How Michael Overcame the Down Payment Hurdle to Buy His First Business

Let’s talk about the biggest dream-killer in business acquisitions: the down payment.

If you’ve ever thought about buying a business, you’ve probably wondered, “Do I have enough money to even get started?” You’re not alone. Almost every buyer I meet runs into the same roadblock.

That’s why I want to tell you about Michael.

Meet Michael

Michael is 42 years old. He’s been in HVAC for 15 years. He’s the guy you’d trust to fix your air conditioning in the middle of a Georgia summer — dependable, smart, knows the technical side of the business like the back of his hand.

But Michael didn’t just want to fix units. He wanted to own the company.

So when he found ACME HVAC Co. — a business that’s been around since 1998, bringing in nearly $2 million a year in revenue and over $300,000 in annual earnings — it felt like the perfect opportunity. The owner was ready to retire. The business was healthy. The customers were loyal.

Michael thought, “This is it. My shot.”

The Problem

Here’s the reality check.

The total cost to buy ACME HVAC (purchase price, working capital, and closing fees) came out to $1,278,249.

Now, with an SBA loan, the bank covers most of that. In Michael’s case:

• The bank would finance $1,150,424.

• Michael needed to bring in $127,825 in cash — that’s his equity injection.

Michael had $55,000 saved.

Which left him $72,825 short.

And that right there is where most buyers hit the wall. They think, “Well, I don’t have $72K lying around, so I guess I can’t buy a business.”

But the truth? That’s not the end of the story.

The Tool That Changed Everything

Instead of walking away, Michael used one of my favorite tools: the EDGE SMB Leveraged Buyout Calculator.

Now, let me tell you — this calculator is a game-changer. It takes all the complicated deal math and makes it simple. Michael plugged in his numbers, and here’s what it showed him:

• Total acquisition size: $1,278,249.

• His required equity injection: $127,825.

• His SBA loan and seller note would cover the rest.

Then the calculator went further. It showed him the business’s cash flow after debt — the money Michael would actually take home once the loans were paid.

Here’s the big reveal:

• Annual debt payments: $178,634.

• Cash flow after debt: $142,233.

That’s right — even after paying the bank and the seller, Michael would still net over $142K a year.

The calculator also showed his Debt Service Coverage Ratio (DSC): 1.38. (Don’t let that term scare you. It basically means the business makes 1.38x the money needed to pay the loans. Banks like to see 1.25 or higher, so 1.38 = safe.)

Bottom line? The deal made sense. Michael just needed to solve the down payment gap.

(Example used is based on a fictional company and fictional transactions for illustration purposes only.)

Enter MrsCashflows

This is where Michael’s story takes a turn.

He didn’t want to give away equity to an investor. He didn’t want to walk away. What he needed was a way to unlock funding for that $72,825 shortfall.

That’s when he connected with MrsCashflows inside Buy Sell EDGE.

Now, if you haven’t heard of her, MrsCashflows is a powerhouse when it comes to personal and business credit. She knows the ins and outs of how lenders think, what works with SBA loans, and how to pull funding together when buyers feel stuck.

Here’s the best part: Michael didn’t have to guess. MrsCashflows gave him a roadmap.

At our upcoming event, she’s going to share those same strategies — how to use personal credit the right way, how to build business credit that actually matters, and how to combine creative structures that banks will accept.

I’m not going to spoil all the details here (you’ll have to come to the workshop for that), but let’s just say Michael walked away realizing he could cover his $72K shortfall — without bringing in an investor, and without losing control of the business he’d worked so hard to buy.

Why This Story Matters

Michael’s situation is not unique. Every week, I talk to buyers who are ready to take the leap but freeze when they see the down payment requirements.

Here’s what I want you to know:

• The numbers are not as scary as they look when you have the right tools.

• The EDGE SMB LBO Calculator breaks deals down so you understand every piece.

• And experts like MrsCashflows can show you funding options you’ve probably never even considered.

Michael’s story is proof. With the right knowledge, the right guidance, and the right playbook, the down payment hurdle doesn’t have to stop you.

