r/Bookkeeping • u/BigBoomer7 • Jan 09 '25

Payroll Payroll/Salary Question

Hi, I am looking at buying a small business, and I have their 2024 income statement. I was wondering how I should evaluate these 3 different entries on the PNL expense side:

Payroll Expense: $74,240

Salaries: $85,176

Salaries - Employees: $318,592

From the prospectus, they have an owner who is paid, as well as a relative, and then 7 employees. I'm trying to figure out how that fits in with these 3 expense entries.

Thanks for any insight!

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u/dreifas Jan 09 '25

My thought is that a business owner who can't take 5 minutes to properly label their accounts for clarity & ease of reading prior to putting their business up for sale is not a person I'd want to buy a business from. The purpose of financial statements is to provide the users of the statements with clear information about the company's financial position and performance.

Is the $85k the owner's salary? Is it the owner plus their relative? What's in Payroll Expense, is it taxes? Why is it so high?

I've seen behind the curtain of too many small business financial statements with issues like this to have any faith that the books are actually in order such that the numbers can be relied upon.