In Step 3 – Income and Expenses – Officer Compensation: Should this include all Officers or just Owners?

Note that each line item has a couple of icons to the left which provide additional clarification, so make sure to read these as well.

The answer is that this line should include ALL of the actual compensation paid to a single owner working on a full-time basis. If there are multiple owners and they are being paid more or less than a market wage, then another adjustment is required. For example, if a second owner is being paid more than a market compensation level in the amount of say $50K, then the officer compensation amount should be increased by $50K. If the second owner is being paid less than a market compensation, the officer compensation amount should be decreased by $50K.

All of this is to reach an earnings level that will be available to a hypothetical new owner-operator/buyer.

In summary, include all of the actual compensation paid to a single or primary owner-operator (including salaries, benefits) and then adjust this amount if the other two owners are being paid more or less than a market level compensation. Think in terms of a hypothetical buyer coming in and replacing the primary owner and having to hire replacements for the other two owners who are departing.