In preparing our sell-side Quality of Earnings, how do we defensibly calculate and document pro forma owner compensation adjustments when the founder currently fills multiple seats on the Accountability Chart?

Question

Tyler Smith · Accepted Answer

When a founder occupies multiple seats on the Accountability Chart, buyers immediately scrutinize owner compensation add-backs. If you take out six hundred thousand dollars in total compensation but only insert a two hundred thousand dollar replacement cost for a general manager, the buy-side auditor will challenge the adjustment and reduce your reported EBITDA.

Start by unbundling the founder's daily responsibilities across the seats they actually fill. If you serve as visionary, head of sales, and product architect, document the actual time and functions required for each role. You cannot replace three vital functional seats with one mid-level salary.

Next, benchmark replacement compensation using verified third-party executive compensation data for comparable revenue tiers. If replacing your sales leadership seat requires a base salary of one hundred eighty thousand dollars plus commission, and hiring a dedicated Integrator or general manager requires two hundred twenty thousand dollars, list those separate market-rate figures explicitly.

Support these adjustments by showing internal bench strength. If you have already begun delegating responsibilities to existing managers running Level 10 Meetings, you can prove that portions of the founder role have been absorbed internally without incremental payroll.

Present the net pro forma adjustment clearly in your sell-side Quality of Earnings workbook. Show historical compensation, subtract the realistic market-rate compensation required to fill the open seats, and defend the remaining delta as a pure equity distribution. By anchoring your replacement costs in real organizational structure rather than arbitrary estimates, you prevent buyers from shaving off your EBITDA during diligence.