When an owner is asked how much their company earned last month, usually they turn to their net income.  That can be a good answer for a larger company, however, for other firms, a different number comes to mind.

For many businesses, the real bottom line is what the owner/president took home.  I have seen several situations where the net income for the company is pretty skinny, but the president had a salary of 200k or more plus some other benefits.

Suddenly the light net income doesn’t look so light anymore.

Add back in other things besides salary to see what the business generates for the owner:

• Retirement plans.
• Extra insurance.
• Travel and entertainment.
• Contributions.
• Other reimbursements.

Business brokers know this.  Usually they will add back the owner’s compensation and other benefits to the net income of the company to show the total income that the business could generate.

One company could be making 300k and anther making 500k, yet the company generating 300k could be making more money for the owner based on the salary and reimbursements.

Another reason to look beyond net income is that this income might be going back into the business.  If the company is growing, money could be re-invested into receivables and inventory.  The net cash generated from the operation might be much less.

To help highlight what the business is really bringing home for the owner, I highlight this on the owner’s version of the income statement at clients where this fits.   That way, the owner sees the real bottom line - what the company brings home for him/her. 

If that fits your business, does it show somewhere in a memo line at the bottom of your income statement?  Can you point to anywhere and show what the business has brought home for you?