Your salary may disappear after the sale. Your work will not.

An owner reviewing the company’s value wants their compensation added back to profit. The reasoning sounds straightforward: after the sale, the buyer will no longer have to pay them.

Who will do the work?

That question can change the earnings figure used in a valuation. It can also reveal why an owner who wants to retire is struggling to imagine how the business would operate without them.

Many discussions of business value start with an adjusted earnings measure. EBITDA, for example, means earnings before interest, taxes, depreciation and amortization. Adjustments try to make the reported results more useful for the particular analysis. They need evidence; calling an expense an “add-back” does not establish that the next owner can avoid it.

For owner compensation, the relevant issue is what work must continue and what it will cost under the assumed operating arrangement. Removing a salary while retaining the revenue can quietly assume that management, sales and customer problem-solving will become free.

Put the job beside the adjustment

Consider this simplified illustration, in Canadian dollars. The owner’s annual compensation costs the company $350,000, including salary, benefits and employer costs. A credible replacement package on the same basis is estimated at $220,000. The potential adjustment is $130,000, subject to supporting evidence and the rest of the earnings analysis.

Adding back the full $350,000 would omit the replacement cost. Subtracting another $220,000 after already making the $130,000 adjustment would count that cost twice. The calculation should be clear enough that the accountant, advisor and buyer can follow the same logic.

The illustration also depends on the replacement role being credible. A salary comparison for a general manager is weak evidence if the founder also leads technical work, owns the principal sales relationships and routinely covers purchasing.

Look at the owner’s actual week, including the brief calls and weekend interventions. Some work may belong with an existing employee who has capacity. Some may require a new hire. Some may no longer be necessary. The answer needs to reflect the company that will operate after the sale, rather than the founder’s current title.

Scale matters. In a small company, replacing the owner may require one capable operator with outside support. In a larger business, the responsibilities may already sit across a management team, leaving a narrower executive role to replace. A standard salary assumption applied to both can obscure more than it explains.

The uncomfortable adjustment can run the other way

An owner who pays themselves below market may have been supporting the company’s reported profit with underpaid work. A replacement at a sustainable cost can reduce adjusted earnings.

Family participation deserves the same examination. If a spouse manages payroll for little compensation, the work still has an economic cost. If a relative receives compensation without a continuing operating role, the treatment requires evidence of the arrangement and what will change. The fact that someone is family does not tell the analyst whether the expense should be removed, increased or left alone.

These conversations can feel personal. It helps to distinguish recognition of what the family contributed from the cost a buyer will incur. Years of effort may explain how the business reached its present position. They do not make a future manager, bookkeeper or salesperson less expensive to employ.

BDO’s sale-preparation guidance discusses reviewing compensation against the actual role, company and market, including both upward and downward earnings effects. The useful discipline is to consider both directions rather than treating the exercise as a search for additions to profit.

A particular buyer may already have management capacity and expect to absorb part of the work. That possibility belongs in the buyer’s own operating case. Keep it visible alongside the standalone replacement assumption. Otherwise, the seller may present a buyer-specific saving as an established feature of the company itself.

There may also be a period when both the founder and replacement are paid. Training, introductions and overlapping responsibility take time. A cost can be temporary and still need funding. Its treatment in adjusted earnings, the transaction budget and the negotiation should be explained consistently.

If a sale is several years away, this analysis can guide operating decisions now. You might give a manager responsibility for a recurring pricing decision, train another person to handle a supplier relationship or hire for a capability the business already needs. Observe the result before assuming the transfer has worked.

Do not hire an expensive executive solely because someone suggests it will produce a better multiple. The cost, timing and business benefit need their own assessment. The point is to build a supportable operating model that fits both the company and the owner’s intended departure.

Where I stand on this is firm. I will not accept an owner compensation add-back without a named role and a costed package behind it. If nobody can say who does the work and what that person is paid, the adjustment is an assumption, and the buyer’s advisor will treat it as one. Sellers lose more value defending unsupported add-backs than they ever gained by claiming them.

When the next valuation discussion reaches your compensation, ask to see the corresponding description of the work. If nobody can explain who will perform it and at what cost, the earnings adjustment is resting on an unfinished plan.

Discovering that gap early gives you time to address it. Discovering it after agreeing to retire shortly after closing can turn a valuation question into a problem with the life you expected the sale to make possible.