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Merchant Cash Flow Analysis

Model merchant cash flow after MCA payments to verify deal sustainability.

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Why Analyze Merchant Cash Flow?

A merchant cash flow analysis models the business's financial health after accounting for MCA payments alongside their existing fixed and variable costs. Revenue alone does not determine affordability -- a restaurant doing $100K/month with $90K in costs has only $10K of free cash flow, which means even a modest MCA payment could push them into the red. This analysis calculates the net cash position after all expenses including the MCA holdback, producing a sustainability assessment. A positive net cash flow with at least 5-10% margin indicates the deal is sustainable. Negative net cash flow is a red flag for default. For brokers, this analysis is the best pre-submission tool for avoiding deals that look good on revenue but fail on profitability.

How to Use This Calculator

Enter the merchant's monthly revenue

From bank statements -- total deposits excluding transfers and non-operating income. Use a 3-month average for stability.

Detail fixed and variable costs

Fixed costs include rent, payroll, insurance, and debt service. Variable costs are expressed as a percentage of revenue and include COGS, commissions, and volume-dependent expenses.

Set the proposed MCA holdback

The calculator shows how the holdback affects the merchant's net cash position and provides a maximum safe holdback recommendation based on their cost structure.

Key Concepts

Free Cash Flow

Revenue minus all operating costs (fixed and variable). This is the pool from which MCA payments are made. If free cash flow is $8K/month and the MCA payment is $10K/month, the deal is not sustainable.

Cash Flow Margin

Net cash after all expenses (including MCA) divided by revenue. A margin above 5% indicates a sustainable deal. Below 5% is tight. Below 0% means the merchant is losing money with the MCA in place.

Maximum Safe Holdback

The highest holdback percentage that still leaves the merchant with a positive cash flow margin of at least 5%. This is your ceiling for deal structuring.

Expert Insights

Bank Statements Tell the Real Story: Merchants will tell you their costs are lower than they are and their revenue is higher than it is. Bank statements do not lie. Look at ending daily balances -- if they are consistently under $2,000 for a business doing $80K/month in revenue, the merchant is running thin and an MCA payment will likely push them into overdraft. Ending balance trends are the best leading indicator of deal sustainability.

Seasonal Cash Flow Traps: A cash flow analysis using peak-season numbers looks great. The same merchant in off-season may have 40-60% lower revenue with nearly the same fixed costs. If you fund during peak and the term extends into off-season, the holdback becomes a much larger percentage of the reduced revenue. Always model the worst-case month, not the average.

Frequently Asked Questions

After the MCA payment, the merchant should retain at least 5-10% cash flow margin. Below 5%, any revenue dip (a slow week, a large expense) can trigger a cascade of overdrafts and missed payments. Above 10% provides comfortable buffer for normal business variability.

Do not rely on the merchant's verbal estimates. Review 3 months of bank statements for recurring debits (rent, payroll, loan payments, utilities). These are the fixed costs. Estimate variable costs from industry benchmarks if the merchant cannot provide specifics. Restaurants typically run 28-35% food cost, retail runs 40-60% COGS.

Do not fund. A negative margin means the MCA will accelerate the merchant's financial distress, leading to default and a clawback of your commission. Instead, either reduce the deal size until the margin turns positive, recommend a different product (line of credit with lower payments), or advise the merchant to address their cost structure before taking on capital.

Results are estimates for educational purposes only. Actual amounts may vary based on your specific financial situation, market conditions, and other factors. This calculator does not constitute financial advice.