Join the presenter, Matt Matrisian and other participants following Friday's Live Virtual Seminar (5/23,3:00 PM ET) as they share thoughts about the presentation.

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 On behalf of FPA, I'd like to thank Matt Matrisian for his time today. We had a questions left at the end of the session, from Fred, who writes:

How do you determine the owner's share as "profit" vs. salary for services to replace his/her labor and services to the business (that would have to be replaced)

 I have a great income from my practice, but if sold, the buyer would have to replace my position.  therefore my income from the practice is part salary for my duties, & part business profit.  How do I determine the split?  Especially when i have no idea what I would have to pay someone to do what I do, the hours, etc.

 Hi Fred,

There are a couple ways, one the Moss Adams recommends is to assume you are an employee of a wirehouse and receive a 35% payout (this is compensation for labor).  The remaining net income after operating expenses is your profit (compensation for risk in running the business.  So you can use this 35% of revenue as a guideline for what you would pay yourself.  Other methods would be to review compensation and staffing studies by the FPA - they will breakdown median owner salaries based on the size of the firm or go to www.salary.com to look at compensation for financial advisors in your area.  Be careful with this approach however because it is usually low and assumes an inexperienced advisor.  Ultimately if you don't have any other partners I think something in the 30% - 35% of revenues is a safe estimate.

Thanks,

Matt

 Fred,

Your issue is a common one.  When we determine valuation we often have to "normalize" or adjust income statements to account for a realistic owner salary versus everything just dropping down to Net Income.  The best way to do this is by the methods I mentioned in response to your other post - use industry data or compare to employee model.

-Matt