Cash-on-cash return

The pre-tax cash a business leaves after debt service in a year divided by the cash you put in to buy it (down payment, closing costs, and working capital), the year-one yield on your own money.

It is the number a self-funded or SBA buyer actually lives on: where IRR and MOIC score the whole hold, cash-on-cash answers what the deal pays you each year on the equity at risk, and because it turns on how much you put down, a thin injection can post a high cash-on-cash while a heavy one starves it on the very same business.

In numbers: Put $250,000 of equity into a deal that throws off $90,000 of cash after debt payments and a market owner salary, and the cash-on-cash return is 36%; finance the same business with $500,000 down and it halves to 18%.