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How am I doing: Is an Owner’s Paystub the answer for Business Owners?
There is a stark contrast between the financial clarity that employees and entrepreneurs receive on a regular basis. Entrepreneurs rarely know how much financial reward (or punishment) they are receiving by taking the unpredictable entrepreneurial path through life by starting their business. Employees have paystubs from their employer advising of what they have earned and clarity of what is in their bank account, market investments, value of real estate and what is owing on their mortgage.
What if we as accountants could help give entrepreneurs and business owners the financial clarity from operating their businesses that is similar to what employees receive. An Owner’s Paystub.
Business owners often have knowledge of payments from their company, as salary, bonus, or dividends, though not usually in one report. They also can know what the business bank and investment account balances are with monthly statements, but they may not have any regular insights into the value of their largest, most significant investment – their business. Most monthly financial reporting systems provide owners with helpful month-end accounting and operational reports focused on the operations of the business. What if the monthly reporting could go one step further by informing the owner of the change in underlying value of their business.
The Owner’s Paystub was created for a few of our clients to encapsulate the ongoing wealth generated from operating the business: realized returns, such as salary, bonus, or dividends; and unrealized returns from incremental changes to the value of the business. The wealth generated by entrepreneurs is more than just the salaries or dividends drawn from the company, but also the strengthening of the balance sheet and the changes in business valuation metrics such as EBITDA or revenues and their effect on the value of the business. The Owner’s Paystub brings attention to these relevant details in a consumable report, typically monthly, which provides business owners with an overall picture of the financial rewards of owning and running the business – financial clarity.
The Owner’s Paystub helps entrepreneurs understand and quantify what effect the business performance has on their personal financial position and net worth. Owner’s often have a “feel” for how they are doing, the Owner’s Paystub allows them to have a clear picture of the value of the business to them now and in their future.
Knowing when to sell a business is rarely clear. Often, business owners sell or try to sell their business when it is difficult to maximize the return, such as during an industry decline; owners nearing retirement age; or sudden health issues with no succession plan in place. The Owner’s Paystub can help focus the owners’ attention on the potential value of their business and review the changes over time to better understand any trends affecting the value. This helps owners stay on top of business sale planning to maximize wealth, assess retirement readiness and enhanced clarity regarding the biggest financial investment of their lives.
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