Owner's Salary

by a searcher from Harvard University - Harvard Business School

11 months ago

When valuing a company, I understand the correct thing to do is to remove the current owner's salary (and any other salary that will no longer be necessary) and add the salary for a new manager if necessary (which would be myself). 

Is this generally correct? 

What is a reasonable salary to include for oneself? How should this be calculated? 

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intermediary from University of Arizona

It also depends on the size of the deal and the new owner’s role in the business as well as the current owner’s role. If they are working 60 hours a week then a portion of those hours should be accounted for with another employee. For the first year you will be working 60 to 70 hours per week AFTER that adjustment in any case. That’s the norm for a new owner and don’t let anyone convince you otherwise.

1 month ago | like reply | 0 likes

searcher from Deakin University

It's essential to scrutinize the owner's compensation in EBITDA calculations, as an unreasonably low salary can distort the true profitability of a business. Searchers should ensure owner compensation reflects market standards to make informed decisions. While SDE is useful for smaller businesses, insisting on realistic EBITDA adjustments is crucial for accurate evaluations. Always align with industry norms to avoid surprises post-acquisition.

4 months ago | like reply | 0 likes

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