This illustrative example follows a physician assistant evaluating a $1.24 million med spa acquisition. It separates professional ownership feasibility from lending, calculates $292,000 normalized EBITDA, and models $1.55 million total buyer uses. The assumed capital stack includes buyer equity, SBA debt, and a full-standby seller note without promising approval.
What is being acquired in this teaching case?
Assume a physician assistant wants to buy a med spa with $2.25 million annual earned revenue. The business has staff and systems, but the buyer must establish an appropriate ownership, clinical, and management structure for its state and services. Professional training does not resolve that question by itself.
The example assumes qualified healthcare counsel can support the final structure. That assumption must be verified before a real purchase. The California Medical Board’s medical spa guidance illustrates why ownership and professional roles matter; it is a California source rather than a nationwide rule for PA buyers.
How are the earnings normalized?
Assume $253,000 net income, $29,000 interest, $34,000 depreciation, and $11,000 amortization. Reported EBITDA is $327,000. Add $17,000 documented nonrecurring expense, then subtract $32,000 incremental clinical coverage and $20,000 incremental management cost. Normalized EBITDA is $292,000.
| Component | Amount |
|---|---|
| Reported EBITDA | $327,000 |
| Documented nonrecurring adjustment | +$17,000 |
| Incremental clinical coverage | −$32,000 |
| Incremental management | −$20,000 |
| Normalized EBITDA | $292,000 |
The calculation assumes these replacement costs are additional to recorded expenses. The buyer should map each seller duty to a future responsible person, budget the total cost, and reconcile the difference. Its own clinical work, management time, and desired personal income cannot all be treated as free resources.
How does the assumed price relate to earnings?
Invented sensitivity factors of 3.8 and 4.5 applied to $292,000 produce $1,109,600 and $1,314,000. The factors are teaching inputs, not observed SBA med spa transaction multiples. Assume the parties agree to $1.24 million consideration after their own negotiations and diligence.
The agreed amount consists of $1.116 million closing cash and a $124,000 seller note. A deferred payment does not reduce the total purchase obligation, even when no immediate payment is required. The buyer must understand its terms, maturity, security, subordination, and eventual repayment exposure.
Price reasonableness, lender-required valuation, equity sufficiency, clinical feasibility, and personal affordability are separate tests. Passing one does not satisfy the others. The lender must receive the actual terms and financial corrections, rather than a simplified summary that leaves out the seller’s continuing financial interest.
Why do total buyer uses exceed the price?
Assume $95,000 acquisition and financing costs, $65,000 immediate equipment spending, and $150,000 working capital. Add these to the $1.24 million price: total uses are $1.55 million. The equipment amount is separate from the purchase price under this illustration; a real model must verify whether assets are already included.
| Uses | Amount | Sources | Amount |
|---|---|---|---|
| Purchase price | $1,240,000 | Buyer equity | $205,000 |
| Costs | $95,000 | Assumed SBA loan | $1,221,000 |
| Equipment spending | $65,000 | Full-standby seller note | $124,000 |
| Working capital | $150,000 | Total sources | $1,550,000 |
| Total uses | $1,550,000 |
A balanced table establishes arithmetic only. The lender must approve costs, eligible uses, sources, timing, documentation, structure, and required borrower support. The buyer also needs liquidity outside the transaction for personal needs and unexpected operating shortfalls.
What does current SBA policy actually establish?
The SBA 7(a) overview includes ownership changes among possible loan uses. It does not promise financing for this buyer or structure. The October 1, 2026 SOP 50 10 8.1 update distinguishes initial acquisitions from business expansions, owner buyouts, and other categories. Appendix 15 must be read with the applicable requirements and current notices.
For this illustration, assume the lender classifies the deal as an initial acquisition and accepts $1.55 million as the relevant total project cost. The stated ten percent minimum is $155,000, while buyer equity is $205,000. The $124,000 seller note is not counted toward the required injection in this model.
Meeting that simple comparison does not establish eligibility or approval. Source verification, liquidity, valuation, underwriting, guarantees, collateral, clinical structure, and other conditions remain lender questions. Category-specific exceptions and reductions should not be imported from a different acquisition category.
What does full standby mean for this seller?
