Free calculator
Cash-on-cash return calculator
- Annual cash flow after debt
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- Cash-on-cash return
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- Payback period
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- Cumulative over 5 years
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- Unlevered return on price
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A cash-on-cash return is a single-year snapshot on the figures you enter. It ignores the equity you build as the loan amortises, any change in what the business is worth, and the fact that your capital is illiquid and undiversified in a way a market return is not.
What leverage is doing to this number
Cash-on-cash divides the cash the business throws off after debt service by the cash you actually put in. Because the loan supplies most of the purchase price, a modest return on the business becomes a large return on your slice — which is the entire appeal of a leveraged acquisition.
The arithmetic is symmetrical, and buyers routinely forget the second half. The same leverage that turns a good year into an excellent return turns a mildly disappointing year into no return at all, because debt service does not fall when revenue does. Run this tool twice: once with the seller’s figures, once with revenue 20% lower. The gap between the two answers is the actual risk you are taking.
Payback is the number that survives disagreement
Percentages invite argument about assumptions. “How many years until I have my money back” is harder to spin, and it maps onto the thing you actually care about: how long you are exposed before the downside is capped by capital already returned.
It also frames the seller’s price differently. A payback of three years and one of eight are not variations on a theme — they are different investments, and often different businesses wearing similar listings.
What this deliberately leaves out
- Equity build. Every payment reduces principal. On a leveraged deal that quietly builds real value the cash-on-cash figure never shows.
- Exit value. What the business might sell for later, which is where much of the return in a good acquisition actually lands.
- Liquidity and concentration. This capital is locked in one undiversified asset that needs your attention. A market return does not ask that of you, and a fair comparison should price it.
For the operator’s view of the same deal — what reaches you, and what it works out to per hour — use the owner earnings calculator.
Frequently asked questions
What is a good cash-on-cash return on a small business?
There is no standard, and it depends heavily on how much risk the specific business carries and how much of your time it needs. The more useful comparison is not to a benchmark but to your own alternatives, adjusted for the fact that this capital is illiquid, concentrated and hands-on in a way most alternatives are not.
Should I include my own salary in the cash flow?
Only if you will not be running the business. If you plan to operate it yourself, leave the manager salary at zero and read the result as a combined return on capital and labour — then use the owner earnings calculator to separate the two.
Why does the return look so much better than the business\u2019s own return?
Leverage. You are earning the return on the whole purchase price while having funded only part of it in cash. That is the intended effect, and it works exactly as hard in reverse when a year disappoints.
Should I assume growth?
Be very careful. Growth you have not yet demonstrated is an assumption, not a fact, and modelling a deal on it is the most common way buyers overpay. Zero growth is a defensible default; anything above it should have a reason you could state to a lender.
Educational only — not a valuation, a loan pre-approval, or a lender's number. Confirm specific rules, rates, and forms with the relevant New York State agency, attorney, CPA, lender, or insurer before acting. The formulas behind this tool are documented on the methodology page.