How do you all incorporate owners salary into valuations?

August 25, 2025

by a searcher from Northwestern University - Kellogg School of Management in San Diego, CA, USA

Just curious how rest of you all look at it. Hypothetically if EBITDA is 250k and owners salary in backs is 200k. This is how I look at it. I would consider cost of replacing the owner, let’s say is 120k. So I would only add back 80k to the ebitda. So at a 3x, it would be like (250+80)x3=990k. Feels like a lot of sellers include their entire salary to arrive at their asking price, which is creating higher discrepancies between my valuation and theirs. Just like to hear how you all think through it. Appreciate your advice in advance.

Reply by an intermediary
from Wake Forest University in Winston-Salem, NC, USA

(1) $250k unadjusted EBITDA + $200k Owner Salary = $450k SDE (use for Price/SDE multiples) (2) $450k SDE - $120k Normalized Owner Salary = $330k Adjusted EBITDA (use for Price/EBITDA multiples) (3) $450k SDE - CapEx - salary is sufficient to cover your personal living expenses, housing expense, personal debts, and income taxes = Personalized Numerator for DSCR Note, in a perfect world with perfect comps, the value derived using SDE and relavant P/SDE and EBITDA and relavant P/EBITDA yields the same value.

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

You are taking the right approach. The issue we often see is exactly what you stated. They add back 100% of the seller salary but do not adjust for an operators / owners salary, so you need to make that adjustment. Furthermore, if you are using SBA financing, you need to be sure the salary is sufficient to cover your personal living expenses, housing expense, personal debts, and income taxes. If you have additional questions or need assistance or someone else to run the cash flow analysis from a lending perspective, we offer a free review. You can reach me here or directly at redacted

+21 more replies.

Join the discussion