The teaching note has no principal or interest payments during the SBA loan term and is subordinated as required by the final lender-approved documents. This assumption is materially different from a normal amortizing seller note. The seller must evaluate a long wait for repayment and the associated credit risk.
The current SOP includes conditions for seller debt used as an eligible injection source, including full standby and limits on specified equity sources. This example avoids relying on the note as injection. The lender must nevertheless approve the actual seller debt and the full capital structure.
Do not put ordinary monthly note payments into the buyer budget while telling the lender the same note is on full standby. The signed documents, closing statement, projections, and parties’ expectations must agree. Any permitted change requires lender and legal review rather than an informal side arrangement.
Does the modeled cash flow support the debt?
Assume annual SBA debt service of $216,000 as a planning input, without claiming a particular rate or amortization quote. Dividing $292,000 normalized EBITDA by $216,000 gives approximately 1.35 times. That is a simple illustrative ratio rather than the lender’s prescribed debt-service calculation.
The October 2026 SOP states a 1.25 minimum debt-service coverage ratio for initial acquisitions, with category-specific calculations, periods, and adjustments. The lender must calculate the actual test and assess the underlying evidence. This example’s ratio does not prove compliance or payment capacity.
Stress revenue, staffing, capital spending, working capital, and the buyer’s personal needs. Annual EBITDA is not the same as cash available every month. A note on standby does not eliminate the business’s exposure to rent, payroll, device maintenance, refunds, inventory purchases, or slower collections during transition.
What evidence should support the buyer’s personal budget?
The buyer should prepare a separate household budget and document cash remaining after the $205,000 investment. Business working capital is not the same as a personal emergency reserve. If the buyer plans to replace clinical or management costs with personal labor, reconcile hours, professional authority, realistic capacity, and compensation needs rather than simply removing the expense.
Obtain an actual lender term sheet before treating $216,000 debt service as usable. Fees, closing timing, permitted uses, collateral requirements, and payment structure can change the complete funding model. Refresh sources and uses when the diligence budget or purchase agreement changes, then confirm every source remains available.
What does the seller receive after obligations?
From $1.116 million closing cash, deduct $163,000 existing debt, $58,000 transaction fees, and $36,000 escrow. Immediate cash before taxes is $859,000. An arbitrary hypothetical $171,000 tax reserve leaves $688,000 unreserved immediate cash.
The IRS business-sale guidance explains the importance of asset allocation and tax character. The reserve is not a calculated liability, recommended rate, or statement about the tax treatment of this seller note. The CPA must model actual facts and timing.
Use the buyer hub, seller roadmap, valuation hub, and operating guidance. Consult the SBA acquisition guide, Four-Number Med Spa Valuation Screen, and offer-to-proceeds bridge while replacing every teaching assumption with verified deal evidence.
What else do owners and buyers ask?
Does a PA automatically qualify to own a med spa?
No. The answer depends on the state, entity, services, professional ownership rules, clinical responsibilities, and proposed structure. A professional license does not establish every ownership or control right. Qualified healthcare counsel should verify the actual arrangement independently of whether a lender is willing to consider the financing request.
Is the seller note included in the buyer’s equity injection here?
No. The teaching model assumes $205,000 buyer equity and separately includes a $124,000 full-standby seller note. The lender must approve both sources and the actual project-cost calculation. Current SBA policy has conditions for seller debt used as injection, but this example does not rely on that treatment.
Does a 1.35 illustrative coverage ratio mean the loan is approved?
No. It is a simple planning calculation using assumed debt service and normalized EBITDA. The lender must apply current policy, required periods, prescribed adjustments, and its own underwriting. It must also evaluate eligibility, professional structure, valuation, funding sources, management capacity, collateral, guarantees, and the evidence supporting projected operations.
Can the seller collect monthly payments while the note is on full standby?
Not under the example’s assumed full-standby terms, which allow no principal or interest payments during the SBA loan term. Actual documents must follow the lender’s requirements. The seller should understand subordination, repayment timing, credit risk, and collection rights before accepting the note rather than relying on a separate informal arrangement.
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
- 7(a) loans and ownership changes — U.S. Small Business Administration
- SOP 50 10 8.1 Technical Policy Updates, effective October 1, 2026 — 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.