Why should a closely held business be concerned with owners’ compensation? It’s because the owner compensation package may be scrutinized. Examples might include buy-sell situations, estate and gift tax valuations or litigation proceedings, such as shareholder disputes and divorce. These issues might even come into play with business succession planning.
Some owners treat the company’s bank account like a personal slush fund. Conversely, other owners draw minimal salaries because they undervalue themselves or because the business is cash poor. When it comes to business valuations, the higher an owner’s compensation, the lower the company’s value will be—unless an adjustment is made.
