Illustrative composite. Hypothetical illustration. This is not a completed transaction, client case, appraisal, lender approval or market comparable. Monthly timing, membership obligations, financial inputs, pricing factors, terms, target cash, and taxes are author-chosen assumptions.
What does the membership snapshot assume?
Use the valuation hub for the broader framework. This example separates annual earnings, a full forward cash schedule, and remaining membership promises.
Assume $3,400,000 revenue for the twelve months ending September 30, 2026. Book EBITDA is $420,000 after $130,000 owner pay.
The chosen nonrecurring expense is $20,000, and recurring replacement duties cost $180,000. These annual inputs do not directly derive the future monthly cash amounts.
| Snapshot input | Hypothetical amount | Defined basis |
|---|---|---|
| Annual revenue | $3,400,000 | Historical illustrative period |
| Book EBITDA | $420,000 | Owner compensation expensed |
| Owner compensation | $130,000 | Removed once |
| Nonrecurring expense | $20,000 | Assumed supported adjustment |
| Replacement duties | $180,000 | Necessary recurring work |
| Forward opening cash | $100,000 | Separate January 2027 cash model |
The forward receipts and payments below are separately chosen timing assumptions for January through December 2027. They are not a forecast derived from real records.
How are prepaid promises kept separate from cash?
Assume a separate accounting contract-liability balance of $80,000. The example does not calculate that balance from the membership count or service budget.
Assume 800 remaining covered visits with $90 direct cash cost each, totaling $72,000. Those modeled service payments are already included in the forward operating-payment column.
An assumed $40,000 of earlier prepaid cash is already inside the $100,000 opening cash. Do not record it as a new January receipt.
| Membership measure | Chosen scenario amount | Meaning |
|---|---|---|
| Earlier prepaid cash in opening funds | $40,000 | Included once in opening cash |
| Separate accounting balance | $80,000 | Different measurement basis |
| Remaining covered visits | 800 | Defined hypothetical population |
| Direct service cost per visit | $90 | Chosen cost assumption |
| Remaining modeled service payments | $72,000 | Already in operating payments |
FASB staff implementation material discusses stand-ready promises and upfront fees in its educational scope. It does not prescribe identical treatment for every plumbing plan.
IRS accounting-method guidance addresses tax timing separately. Collected cash, financial revenue, tax income, accounting liability, and service cost need distinct definitions.
The membership diligence guide helps review the real contract population and remaining duties.
What does the twelve-month cash schedule show?
For each month, start with the previous ending cash. Add receipts, then subtract operating payments, debt service, taxes, capital spending, and distributions.
The table displays thousands of dollars. Operating payments include the stated covered-service costs once and the pay required by the chosen operating plan.
| Month | Receipts | Operating | Debt | Taxes | Capex | Distributions | Ending cash |
|---|---|---|---|---|---|---|---|
| January | 240 | 230 | 8 | 0 | 0 | 0 | 102 |
| February | 210 | 235 | 8 | 0 | 20 | 0 | 49 |
| March | 220 | 240 | 8 | 15 | 0 | 0 | 6 |
| April | 260 | 245 | 8 | 0 | 0 | 0 | 13 |
| May | 280 | 250 | 8 | 0 | 25 | 0 | 10 |
| June | 310 | 260 | 8 | 15 | 0 | 0 | 37 |
| July | 330 | 270 | 8 | 0 | 0 | 10 | 79 |
| August | 320 | 270 | 8 | 0 | 0 | 0 | 121 |
| September | 290 | 260 | 8 | 15 | 0 | 0 | 128 |
| October | 270 | 250 | 8 | 0 | 20 | 0 | 120 |
| November | 250 | 245 | 8 | 0 | 0 | 0 | 117 |
| December | 260 | 240 | 8 | 15 | 0 | 0 | 114 |
January is $100,000 + $240,000 − $230,000 − $8,000 = $102,000. March is $49,000 + $220,000 − $240,000 − $8,000 − $15,000 = $6,000.
The full-year check is $100,000 + $3,240,000 receipts − $2,995,000 operating payments − $96,000 debt service − $60,000 taxes − $65,000 capex − $10,000 distributions = $114,000.
