Know ahead the expected return from a buyer perspective on your business. This includes not only putting in the owner compensation including retirement plans, but also other expenses. These expenses could include certain fringes like additional life insurance. It can also include some other expenses you might not have thought of. Think in particular about expenses that might not necessarily carry back on an ongoing basis with the business.

Why do you want to know this number? Because this number could very well be the basis for what your buyer will make an offer for your company on. This can be particularly important for companies that are run as a sub S business where the stated income in the business may have been kept rather low and money passed along in compensation and other means.

Track this number over the past couple years. What’s the trend been? Has it been going up or has it taken a dip? Consider what can you do to get this back on the upslope. Another advantage of doing this calculation ahead of time is that you might likely think of some options, some expenses that you might have left out otherwise.

Take a look at things from the buyer perspective and calculate the return you’re receiving from the business along with add backs for any extra expenses. The better you know what the new owner’s return might be, the better you can judge what they could pay for your business and where the negotiating room happens to be.