Owner benefit is the total financial compensation and perks a franchisee receives from the business, including salary, profits, and personal expenses paid through the business. It reflects the true economic value of owning and operating the franchise. This figure is often used when evaluating franchise performance or valuing a resale.
In franchising, owner benefit refers to the complete financial gain a franchisee earns from the business. This includes not just the net profit but also the owner’s salary, perks (such as health insurance or vehicle expenses), and any discretionary spending or non-essential expenses paid through the business. When assessing the profitability of a franchise, especially for potential buyers or lenders, the owner benefit provides a clearer picture of what the owner actually takes home. It’s a critical number in resale situations, as it helps determine the value of the business from the buyer’s point of view. Franchisors may also use it to showcase potential financial outcomes for qualified candidates, although it must be disclosed carefully and accurately under franchise law.
Additional Definition: This is a descriptive term that describes business income minus all “true” business expenses. Any benefit a franchisee receives from the business—either through pass-through expenses, retirement contributions, dividends, distributions, or salary—is considered part of 'Owner Benefit'. Other terms include “Owners Discretionary Profit” or “Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) Plus Add-Backs.”
Learn more about franchising in The Educated Franchise - 3rd Edition
The term owner benefit gained popularity in small business sales and franchise resales during the 1990s, when business brokers needed a standardized way to show income potential to buyers. Unlike EBITDA or net income, which are accounting-based, owner benefit reflects the real cash advantage to the owner. This makes it particularly relevant in franchising, where potential franchisees want to understand how much they could reasonably earn. Today, many franchise brokers and resale listings use “owner benefit” or “seller’s discretionary earnings” (SDE) to present a normalized view of a franchise’s financial performance.
Owner benefit is the comprehensive measure of what a franchisee earns from their business, combining profit, salary, and personal perks. It is essential for understanding the financial value of owning a franchise and plays a critical role in evaluating resales and returns on investment. Any serious prospective franchisee should carefully assess the potential owner benefit when reviewing a franchise opportunity.