This article was written by Matthew Boles, CPA, Senior Manager in Special Services at Mowbrey Gil LLP, as part of the quarterly newsletter dedicated to Canadian news. This newsletter is created by the Canadian member firms of the Moore North America network. The article, about business owners paystubs, is part of our commitment to remain your trusted partner for success by keeping you informed of crucial developments in Canadian tax news.
There is a stark contrast between the financial clarity that employees and entrepreneurs regularly receive. Entrepreneurs rarely know how much financial reward (or punishment) they are receiving by taking the unpredictable entrepreneurial path through life, by starting their business. Employees have pay stubs from their employer that show what they have earned and clarify what is in their bank account, market investments, the value of their real estate, and what is owing on their mortgage.
What if we, as accountants, could help entrepreneurs and business owners achieve the financial clarity from operating their businesses that employees receive? An Owner’s Paystub.
Business owners often know about payments from their company, such as salaries, bonuses, or dividends, but not usually in a single report. They also see the balances of their business bank and investment accounts from monthly statements. However, they may not have regular insights into the value of their biggest, most important investment – their business. Most monthly financial reports give owners useful month-end accounting and operational summaries focused on the company’s operations. But what if the monthly reports could do more by also showing how the underlying value of their business changes over time?
The Owner’s Paystub was created for a few of our clients to capture the ongoing wealth generated from operating the business: realized returns, such as salary, bonuses, or dividends, and unrealized returns from incremental changes in the value of the business. The wealth generated by entrepreneurs is more than just the salaries or dividends drawn from the company; it also includes strengthening the balance sheet and changes in business valuation metrics, such as EBITDA or revenues, and their effects on the value of the business. The Owner’s Paystub presents these relevant details in a consumable report, typically monthly, that provides business owners with an overall picture of the financial rewards of owning and running the business—financial clarity
The Owner’s Paystub helps entrepreneurs understand and quantify what effect the business performance has on their personal financial position and net worth. Owners often have a “feel” for how they are doing. The Owner’s Paystub provides them with a clear picture of the business’s value to them now and in the future.
Knowing when to sell a business is rarely clear. Often, business owners sell or try to sell their businesses when it is difficult to maximize returns, such as during an industry decline, when owners are nearing retirement age, or when sudden health issues arise with no succession plan in place. The Owner’s Paystub can help owners focus on the potential value of their business and review changes over time to better understand trends affecting that value. This helps owners stay on top of business sale planning to maximize wealth, assess retirement readiness, and enhance clarity regarding the biggest financial investment of their lives.
Business Owners, are you ready for an Owner’s Paystub? For more information, please contact us.
