Calculator inputs
Example data table
| Scenario | Owners | Basis | Base expenses | Owner loaded cost | Total with owner | Net after owner | Break-even revenue |
|---|---|---|---|---|---|---|---|
| Sample A | 1 | Hybrid | $120,000 | $108,054 | $228,054 | $-70,554 | $506,787 (45% margin) |
| Sample B | 2 | Replacement | $60,000 | $55,044 | $115,044 | $- - | $255,653 (45% margin) |
| Sample C | 3 | Actual | $240,000 | $161,482 | $401,482 | $- - | $892,182 (45% margin) |
Examples are illustrative only. Use your accounting policies and local rules.
Owner inclusion for true operating cost
Owner inclusion converts an owner-managed firm into a comparable operating model. By treating owner labor and related items as costs, you avoid overstating margins, underpricing services, or misreading cash generation. This view supports budgeting, lender discussions, valuation preparation, and performance tracking across periods. It also separates operational efficiency from personal tax strategy, improving comparability.
Selecting actual versus replacement compensation
Actual compensation reflects what owners currently take, while replacement compensation estimates what a qualified manager would cost in the market. Replacement basis is common when evaluating transferability or sale readiness. A hybrid basis blends both, letting you transition from current practices to market discipline. When owners work varying hours, use the hours field to sanity-check whether implied hourly rates match the role.
Building a fully loaded owner cost
Loaded cost expands beyond salary. Benefits, reimbursements, and other owner-specific expenses are included when you choose a loaded depth. Payroll tax can be applied to the selected salary basis, and indirect overhead can be layered to reflect administrative burden and shared support. Perqs and distributions can be modeled separately; including them clarifies total owner extraction, while excluding them keeps the cost view closer to conventional statements.
Reading profit, targets, and break-even revenue
With revenue and gross margin, the calculator estimates gross profit, net profit before owner inclusion, and net profit after inclusion. Break-even revenue divides total cost with owner by gross margin, translating cost structure into a clear target. Compare scenarios to test pricing changes, cost controls, or staffing adjustments. If net after owner is negative, the gap indicates the additional gross profit required, not simply additional sales. Use the graphs to show cost composition and highlight sensitivity to margin shifts.
Keeping scenarios consistent for decision quality
Accuracy improves when inputs share the same period and accounting treatment. Keep base expenses free of owner items unless you track them separately. Use add-backs only for one-time or discretionary items you can justify. Exports create audit trails, repeatable scenario reviews, and cleaner stakeholder communication. Save a scenario label in notes, then rerun quarterly to observe whether owner burden is falling or rising.
FAQs
What does owner inclusion change in my reports?
Owner inclusion moves owner compensation and related items into operating cost. This improves comparability across periods and makes margins, pricing, and break-even targets reflect the labor required to run the business.
Should I use actual or replacement compensation?
Use actual for internal budgeting and near-term planning. Use replacement for transferability, financing, or valuation scenarios. Hybrid helps transition when owners are underpaid or overpaid versus market rates.
Why are distributions treated separately?
Distributions are usually a cash allocation, not an operating expense. Keeping them separate lets you analyze profitability first, then evaluate owner cash extraction. Include them only when you want a total owner draw view.
When should I include indirect overhead?
Include indirect overhead when you want a fully loaded view that allocates shared support, facilities, and admin burden to owner activity. This is useful for pricing, scaling decisions, and comparing owner-managed to manager-run structures.
How do add-backs affect the results?
Add-backs increase discretionary cashflow by reversing selected expenses. Use them for one-time, discretionary, or non-recurring costs with documentation. Avoid using add-backs to hide persistent operating issues.
What gross margin should I enter?
Enter a realistic gross margin for the same period as revenue. If you are unsure, test several margins to see sensitivity. Small changes in margin can materially shift break-even revenue and net after owner.
Formula used
Salary basis for each owner depends on basis choice:
- Actual: BasisSalary = ActualSalary
- Replacement: BasisSalary = ReplacementSalary
- Hybrid: BasisSalary = ReplacementSalary×w + ActualSalary×(1-w)
Owner cost base depends on inclusion depth:
- Salary only: OwnerCostBase = Sum(BasisSalary)
- Loaded/Fully loaded: OwnerCostBase = Sum(BasisSalary) + Benefits + Other + optional Perqs + optional Distributions
Payroll taxes (when enabled): PayrollTax = Sum(BasisSalary) × (PayrollTaxRate ÷ 100)
Indirect overhead (when enabled and fully loaded): IndirectOH = (OwnerCostBase + PayrollTax) × (IndirectOHRate ÷ 100)
Owner loaded cost: OwnerLoaded = OwnerCostBase + PayrollTax + IndirectOH
Total cost with owner: TotalWithOwner = BaseExpenses + OwnerLoaded
Gross profit: GrossProfit = Revenue × (GrossMargin ÷ 100)
Net after owner: NetAfterOwner = GrossProfit − TotalWithOwner
Break-even revenue: BreakEvenRevenue = TotalWithOwner ÷ (GrossMargin ÷ 100)
Discretionary cashflow: Discretionary = NetAfterOwner + AddBacks
How to use this calculator
- Set period and keep all values consistent.
- Enter revenue, margin, and base expenses first.
- Select owner count, then fill each owner block.
- Choose actual, replacement, or hybrid compensation basis.
- Pick inclusion depth, then enable taxes and overhead options.
- Add perqs or distributions if your analysis needs them.
- Add add-backs for one-time or discretionary adjustments.
- Press Calculate, then export CSV, PDF, or JSON.