You may have heard of the concept of economic value added. This is where a company will look at the return that it generates and then reduce that number by the cost of capital for the business to come up with the value added that’s been generated by the business during the year.

There’s a similar calculation though that can be done, which might even be more applicable in your circumstance as an owner. That number to calculate is what I call owner value added. This isn’t a common term, but when you look at in comparison to EVA, you can see that it makes sense. To calculate the owner return like EVA, there are a couple difference parts:

1. The compensation and other returns that you’ve gotten from the business on an annual basis.

2. The cost of capital for your investment in the business, plus the cost of capital for your talent. The latter needs some explanation. This would be the equivalent compensation you could be getting if you had a regular job from a corporation or otherwise.

3. The difference between the two represents your owner value added.

4. Let’s leave the investment side of it out of the picture for the moment and just strictly look at the compensation part. This test compares what kind of money you’re pulling from the company compared to what you could be getting as an employee in a corporate or other job. If you could be making 150,000 per year in a corporate salary (inaudible), yet you’re only taking out 60,000 a year in compensation from your business that represents $90,000 a year lost in opportunity costs.

You have to think long and hard whether it’s still worth it to keep up your own business. Now, granted, this calculation doesn’t consider any return you get at the end from selling the business or the cost of capital for what you have put in, but it is a good benchmark. If your compensation return is less than what you could be getting in the open market, it might be a hard time to really look at and reconsider whether you should be having a regular job instead of taking on the risks of running a company.