This fictional acquisition uses a $760,000 assumed price and a $456,000 amortizing seller note. It separates $321,000 working-owner SDE from $117,000 managed EBITDA, then calculates buyer funding and note payments. The seller’s immediate unreserved cash is $114,000 after debt, fees, escrow, and an arbitrary hypothetical tax reserve.
What is the fictional injector business?
Assume a single-location injectable-focused business earns $1.1 million annual revenue. Its owner supplies substantial clinical work and some management. A prospective buyer proposes to work clinically while relying on seller financing for part of the purchase. The buyer’s professional role and lawful ownership structure need separate verification.
This example does not assume that an injector license authorizes business ownership, every treatment, or independent clinical control. The California medical spa guidance demonstrates why state-specific professional rules matter. Qualified healthcare counsel should assess the actual buyer, services, entity, and operating arrangement.
How do SDE and managed EBITDA differ here?
Assume net income of $132,000 after $13,000 interest and $24,000 depreciation. Add $8,000 documented personal expense and $6,000 nonrecurring legal expense. Normalized EBITDA is $183,000. The accounts also contain $138,000 owner compensation.
Adding that owner compensation produces $321,000 working-owner SDE. It represents one defined owner’s compensation and business earnings together, not passive cash available after hiring every replacement. A buyer needs to know exactly which duties and hours the owner performs.
| Measure | Calculation | Result |
|---|---|---|
| Normalized EBITDA | $132,000 + $13,000 + $24,000 + $8,000 + $6,000 | $183,000 |
| Working-owner SDE | $183,000 + $138,000 | $321,000 |
| Managed EBITDA | $183,000 − $40,000 − $26,000 | $117,000 |
The managed case assumes $178,000 replacement clinical cost, $40,000 above recorded owner compensation, plus $26,000 management. Subtracting the full $178,000 again from EBITDA would duplicate the $138,000 already expensed.
What does the assumed price range mean?
Invented factors of 2.0 and 2.5 applied to $321,000 SDE produce $642,000 and $802,500. Assume the parties negotiate $760,000. These factors are not sourced market multiples, lender-approved values, or recommendations for another injectable practice.
The managed buyer should not apply an SDE-based price discussion to $117,000 EBITDA without understanding the labor difference. The working buyer also cannot assume all $321,000 is surplus: it must support personal compensation, debt payments, capital spending, working capital, taxes, and risk.
Provider continuity is central to the modeled earnings. Determine whether patients return to the business, the specific injector, or both. Compare historical scheduling, repeat behavior, referrals, service contribution, and the actual transition plan. A seller’s willingness to train the buyer is useful evidence of intent but not a guarantee of retained production.
How is the buyer’s funding assembled?
Assume $304,000 cash consideration and a $456,000 seller note, together equaling $760,000. Add $42,000 buyer transaction costs and $78,000 opening working capital. Total uses are $880,000, funded by $424,000 buyer cash and the $456,000 note.
The buyer cash covers more than the down payment: $304,000 price cash + $42,000 costs + $78,000 working capital = $424,000. Ignoring the last two uses would understate the required funding even though the purchase agreement appears balanced.
This teaching structure is ordinary seller financing, not SBA financing. No standby treatment, government guarantee, or lender equity-injection rule is assumed. If another lender enters the deal, all debt, collateral, subordination, permitted payments, and closing conditions must be reviewed again.
What is the seller note payment?
Assume a $456,000 principal balance, eight percent annual interest, and 120 equal monthly payments. Using monthly rate 0.08 ÷ 12, the amortization formula is principal × monthly rate ÷ [1 − (1 + monthly rate)−120]. The modeled payment rounds to $5,532.54 monthly, or approximately $66,390 annually.
The rate and term are hypothetical commercial assumptions, not a market quote or a recommendation. The actual documents must define payment dates, interest, security, guarantees if any, prepayment, default, remedies, offsets, insurance, and reporting. Counsel should determine enforceability and any applicable restrictions.
The seller should evaluate the buyer’s ability to operate and repay rather than treating the note as equivalent to cash. Security can improve a position but does not eliminate loss. Specialized devices, patient relationships, or distressed business assets may not realize the assumed purchase value if enforcement becomes necessary.
What remains after debt and capital spending?
