The short answer: Start from your valuation, then open at roughly 85 to 90% of it, the gap is your diligence discount and negotiating room. The offer only holds if the cash flow finances it: after paying yourself a market salary, the leftover must cover the loan at a DSCR of at least 1.15 to 1.25×. And remember: structure (seller note, earnout, holdbacks) can matter more than shaving the price. Cap your number with the max purchase price tool.
From value to offer, in numbers
Here's the whole bridge on one deal, a business you valued at $500,000 off $180k SDE:
| Step | What you do | This deal |
|---|---|---|
| 1 · Your valuation | $180k SDE × 2.8× (quality-adjusted) | $500,000 |
| 2 · Diligence discount | Open ~12% below to leave room + cover risk | −$60,000 |
| 3 · Opening offer | Where you start the conversation | $440,000 |
| 4 · Likely settle | Meet in the middle after diligence | ≈ $470,000 |
| 5 · Cash-flow check | $110k free cash ÷ ~$68k payment | DSCR 1.6× |
The opening offer isn't your ceiling and it isn't a lowball, it's your valuation minus honest room for what diligence might uncover. As long as the settle price still clears the cash-flow test, you're safe.
The diligence discount
Your valuation was built on the seller's numbers, and you haven't verified them yet. The diligence discount is the buffer for that uncertainty. It does two jobs at once:
- Protects the price if add-backs, customer concentration, or deferred maintenance turn out worse than advertised. (Re-read the add-backs you'll be re-checking here.)
- Leaves negotiating room so you can concede toward the seller and still land at fair value.
Size the discount to the risk
Clean books, verified contracts, low owner dependence → a small discount (5 to 10%). Messy records, one giant customer, aggressive add-backs → a bigger discount (15%+), or price protection built into the structure.
Structure can beat price
Two offers at the same headline price can carry wildly different risk. Structure is where you win:
| Lever | What it does | Effect |
|---|---|---|
| 90% SBA loan | Bank funds most of the price | ~$423,000 financed |
| Seller note (5 to 10%) | Seller finances part; can go on standby to help the loan qualify | ~$24k, $47k |
| Your cash at close | What you actually wire | ~5 to 10% |
| Earnout / holdback | Ties part of the price to results or protects against surprises | De-risks price |
A seller who wants their number often says yes to a higher price with a seller note and an earnout, while you lower your cash and your risk. Structure is a lever the multiple can't touch.
What the cash flow can finance
Every offer has a hard ceiling: the price the cash flow can service. Take SDE, pay yourself a market salary, and whatever's left has to cover the loan with a cushion. That cushion is the DSCR, and lenders want at least 1.15 to 1.25×.
| Line | Amount |
|---|---|
| SDE | $180,000 |
| Less: your market salary | −$70,000 |
| Cash flow available for debt | $110,000 |
| Annual loan payment (~$423k, 10 yr, 10.5%) | ≈ $68,000 |
| DSCR = $110,000 ÷ $68,000 | 1.62× |
1.62× clears the bar with room to spare, so $470k is financeable. If the DSCR fell below ~1.25×, the offer would be too high no matter how good the multiple looked, the business simply can't carry the debt. That ceiling is exactly what the max purchase price tool solves for.
Your valuation says what it's worth. Your offer says what you'll pay. The cash flow says what you can.
Put the offer in writing
Once your number and structure are set, the offer goes into a Letter of Intent. Start from a proven LOI template so nothing important, price, structure, exclusivity, diligence period, gets left out.
Solve for your ceiling first
Find the highest price the cash flow can finance, then set your offer below it.
Keep going
Frequently asked questions
Start from your valuation and open around 85 to 90% of it, expecting to settle near it. The offer must also pass a cash-flow test: after a market salary for you, the leftover must cover the loan at a DSCR of at least 1.15 to 1.25×.
It's the gap between your valuation and your offer that protects you against problems found in due diligence. Because your value uses unverified seller numbers, you open below full value, leaving room if add-backs or concentration turn out worse than claimed.
Price and structure are separate levers. A seller note, earnout, or holdback lets you offer a higher headline price while lowering your cash and risk. A 90% SBA loan with a 5% seller note can mean funding only ~5% in cash.
Subtract a market salary for yourself from SDE, then divide by the annual loan payment. If that DSCR is at least 1.15 to 1.25×, the price is financeable. Below that, the offer is too high regardless of the multiple.
Sources
- Median sale price (~$350k) and multiples, BizBuySell Insight Report (2026).
- DSCR underwriting minimums, SBA lender guidance, 2025 to 2026.
- Industry multiples, Acquisition Ace multiples data (2026).
