Owner Compensation & Effect On Valuation

A short but useful video from Josh Horn, a US based company valuer.

He talks about how the size of the owner compensation influences the value of the business. In short, a high owner compensation “sucks” the value out of the business. A low owner compensation has the effect of making the profits, and therefore the valuation, look artificially high.

For the British viewer, here are some translations:

W2 payments = PAYE
attorney = lawyer
C Corporation = Ltd company (sort of)
S Corporation = PLC (sort of)

Watch the video here.

Other valuation articles.