Selling Your Business? Make Sure Your Salary Isn’t Used Against You

When preparing your business for sale, one of the most scrutinised figures will be your EBITDA, earnings before interest, tax, depreciation, and amortisation. But it’s not just about what’s shown on your accounts. Buyers will almost always make normalising adjustments, and one of the first areas they’ll target is owner’s compensation.

If you’re taking a lower-than-market salary and topping it up with dividends (as many owner-directors do for tax efficiency), this will almost certainly trigger a discussion, and a proposed adjustment.

The key question is: Is this an appropriate owner’s compensation adjustment, or is the buyer confusing a one-off handover cost with a permanent business expense?

Understanding Owner’s Compensation Adjustments

When a buyer looks at your P&L, they want to assess what the business would look like on a commercial basis, without your personal arrangements. That means they’ll want to normalise your earnings to reflect the cost of replacing your role.

For example, if you’ve been paying yourself £25,000 through salary and another £75,000 via dividends, your financials suggest a cost of just £25,000. But a buyer may argue the role needs to be valued at £120,000–£150,000 per year if they have to hire someone to replace you.

From their perspective, this is a fair owner’s compensation adjustment.

But there’s a major caveat — and one that can dramatically affect your valuation.

Transition Costs Are Not Permanent Adjustments

If you're stepping away immediately and someone needs to take over your responsibilities in full, it’s reasonable for a buyer to adjust EBITDA accordingly.

However, if you're staying on for a defined handover period — perhaps as a part-time adviser or on a short-term contract — then any cost associated with that is a non-recurring transitional expense, not a permanent adjustment to EBITDA.

Here’s the difference in real terms:

• Reported EBITDA: £500,000

• Buyer’s proposed salary adjustment: £170,000

• Normalised EBITDA (buyer’s view): £330,000

• Valuation impact at 5x multiple: £850,000 reduction

But if your continued involvement is short term and transitional in nature, for example, a £50,000 six-month consultancy arrangement, then the appropriate adjustment should be limited to that amount.

In this scenario, the buyer’s £170,000 salary adjustment is excessive and unjustified, and if left unchallenged, it could cost you a significant portion of your deal value.

Why Trade Buyers Often View This More Realistically

This is where the type of buyer matters greatly.

A trade buyer, typically a business in your sector or a complementary market is more likely to integrate your operations into their existing team. They may already have:

• A managing director or leadership function ready to absorb your role

• Finance, HR, or operational teams to replace back-office functions

• A strategy that relies on synergy, not replication

For these buyers, any involvement you have during the transition is often seen for what it is a non-recurring transitional cost, not a basis to permanently reduce EBITDA.

Why Financial Buyers Take a Harder Line

By contrast, financial buyers (such as private equity or investment firms) generally look for stand-alone businesses. They expect the company to run independently from day one.

As a result, they will almost always apply full commercial replacement costs, not just for you, but for any function that relies on you. If you don’t have a second-tier management structure, they’ll factor that in aggressively.

For this reason, unless your business is already fully staffed and operationally independent, you are unlikely to secure your best valuation from a financial buyer.

Positioning is Everything

Whether a buyer sees your post-sale involvement as a short-term cost or a structural weakness depends entirely on how the deal is framed — and how well your adviser handles the negotiation.

Your adviser must be able to:

• Clearly separate recurring and non-recurring costs

• Define the purpose and duration of your transitional role

• Push back on excessive owner’s compensation adjustments

• Ensure any salary cost deducted from EBITDA reflects operational reality, not assumption

• The distinction between an appropriate adjustment and an unfair deduction hits your total deal value.

Final Thought: One Chance to Get It Right

Selling a business isn’t just about the numbers, it’s about context. It’s about how the buyer interprets those numbers, and whether your adviser can guide the narrative.

You only sell your business once. And every pound deducted from your EBITDA has a compounding effect on your final offer. That’s why it's critical to challenge inappropriate assumptions, especially when it comes to owner’s compensation and non-recurring transition costs.

So before you accept a permanent EBITDA deduction for a short-term handover, stop and ask: is this really a cost of running the business, or just part of the exit process?

An experienced adviser will help you make that case, protect your value, and ensure the deal reflects the business you’ve built, not someone else’s spreadsheet assumptions.

To talk to one of our experience deal advisers, email tony@vexus.co.uk