Confidential Information Memorandum

OPEN CIM

What is a Confidential Information Memorandum (CIM)?

A Confidential Information Memorandum (CIM) is a critical document used in the sale of a business. It provides potential buyers with a comprehensive overview of the business, including its financials, operations, and growth potential. The CIM is typically prepared by a business broker, M&A advisor, or investment banker on behalf of the seller and is only shared with qualified buyers who have signed a Non-Disclosure Agreement (NDA).

Purpose of a CIM

The primary purpose of a CIM is to present the business in a compelling manner, giving buyers enough information to evaluate the opportunity and determine if they want to proceed with further due diligence. It serves as a marketing document as well as a due diligence resource, designed to attract serious buyers while maintaining confidentiality.

Key Components of a CIM

A well-structured CIM typically includes the following sections:

1. Executive Summary

   • High-level overview of the business
   • Summary of key financials and business highlights
   • Reason for sale

2. Business Overview

   • Description of the company’s history, industry, and operations
   • Overview of products and services offered
   • Competitive advantages and market positioning

3. Financial Information

   • Historical financial statements (Revenue, Profit & Loss, Balance Sheet)
   • Adjusted EBITDA or Seller’s Discretionary Earnings (SDE)
   • Key financial trends and performance metrics

4. Market & Industry Analysis

   • Industry trends and market outlook
   • Competitive landscape and market positioning
   • Opportunities for growth

5. Operations & Organizational Structure

   • Description of day-to-day operations
   • Employee structure and key management team
   • Facilities, equipment, and technology used

6. Customer Base & Sales Strategy

   • Customer demographics and concentration risks
   • Sales channels and marketing strategies
   • Revenue breakdown by service or product line

7. Growth Potential & Strategic Opportunities

   • Expansion opportunities (new products, services, or markets)
   • Operational efficiencies or cost-saving opportunities
   • Possible synergies for strategic buyers

8. Transaction Structure & Terms

   • Asking price and valuation methodology
   • Potential deal structure (cash at close, seller financing, earnouts, etc.)
   • Expectations for transition and seller involvement post-sale

9. Next Steps

   • Instructions on how interested buyers can proceed
   • Timeline and expectations for offers, due diligence, and closing

Why is a CIM Important?

• Protects Confidentiality: Only serious, vetted buyers receive the document after signing an NDA.
• Saves Time: It allows buyers to assess the opportunity before engaging in deeper discussions.
• Enhances Business Value: A professionally prepared CIM highlights the strengths of the business, making it more attractive to buyers.
• Facilitates Negotiations: It provides a common reference point for discussions between the buyer and seller.

Conclusion

A Confidential Information Memorandum (CIM) is a crucial document in business sales, providing potential buyers with the necessary insights to evaluate the opportunity. A well-prepared CIM can significantly impact the success of the sale by presenting the business in the best possible light while ensuring confidentiality and efficiency in the transaction process.

Financial Information

EDGE SMB Leveraged Buyout Calculator

ACME HVAC Recast Example

How to Value an HVAC Business

Buying a business is a major investment, and understanding how to properly value it ensures you pay a fair price. One of the most widely used valuation methods for small businesses is the market approach, which applies a multiple to Seller’s Discretionary Earnings (SDE). This approach provides a clear picture of the business’s earning potential and helps buyers make informed decisions.

Step 1: Understanding Seller’s Discretionary Earnings (SDE)

What is SDE?
SDE (sometimes called Owner’s Benefit, Owner’s Profit, or Cash Flow) is a key metric used in small business valuation. It reflects the total financial benefit a single owner-operator derives from the business. It starts with the net profit and then adds back certain discretionary expenses that are non-essential to core operations. These typically include:

• The owner’s salary and benefits
• Personal expenses run through the business
• Non-recurring or one-time expenses
• Non-cash expenses such as depreciation

Why SDE Matters for Buyers:

• Reflects True Cash Flow – It shows what a new owner-operator could expect to earn.
• Simplifies Comparisons – Many small businesses are valued using SDE, making it easier to compare businesses across industries.
• Differs from EBITDA – While similar to EBITDA, SDE adds back the owner’s salary since small business owners typically pay themselves differently than a hired manager would be compensated.

