Constructing your business valuation is rarely a simple task, with a dizzying plethora of factors to consider, key among those are owner compensation figures. In the past, finding the required raw data could be tedious and time-consuming. Now, thanks to RCReports, practitioners just like you have access to more than 12.9 million wage datapoints at your fingertips. As an experienced BV practitioner, you likely have your own methods for finding owner compensation data. However, RCReports has some unique features that make it worth a look.
RCReports uses a unique mixture of methodologies to determine their reasonable compensation numbers:
The cost approach (aka many hats approach): The RCReports replacement cost approach (aka cost approach) takes into consideration all the tasks a business owner provides to his or her company and the amount of time spent on each task. The replacement cost approach breaks down the owner’s time by the various tasks performed. RCReports created eight categories that contain 39 tasks a small-business owner may perform for his or her business.
The market approach (aka industry standard approach): The RCReports market approach focuses on the owner’s business type and the specific position the owner holds: CEO or general manager. The market approach then compares both the business type and the position of the owner to that of its peers to draw a conclusion for what reasonable compensation should be.
The income approach (aka independent investors test): The RCReports income approach requires the user to input three key pieces of information based on the owner’s business and what a hypothetical investor would require as a return on his or her investment:
- Fair market value (FMV) of the business at the beginning of the year;
- Increase in FMV by the end of the year—before owner compensation; and
- Target return of the independent investor.
RCReports combines all these methodologies into a seamless and easy-to-use system that produces reasonable compensation reports that are accurate, objective, and backed by these tried-and-true methodologies to provide you with unassailable reasonable compensation reports for your next valuation.
Want to learn more? Visit the RCReports product page for a full breakdown of the methodology and to schedule a demo!