Survey: What Minimum % of Pre-Acquisition Cashflow Should You Retain

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by a searcher from Oklahoma State University
in Tulsa, OK, USA

2yrs ago

Survey: What Minimum % of Pre-Acquisition Cashflow Should You Retain

Something I've not seen talked about much, and I would like to get everyone's opinion and what they aim for.

What is the minimum amount (in terms of percentage %) of pre-acquisition cash flow you require after everyone is paid, including employees, debt payments, investor payments, seller financing, etc...?

In other words, how much is left over for you, after everyone else is paid? In percentage terms?

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reply by a searcher 2yrs ago
from Oklahoma State University in Tulsa, OK, USA

In my case, I aim for around half or 50% of Pre-Acquisition EBIT must be left for me after my investors, lenders and seller financing is paid. So if pre-Acquisition EBIT is $1 Million I get to keep about $500K after everyone is paid.

If significantly less than 50% is left, then I take it something is not balanced right, the price isn't right, the terms aren't right or something.

This is a rule of thumb regardless of the multiple paid. It could be 2 times EBIT or 5 times EBIT, using proper terms you can always structure a deal some how that allows the buyer to keep about 50% of the cashflow.

In my experience, much less than 50% the risk starts to rise dramatically.