What Exactly is Owner Benefit?

By: Jonathan Godwin

I get emails nearly every day from CPA firm brokers advertising CPA firms around the country that are for sale. These sales offerings have begun referencing an interesting metric called “owner benefit.”

What is this metric? It’s a measure of how much profit/cash/benefit the owner receives on an annual basis. The stronger the owner benefit, the more attractive the business. If the offer package doesn’t mention owner benefit, that may signal trouble.

It made me think about my own business as well as yours. Owner benefit is measured in several ways, but some of the more common ways are:

  • Salary or owner draws

  • Insurance premiums paid – health, life, disability

  • Shareholder distributions

  • Home office benefits if the business is remote or virtual

  • Automobile benefits (the company may own or lease the auto, or there may be mileage)

Even if you aren’t looking to sell your business, receiving a high owner benefit from your business creates an enormously positive psychological reaction to how you feel about your work. If you worked for someone else, you would regard high compensation as a positive statement about your work. The hidden advantage of a fair owner benefit is that it forces you to evaluate the true profitability of your business and make changes to run it in such a way as to preserve that owner benefit for the long term.

I have counseled clients through periods where they felt they needed to reduce their pay so they could keep other employees paid. This action may be OK for a very short period (think COVID), but it isn’t a long-term strategy for success. I don’t feel that it’s a good idea for a key employee to be paid more than the risk-taking owner unless that owner isn’t involved in running the business (ownership without active participation).

If you feel that you need to revisit your owner benefit, let me know. We have helped so many of our clients assess their owner benefit and restructure their compensation to make sure they’re paid what they’re worth to the business. It’s not just simple math, but it’s worth the work.

Three Recommendations:

  1. Review your owner benefit

  2. Assess whether you are being adequately compensated (not only what you need to live, but are you being paid for the value you bring to your business)

  3. What is your market wage, and how can you reach that compensation level?