On the managed case, $117,000 EBITDA less approximately $66,390 annual note payments and a hypothetical $12,000 annual capital allowance leaves approximately $38,610 before taxes and working-capital changes. This simplified cash proxy is not free distributable income or a guarantee of affordability.
A working buyer may perform some of the clinical or management roles, but the budget must recognize the corresponding labor and personal income need. It would be misleading to claim both managed earnings and the full working-owner compensation as available without reconciling the same tasks.
Stress reduced visits, a slower handover, staff turnover, refunds, device repairs, and supply costs. Monthly timing matters because payroll and rent continue during a weak month. A seller-financed deal can be underfunded even when the headline down payment feels manageable and the annual model shows a positive balance.
How much does the seller have at closing?
From $304,000 closing cash, subtract $74,000 existing debt, $29,000 fees, and $18,000 escrow. Immediate cash before taxes is $183,000. With an arbitrary hypothetical $69,000 tax-planning reserve, unreserved immediate cash is $114,000. The note principal is a separate $456,000 exposure.
The IRS business-sale guidance and Publication 537 on installment sales show why deferred consideration requires its own tax analysis. Installment rules have conditions and exceptions, and payment timing does not create a universal tax outcome.
The example does not calculate taxable gain, basis recovery, recapture, interest income, or tax due in a particular year. A CPA must evaluate the actual assets, structure, allocation, and note. Do not divide the arbitrary reserve by the price and present the result as a recommended tax rate.
What reporting helps the seller monitor its credit exposure?
The parties can define a practical reporting package that includes financial statements, cash balances, debt status, insurance evidence, and agreed operating indicators. Access rights should respect privacy and professional boundaries. The seller should not retain informal control of clinical decisions merely because it holds a note.
Specify delivery dates, permitted uses, confidentiality, missing-report remedies, and the process for investigating concerns. Reporting does not guarantee repayment, but it can make deterioration visible sooner. The buyer should budget the administrative work and understand the commitments before signing instead of discovering an ongoing lender-style relationship only after the handover.
What should the parties negotiate beyond the down payment?
- Confirm the supported operating structure and buyer role.
- Reconcile earnings to the exact replacement duties.
- Budget all purchase, transition, and working-capital uses.
- Stress the note against operating downside.
- Define reporting, security, default, and dispute rights.
- Plan records, staff, patient, and seller handover responsibilities.
Use the buyer hub, seller roadmap, valuation guidance, and operations hub. Review the acquisition diligence guide, Four-Number Med Spa Valuation Screen, and offer-to-proceeds bridge while substituting verified evidence for the fictional inputs.
Neither party should evaluate this structure from the payment alone. The buyer acquires an operating obligation, and the seller retains a credit exposure. A useful agreement makes the responsibilities, economics, and consequences understandable before money changes hands.
What else do owners and buyers ask?
Why is SDE much higher than managed EBITDA?
SDE adds back one defined owner’s compensation, while managed EBITDA includes the cost of replacing the owner’s work. Here the clinical replacement costs more than the recorded pay, and management also needs funding. Neither figure is automatically wrong, but using them interchangeably would obscure labor, personal income, and financing needs.
Is the eight percent seller note rate a recommended market rate?
No. It is an invented input used to demonstrate amortization. Actual pricing depends on negotiations, risk, security, repayment ability, legal requirements, and other financing terms. The parties should obtain qualified advice and assess the complete note rather than adopting this teaching rate or payment as an appropriate offer.
Does seller financing make the purchase affordable?
It can reduce cash paid to the seller at closing, but it creates repayment obligations and leaves other buyer costs intact. Test complete sources and uses, personal income requirements, capital spending, working capital, and operating downside. A manageable down payment does not establish that the business can support the full acquisition.
Will installment payments automatically defer all seller tax?
No. Installment-sale treatment has conditions, exceptions, and different treatment for components such as interest and certain gains. The example does not calculate actual taxes. A CPA should review basis, allocation, assets, entity structure, payment terms, and timing using the final proposal before the seller treats deferred consideration as a particular tax result.
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.
- Medical spas: ownership and qualified personnel — Medical Board of California
- Sale of a business — Internal Revenue Service
- Publication 537, Installment Sales — 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.