment, interest rate, loan term. It spits out monthly debt service, DSCR, and take-home automatically. Plus a go/no-go indicator so you know instantly if a deal is worth your time.
📋 The SBA Loan Readiness Checklist: Every document and number you need checked BEFORE you talk to a lender. Compiled from the actual forms I filled out with one of the largest SBA lenders in the country.
📅 The 30/60/90 Day Acquisition Plan: Weekly action items with checkboxes. Space for notes. A “landmine log” to track hidden problems before they explode. This is my actual battle plan.
🔍 Deep-Dive Deal Breakdowns: You just saw how I analyzed this gym ( obviously, not the full picture ). Paid subscribers get this level of detail and even deeper, on every deal I seriously evaluate. The numbers. The red flags. The negotiation angles.
🚀 Early Access + Discount on the AI Deal Hunting System: I built a team of AI agents that source deals, analyze financials, draft outreach, review NDAs, and run due diligence research. When I launch this as a product, paid subscribers get first access and a heavy discount.
What You Get | Value
DSCR Calculator Spreadsheet | $20
SBA Loan Readiness Checklist | $100
30/60/90 Day Acquisition Plan | $20
AI System Early Access + Discount | $1k+
Total Value $1k+
You pay $5/month. Or $30/year if you lock in annual.
A single coffee a month for a complete acquisition toolkit. You can keep reading for free and figure it out yourself. Or grab the cheat codes and skip the expensive mistakes.
