We posted this on LinkedIn as well, but I think it's an important concept to share here, given the frequency of post-close liquidity challenges: _________ Debt service coverage can be misleading when fixed costs are high. Most small businesses blend every expense together and buyers say “DSCR = 2.0x — we’re fine.” But if ~50% of your cost base is fixed (rent, leases, insurance, utilities, subscriptions, taxes/fees, pensions, royalties/minimums, etc.), a modest revenue shock hits hard because those fixed costs don’t flex. Quick example: • Base case: DSCR ≈ 2.0x. • Fixed costs and debt service are 50% of revenue • Remaining costs are entirely variable as a percentage of revenue and the company generates 10% EBITDA margins Under this example, a 15% revenue decline turns DSCR into ~1.1x. That’s why segmenting variable vs. fixed costs is critical. While a cost structure high in fixed obligations can look great for margins when revenue is growing, the same cost structure can eliminate the cushion on the way down. A better lens is Fixed Charge Coverage (FCCR). Using the same cost structure above, the base case FCCR is only ~1.2x—a much clearer picture of true headroom and risk. Bottom line: separate fixed from variable, stress-test revenue, and evaluate FCCR alongside DSCR before taking on debt.