Step 2: How to Calculate SDE

To calculate SDE, follow these steps:

1. Start with Net Profit – Take this figure from the business’s tax returns or profit and loss statements.
2. Add Back the Owner’s Salary & Benefits – Since a new owner may compensate themselves differently.
3. Include Other Discretionary Expenses – Add non-essential costs like personal expenses, one-time costs, and non-cash items (e.g., depreciation).

Example Calculation:
If a business reports a net profit of $198,068 and discretionary add-backs (owner’s salary, benefits, personal expenses, and depreciation) total $122,799, the SDE would be:

SDE = $198,068 + $122,799 = $320,867

Step 3: Applying Market Multiples

Once you have the SDE, the next step is to determine a market multiple.

What is a Market Multiple?
It is a factor used to estimate a business’s value based on industry norms and comparable sales. Small businesses typically sell for 2x to 3x SDE, but this varies by industry, location, and business characteristics.

Example Calculation:
Using the SDE from the example ($320,867) and a multiple of 3.25, the estimated business value would be:

$320,867 x 3.25 = $1,003,168

Step 4: Factors That Influence the Multiple

The 2x to 3x range is just a general guideline. The actual multiple depends on:

• Industry Trends – Some industries consistently sell for higher multiples due to growth potential and low risk.
• Size & Stability – Larger, well-established businesses with steady revenues justify higher multiples.
• Market Conditions – Buyer demand, economic conditions, and industry outlook impact valuation.
• Growth Potential – Businesses with untapped revenue streams or expansion opportunities often command a premium.

If a business has recurring revenue, a strong brand, or a unique market position, the multiple could exceed 3x SDE. Conversely, high-risk businesses (e.g., owner-dependent, declining revenue) might sell for closer to 2x.

Step 5: Final Considerations for Buyers

Due Diligence:
Before making an offer, verify financials to ensure the SDE calculation is accurate. Review:

• Tax returns (last 2-3 years)
• Profit & loss statements and balance sheets
• Owner compensation and add-backs

Negotiation Leverage:
If you find risks such as customer concentration, lease issues, or outdated equipment, you can justify a lower multiple during negotiations.

Final Thoughts: A Buyer’s Roadmap to Business Valuation

Using the market approach with SDE is an effective way to determine a fair purchase price for a small business. By:

• Accurately calculating SDE
• Applying an appropriate market multiple
• Considering growth potential and risks

…you can confidently assess the business’s worth and make an informed investment decision.

Pro Tip: Always consult a business advisor, broker, or accountant to validate your valuation and ensure a smooth acquisition process.

HVAC Comps 

Offer to Purchase 

Business Valuation Model  [EXCEL TEMPLATE]

Use this user-friendly spreadsheet to streamline your review of potential business acquisitions. The template helps you organize critical financial data and calculates key metrics to assess viability, profitability, and potential risks. As with all tools, we strongly advise you to consult with financial professionals for detailed guidance.

GET THE BUSINESS ANALYSIS TEMPLATE

Comps by Industry 2025

Source: BizBuySell.com

Acquisition Buyout Calculator

This Excel tool helps you engineer a bank-friendly capital stack for an acquisition. You enter a few deal assumptions (price, working capital, fees, cash flow, and proposed funding mix), and the sheet calculates: the total acquisition size, how much bank/SBA debt the business can support at the target Debt Service Coverage (DSC), your total debt service (monthly/annual), expected ROI on your cash, and the buyer’s take-home “Total Cash Flow to Buyer after Debt Service.” Edit only the orange cells; everything else updates automatically.

GET YOUR CALCULATOR

How to use it (step-by-step)

1. Set the basics (top-left header)
   Fill in Identifier/Target Name, Location, and Prepared For. These are just labels for your scenario. 

2. Complete the Transaction Summary (left column)
   Enter the orange fields to define the deal:

   • Asking Price and your Offer/Purchase Price (the sheet shows the difference and multiples).

