Why is Seller/Owner pay so low?

by a searcher from Emory University - Goizueta Business School

2 years ago

I'm seeing a common theme. I'm reviewing CIM's and the owner/seller pay is $120K or so (or less), with $1-2 Million in EBITDA.  Since I'm leaving industry to acquire, I surmise that I will need to pay myself the seller's current salary in order to calculate the ROI model for post-acquisition.  I understand that I may be able to negotiate with my investors a slightly higher salary, but why would the owner naturally suppress their own W-2 earnings?  Is there some sort of tax benefit that I don't know about?

4 likes
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31 comments

searcher from Duke University - The Fuqua School of Business

Building on others Total Comp comments, owners may receive compensation other than the easy to notice salary and owners draw. Especially if you’re talking to owner / operators that are active in the business. A company truck offsets a personal vehicle, golf meetings let you pursue a hobby while working with customers, lunch and dinner meetings offset your grocery bill, trips to conferences in fun locations means maybe you don’t need a vacation, use a personal points credit card for expenses and suddenly “ only” a 120k salary stretches a long way.

1 month ago | like reply | 0 likes

searcher from University of North Carolina at Chapel Hill

Ask about total compensation, as the others have mentioned, salary is only one component. Also, I would suggest you ask if the owner takes consistent or inconsistent draws from time-to-time. A lot of owners take a small salary and then take consistent draws to reduce their tax burden.

10 months ago | like reply | 1 like

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