This fictional med spa has $1.85 million revenue, financed devices, and $273,000 normalized EBITDA. An assumed $1.025 million offer includes a seller note, while device debt and other obligations reduce closing cash. The example distinguishes earnings, capital spending, debt payoff, equipment ownership, and a hypothetical tax-planning reserve.
What devices and obligations are in the fictional business?
Assume a med spa earns $1.85 million annual revenue and uses several financed aesthetic devices. The purchase price includes specified owned equipment, subject to verification that the seller can transfer it as agreed. Some debt is secured by devices and some relates to other business borrowing.
A buyer needs a detailed asset schedule showing owner, serial number, location, financing, service status, software access, consumables, and proposed treatment at closing. Physical possession does not establish ownership or an unrestricted right to transfer the asset. A lease, subscription, license, or financed purchase may require a different solution.
How are earnings calculated before considering debt payoffs?
Assume net income is $189,000 after $27,000 interest and $72,000 depreciation. Reported EBITDA is $288,000. Add $14,000 documented nonrecurring expense and subtract $29,000 incremental staffing cost to reach $273,000 normalized EBITDA.
| Component | Amount |
|---|---|
| Net income | $189,000 |
| Interest and depreciation | +$99,000 |
| Reported EBITDA | $288,000 |
| Nonrecurring adjustment | +$14,000 |
| Incremental staffing | −$29,000 |
| Normalized EBITDA | $273,000 |
Adding interest and depreciation back does not make equipment free. The debt balance is addressed in the equity and closing-cash bridge, while service, replacement, upgrades, and new purchases need an operating capital plan. Each belongs in the model without being confused with the earnings adjustment.
What does a capital-spending allowance show?
Assume $55,000 annual equipment and other capital allowance. Subtracting it from $273,000 EBITDA gives a $218,000 simplified cash proxy before debt service, taxes, and working-capital changes. The allowance is invented, not a device replacement benchmark or an estimate derived from a depreciation schedule.
Build a real forecast from device age, condition, utilization, maintenance records, service contracts, parts availability, software, clinical needs, and expected demand. A machine may remain useful after accounting depreciation ends, or need replacement while its loan balance remains substantial.
The FDA aesthetic-device resources describe device categories and regulatory considerations. Approval, clearance, authorization, intended use, ownership, maintenance, and financial value are separate questions. An FDA reference does not appraise a used machine or establish that every proposed service and operator arrangement is permitted.
How does the assumed price range work?
Invented sensitivity factors of 3.4 and 4.1 applied to $273,000 produce $928,200 and $1,119,300. Assume a negotiated $1.025 million price for the defined business and included assets. These factors are teaching assumptions rather than observed device-heavy med spa transaction multiples.
If the price already includes the devices needed to earn the modeled EBITDA, do not automatically add their original invoice amount again. Conversely, excluded assets, newly required equipment, or unusual surplus property need explicit treatment. Identify exactly what the proposed price buys.
The seller’s loan balance is not the device’s value. Debt may exceed realizable value or be far below it. A buyer should inspect condition and transferability and obtain suitable valuation advice where needed, rather than using either book depreciation or payoff figures as a substitute for asset analysis.
Which payoff information is needed?
- Match every financing agreement to its borrower and collateral.
- Obtain current lender payoff statements valid for the expected date.
- Identify per-diem interest, fees, prepayment terms, and permitted payment instructions.
- Confirm lien-release and ownership-document requirements with counsel.
- Resolve leases, software, warranties, and service contracts separately.
- Reconcile the settlement statement to actual funding and release evidence.
A seller-prepared spreadsheet can organize the request, but it is not final lender evidence. The closing team needs to understand whether a lien covers a single device, several assets, or broader business collateral. A release for one obligation may not remove another creditor’s claim.
The SBA management resources include financial and transition planning. They do not determine secured-creditor rights or establish the adequacy of closing documentation. Qualified legal and closing advisers must address the actual contracts and applicable filing system.
How much cash is deducted for existing debt?
Assume $146,000 device debt and $89,000 other debt are paid from seller consideration. Total debt payoff is $235,000. This illustration assumes the buyer does not separately assume these obligations. A different allocation would require a different enterprise-to-equity and sources-and-uses bridge.
