When you’re preparing to sell your business, one key number will shape your outcome. Profitability. But not just what’s on the surface, but what the new owner will actually earn.

That’s where owner’s earnings add backs come in. It’s a standard move in business appraisals, and here at Sherpa, it’s how we help you tell the real story of your business’s earning power.

Let’s break it down.

What Are Owner’s Earnings Add Backs?

When a business broker or our valuation tool adds back owner’s earnings, we’re adjusting your financials to show what a buyer would likely make from the business based on how much you currently take out.

This gives potential buyers a realistic sense of return on investment. After all, if they’re going to run the business, they want to know what’s in it for them.

Why Not Just Use the Profit Line?

Because it’s misleading.

Most owners pay themselves in a way that doesn’t reflect market conditions. Some underpay themselves and reinvest the rest. Others draw large salaries that don’t reflect the true cost of hiring someone to do the same job.

So we adjust for that, because buyers need numbers they can trust.

How Do We Normalise the Numbers?

Here’s how it works.

If you underpay yourself, for example take a small salary while working full time, we’ll add back more to reflect the real value of your contribution.

If you overpay yourself, we adjust it downward to match what it would cost to hire a comparable manager.

If your business runs under management, we deduct a market rate manager’s salary from your profits to reflect hands off operations. Bonus. Buyers love this. Management run businesses often attract higher valuation multiples.

What’s the Point?

Transparency and confidence.

Buyers don’t want guesswork. They want clean, comparable numbers that help them make fast, informed decisions. That’s what Sherpa delivers through our automated tools.

This process also helps level the playing field. Two businesses with similar revenue can have wildly different owner involvement and salary structures. Add backs help clarify which one is the better opportunity.

Key Takeaways

Owner’s earnings are added back to reflect what a buyer would actually earn.

Adjustments are made to normalise below or above market salaries.

For under management businesses, a manager’s salary is deducted to reflect passive ownership.

The goal. A true, transparent, and buyer friendly view of your business’s earning potential.

At Sherpa, we believe the best person to sell your business is you, and we’re here to make you look good doing it. The clearer the pricing, the better your chances of attracting qualified buyers and commanding a premium price.

Want to see what your business might be worth?

Get Your Valuation.