How to calculate the amount of cash flow the bank thinks your #SMB target will create....
Net Income
-Extraordinary income events - PPP forgiveness, abnormal gains on sale of assets, insurance proceeds, etc.
-The amount you will be paying yourself as an owner
+The amount the seller paid him/herself
-Extraordinary income events - PPP forgiveness, abnormal gains on sale of assets, insurance proceeds, etc.
-The amount you will be paying yourself as an owner
+The amount the seller paid him/herself
+Extraordinary expenses - legal fees, moving expense, engaging the seller broker, etc.
-Maintenance capex that required a cash call but didn't make it to the income statement
=Cash flow your lender thinks is available to service the proposed loan
-Maintenance capex that required a cash call but didn't make it to the income statement
=Cash flow your lender thinks is available to service the proposed loan
Take that last number and subtract out how much the bank and the seller are going to demand in annual repayment.
= Net cash flow to shareholder ("FCFE")
= Net cash flow to shareholder ("FCFE")
This is how much money you get to keep after everyone got paid for the investment except you.
Take FCFE, divide it by your down payment, times that by 100, and there is your cash-on-cash return in % form.
Take FCFE, divide it by your down payment, times that by 100, and there is your cash-on-cash return in % form.
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