Owner's Salary

by a searcher from Harvard University - Harvard Business School

6 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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14 comments

professional from University of Toronto

^Searchfunder member‌'s response above is spot on: "The correct approach for valuation purposes is to "normalize" the salary for one working owner (or a manager)....The important thing to remember is you are adjusting for "market rate salary" for this particular job/responsibilities. It is not about how much you need to make."

6 months ago | like reply | 1 like

lender from Eastern Illinois University

For valuation purposes you should remove a fair market salary. When it comes to lender underwriting, the lender will likely need to adjust for whatever salary you need to cover your living expenses. If what you technically need to live on is less than market salary, it will enhance the cash flow. If what you need to cover living expenses is more than market salary, then the lender is going to use the higher number in calculating cash flow available to service debt. So just be aware of this if you think you need to take a salary that is above market post acquisition.

6 months ago | like reply | 0 likes

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