   • Estimated Working Capital using the “Months of Expenses you want to start with” input—this rolls into Total Acquisition Size.

   • Closing Fees (SBA) — you can input a dollar amount or use the note showing that fees are typically ~2–3% of the loan; the % helper is shown on the sheet.

   • Escrow/Deposit — enter your proposed earnest money (the sheet notes a typical 1–3% range).

   • Operating facts (Year Established, Employees, Lease/RE terms, FF&E, Inventory).

   • Annual Revenue and Owner’s Earnings (SDE/EBITDA) — this drives cash-flow outputs later. 

3. Build your Capital Stack (middle section)
   The goal is to fill the total acquisition cost 100% with some mix of buyer cash, (optional) investor equity, SBA/bank debt, and a seller note. Use these orange inputs:

   • Buyer Cash (Equity Injection) — usually ≥10% of Total Acquisition Size. The sheet shows “Minimum Equity needed to get this deal done.”

   • Post-Acquisition Buyer Compensation — enter your planned salary/draw so the model reflects realistic owner earnings (the sheet notes a minimum guideline if your number is too low).

   • Investor Equity (optional) — add if partners will contribute cash.

   • SBA/Bank Loan — set Interest Rate and Amortization (years). The model displays Max SBA/Bank Debt Supported so you know your debt ceiling for bank underwriting.

   • Seller Note — amount, interest rate, and amortization (often shorter than SBA).
     Watch the Balance line at the bottom of this section — it must read $0 and 100%; otherwise your stack doesn’t add up. 

4. Check bankability & cash flow (bottom section)

   • Confirm Cash Flow Available for Debt Service (EBITDA) reflects normalized, lender-ready cash flow for the target.

   • Review Total Monthly/Annual Debt Service (SBA + Seller Note).

   • Make sure Debt Service Coverage (DSC) meets or exceeds the Target DSC shown on the sheet (1.35 in the example). If DSC is low, reduce debt, lengthen amortization (if allowed), lower interest, increase equity, or increase seller note (with longer term).

   • Validate Max SBA/Bank Debt Supported is ≥ your actual SBA/Bank loan amount.

   • Review your take-home: Total Cash Flow to Buyer after Debt Service (owner’s earnings minus annual debt service).

   • Check Cash Investment ROI (roughly: Buyer’s post-debt cash flow ÷ Buyer Cash Equity). 

5. Iterate until it passes underwriting math
   Keep tweaking the orange inputs in the Capital Stack until all of these are true:

   • Balance = $0 and 100% (the stack fully funds the deal).

   • DSC ≥ Target DSC (meets bank cash-flow guidelines).

   • SBA Loan ≤ Max SBA/Bank Debt Supported (you’re under the modeled lending cap).

   • Buyer Cash Flow after Debt Service is acceptable for your goals and risk.

6. Use the outputs to guide your offer & talks
   The multiples, DSC, buyer cash flow, and minimum equity needed help you shape an LOI structure (price, working capital ask, seller note size/terms, and your equity injection) that is both attractive and financeable. The sheet also shows typical ranges (e.g., closing fees ≈2–3%, escrow 1–3%) to keep your assumptions realistic. 

Formula quick reference (what the key numbers mean)

• DSC = EBITDA (cash flow available for debt service) ÷ Total Annual Debt Service.

• Max SBA/Bank Debt Supported = the maximum loan such that DSC stays at/above the sheet’s target.

• Total Cash Flow to Buyer after Debt Service = Owner’s Earnings − Total Annual Debt Service.

• Cash Investment ROI ≈ (Buyer Cash Flow after Debt Service) ÷ (Buyer Cash Equity).

Tip: The orange-cell rule, the Balance line, the DSC target (1.35 shown), and the typical fee/escrow ranges are all visible on page 1 of the sheet. Use them as a checklist while you iterate scenarios. 

Educational note: The calculator is an informational tool to help you structure deals and talk to lenders; always validate numbers with your lender, CPA, and counsel before you rely on them.