A positive December balance does not erase March’s low point. Inspect the entire horizon rather than only its final month.
The IRS recordkeeping publication supports receipts, payment evidence, and reconciliation. It does not prescribe a minimum-cash target.
How is the modeled support need calculated?
Choose $60,000 minimum target cash. This is a planning assumption, not a plumbing industry standard or lender requirement.
The lowest unfinanced monthly ending balance is $6,000. Support relative to the chosen target is $60,000 − $6,000 = $54,000.
| Support measure | Hypothetical amount | Boundary |
|---|---|---|
| Chosen minimum target | $60,000 | Explicit planning input |
| Lowest base ending cash | $6,000 | March in the stated pattern |
| Peak support relative to target | $54,000 | Before new financing |
| Optional assumed available capacity | $20,000 | Conditional comparison only |
| Uncovered optional comparison | $34,000 | If capacity meets timing and conditions |
The optional comparison subtracts $20,000 from $54,000. It does not insert financing into the base schedule or claim that a real lender has committed funds.
If cash is unavailable until after March, it cannot support March’s target. Required reserves, covenants, draw conditions, and other simultaneous uses also matter.
The working-capital guide covers negotiated delivered balances. A peak support need is a different measure from a working-capital peg or purchase-price deduction.
How does annual earnings normalization remain separate?
Start from $420,000 book EBITDA. Add $130,000 owner pay and $20,000 nonrecurring expense, then subtract $180,000 replacement duties.
The result is $390,000 normalized earnings: $420,000 + $130,000 + $20,000 − $180,000.
The quality-of-earnings guide connects those changes to real records. The full future cash pattern would need a supported bridge from relevant balances and assumptions in a real model.
The add-back guide explains needed recurring work. Do not remove modeled service costs merely because customers prepaid.
The $80,000 accounting balance is not added as another entire cash outflow, and the $72,000 service budget is not deducted again from operating payments.
What price range follows from the stated factors?
Choose arbitrary factors of 2.9, 3.4, and 3.9 for arithmetic only. They are not observed membership-business multiples, an appraisal, or a price recommendation.
| Arbitrary factor | Defined normalized earnings | Illustrative business price |
|---|---|---|
| 2.9 | $390,000 | $1,131,000 |
| 3.4 | $390,000 | $1,326,000 |
| 3.9 | $390,000 | $1,521,000 |
The midpoint assumes a debt-free, cash-free business with defined working capital and no real estate. Cash support and accounting obligations require real negotiated treatment.
The October 2026 SBA SOP update includes transaction-category and funding conditions. The cash worksheet supplies no financing approval or equity-source exception.
How does the structure reach immediate seller proceeds?
Allocate the $1,326,000 midpoint into $1,026,000 gross closing cash, $180,000 seller-note principal, and $120,000 held funds.
Assume seller debt of $235,000, transaction expenses of $61,000, and a $215,000 tax placeholder. These are separate from the future buyer cash table.
| Seller component | Hypothetical amount |
|---|---|
| Gross closing cash | $1,026,000 |
| Seller debt payoff | −$235,000 |
| Transaction expenses | −$61,000 |
| Tax placeholder | −$215,000 |
| Immediate modeled net cash | $515,000 |
Immediate proceeds are $1,026,000 − $235,000 − $61,000 − $215,000 = $515,000. Actual tax estimates require the taxpayer, basis, allocation, entity, and payment facts.
Future note payments and held-fund release remain separate and uncertain. The $54,000 support need is not automatically another seller deduction.
What is the transferable lesson from the monthly model?
ROSCA’s statute addresses covered internet negative-option transactions. The FTC’s March 2026 announcement describes an advance rulemaking process after the vacated 2024 rule; that announcement is not an operative final rule.
Review real renewal and cancellation rights alongside the remaining promises:
- Reconcile earlier prepaid cash to opening funds.
- Define remaining duties and count payments once.
- Build the full monthly horizon with separate cash categories.
- Find the low point and disclose the chosen target.
- Verify financing timing and actual contract requirements.
- Reconcile earnings, price, and proceeds independently.
The useful lesson is timing. This model ends with $114,000 cash yet requires $54,000 support to meet its chosen minimum during the year.