What is owners compensation?

Yes, the FULL compensation paid to the primary owner-operator must be entered (all salary, payroll tax burden and perks). The hypothetical buyer is filling the shoes of the selling owner-operator and will have access to ALL of this compensation.

The only time you "adjust to market" is when there is a second owner (or 3rd, etc.) or if there is a family member who is paid more or less than market compensation.

Our algorithm is based on both multiples of revenue and multiples of earnings. And yes, the small size of the company impacts the relative mix of the revenue versus earnings multiples used to reach the final value. By unilaterally increasing the owner compensation (without simultaneously decreasing the pretax income which should be done), the mix of revenue versus earnings multiples changed with the apparent result being a lower value.

The important point, however, is to make sure the owner comp is entered correctly in the first place. If the owner salary was $127K, adding a 7% payroll tax burden of $9K would increase the owner comp entry to $136K. If this owner was the beneficiary of any "perks" such as auto expenses, health insurance, discretionary travel/meals/ent., etc., this amount too should be added into owner comp. If this is done correctly, a reasonable estimate of value will emerge.

The system was not built specifically to handle "sensitivity analysis"; rather it is geared to mimic the primary methods used by business appraisers when valuing owner-operated companies.