Absentee owner

Definition

An owner whose business runs without them in it day to day.

Why It Matters

Whether the seller works in the business decides two things at once. It decides what the earnings really are, because an owner drawing no salary while working full time has left the cost of running the place out of the numbers, and a buyer who hires that role back pays the difference every year. And it decides what life looks like after closing, since a business that has never run without its owner cannot be bought as something to hold. Absentee books usually price higher and finance more easily, and the gap between the two is one manager's salary.

In numbers: A business showing $1.2M of SDE with a working owner shows $1.1M once a $95,000 general manager takes that role, and at 3.5x the gap is over $330,000 of price.