Do not subtract the same payoff from the price and again from the seller’s cash unless the first figure was defined before debt. Label each number. “Business value,” “equity price,” and “cash at close” are often used loosely in negotiations, making a correct calculation appear to conflict with another party’s summary.
The final payoff can differ from an early estimate because of payments, interest, timing, or fees. Refresh the model before closing and document the difference. If consideration is fixed, a larger payoff generally changes seller cash under this assumed structure; it does not automatically increase what the buyer agreed to pay.
What are the seller’s immediate proceeds?
Assume $922,500 closing cash and a $102,500 seller note, totaling $1.025 million consideration. Deduct $146,000 device debt, $89,000 other debt, $44,000 fees, $33,000 escrow, and an $11,000 separate closing adjustment. Immediate cash before taxes is $599,500.
An arbitrary hypothetical $121,000 tax-planning reserve leaves $478,500 unreserved immediate cash. The IRS business-sale guidance explains why different assets and allocation can have different tax consequences. This reserve does not estimate depreciation recapture, taxable gain, or a recommended tax rate.
The CPA needs asset basis, depreciation history, allocation, entity structure, note terms, and actual consideration. Paying off a loan does not itself establish the tax basis of the device or determine gain. The $102,500 note and $33,000 escrow remain separate timing and collection exposures.
What should happen if a payoff or release is unresolved?
The parties should use the agreement and qualified closing advice to determine a supported solution. Possibilities might include delayed closing, a documented payoff mechanism, a narrowly defined escrow, replacement evidence, or termination. No particular mechanism is assumed available or legally sufficient in this case.
A broad assurance that the seller will “take care of it later” leaves the buyer exposed and can create disputes about control of the asset. The seller also needs to know which funds are withheld and when they can be released. Define the underlying issue and completion evidence rather than relying only on a dollar holdback.
Coordinate equipment handover with qualified personnel, service arrangements, and ordinary operations. A financially clean transfer can still fail operationally if software access, supplies, maintenance, or training are missing. The asset schedule should support a working transition rather than only a closing inventory count.
How does this example connect the different numbers?
Use the valuation hub, seller roadmap, buyer hub, and operations guidance. Review the diligence guide, Four-Number Med Spa Valuation Screen, and offer-to-proceeds bridge while replacing the assumptions with actual records.
The case separates normalized earnings, capital needs, assumed transaction value, debt repayment, tax planning, and available cash. Keeping those measures distinct helps both parties understand why a business price and a seller’s bank deposit differ without pretending the missing difference is an unexplained valuation loss.
What else do owners and buyers ask?
Is equipment loan balance a reliable measure of equipment value?
No. Loan balance, original cost, book value, replacement cost, and realizable resale value measure different things. Review actual condition, use, service support, transferability, and market evidence with appropriate advisers. A heavily financed machine may be worth less than its debt, while a paid-off asset can still have useful value.
Should the buyer add device value to an EBITDA-based price?
First define what the price includes. If the operating devices needed to generate the modeled earnings are already included, adding their value again can double count them. Excluded, surplus, or newly required assets need explicit treatment. The agreement and financial model should identify the asset perimeter and any separate consideration.
Does adding depreciation back eliminate equipment replacement costs?
No. EBITDA removes an accounting expense but does not fund future capital needs by itself. Review age, condition, utilization, service records, software, parts, and expected demand to build a capital plan. Debt service, taxes, and working capital also affect cash, so EBITDA should not be presented as unrestricted owner distributions.
Does paying off device debt determine the seller’s taxes?
No. Debt payoff affects closing cash, while tax consequences depend on basis, depreciation, allocation, entity structure, payment form, jurisdiction, and other facts. The hypothetical reserve is not a tax calculation. A qualified CPA should model the final transaction and reconcile the actual asset schedule and financial records.
Which sources support this guide?
Sources were checked during research. Regulations, lender policies, and market conditions can change. Use the linked primary material and your advisors to confirm applicability.
- Aesthetic and cosmetic devices: intended uses and regulatory status — U.S. Food and Drug Administration
- Manage your business: finances and transitions — U.S. Small Business Administration
- Sale of a business — Internal Revenue Service
Educational analysis prepared with AI-assisted research for The Med Spa Broker. “Last reviewed” records the source and editorial check date; it does not imply review by an attorney, clinician, or independent appraiser. Read our editorial standards.