Determine the approximate purchase price a buyer can support based on liquid capital, total net worth and the debt capacity of the business being acquired.
1. Buyer Financial Profile
Use current, supportable figures. Liquid capital means funds that can reasonably be deployed toward the acquisition without relying on the sale of the target business.
Cash, marketable securities and other readily deployable funds.
Assets less liabilities.
Current personal/business debt obligations to be considered.
Optional supporting income/cash flow for broader underwriting.
2. Target Business & Financing
Business debt capacity is estimated from normalized annual cash flow and the selected debt-service coverage ratio.
Use normalized cash flow available for debt service.
1.25x means $1.25 of cash flow for every $1 of annual debt service.