Would you be better off employed, with your money invested elsewhere?
The profit left once the owner is paid a market salary for their role and a fair return on the money they have put in. It is the clearest test of whether the business is truly creating value for its owner.
Get a finance reviewProfit before owner pay − Market salary for the owner's role − (Owner's capital × Required rate of return)
Positive and growing means the business is creating value for its owner. Zero or negative means the owner is subsidising it with their time or money.
Profit before owner remuneration, less a market-rate salary for the work the owner actually does, less a reasonable return on the capital the owner has invested or left in the business. It is the owner-managed version of what large companies call economic profit.
Many owner-managed businesses look profitable only because the owner is underpaid, or because the owner's capital is treated as free. Once both are priced in, the true position can be very different. This measure answers the question most owners never ask directly: whether the business is rewarding their time and money better than a job and an investment would. It also shows buyers what the business earns without the owner, which drives its value.
Set the market salary based on what it would cost to hire someone to do the owner's actual role, not what the owner takes. Use a realistic return on capital, such as what the money could earn in a low-risk investment plus a premium for risk. Include all owner benefits paid through the business. Review it annually, alongside the trend in the business's value.
Most owner-managed businesses don't, or they work it out in a way that flatters the result. We'll calculate it from your own numbers and show you what it's telling you.
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