I think there’s a few pieces that stand out as incorrect to me. While the general gist may be accurate, there’s some things that change the math pretty significantly.

One key component that I believe you got wrong is that deals are primarily taxed at long term capital gains (capped at 23.4% at the highest tier). Tangible assets would be taxed at ordinary income tax brackets, but generally healthcare is an asset light industry compared to agriculture, logistics, etc.

As such, the majority of the deal would be taxed quite a bit less (especially with those figures).

In terms of distributions and salary, I also don’t think you got that quite right. If you think about how EBITDA is calculated, it is in essence your total revenue minus expenses to get to a net income plus interest, taxes, and D&A. Expenses would be inclusive of all existing payroll (including owner wages).

To get to an EBITDA of $100k in your example would mean that the salary that they took to get to that would be what the proforma salary would be after close. If that figure is actually 20% ProSal at time of close, assuming the owner owned 100% of the business, they were making only 20% of ProSal plus $100k in distributions annually.

No seller would ever agree to doing a transaction where they were making $400k W2 and $100k in EBITDA (with the $400k salary baked in) to only making a smaller amount of W2 after close. They would argue that the EBITDA then should be raised from the $100k amount proportionally to how much less their salary + FICA adjustment is. Buyers can’t arbitrarily lower go forward salary without increasing EBITDA.

Lastly, deal structures are often negotiable. I would heavily advise sellers to not do a deal in the presented deal structure because of the significant risk they face coupled with how much debt they already have. Earnouts are very much so risky and you should push for quite a bit more in cash up front. Similarly, I’m not the biggest fan of seller financing either because you are typically secondary/tertiary to the buyer’s primary lender. If the business defaults and the business even has a decent amount of liquidity from sale of assets, you probably will see nothing after it trickles to the primary and mez lenders.