How to Normalize Owners Salaries (NOS)

In RealTime CEO, we ‘normalize’ the owners salaries if the owners are paid a different amount (as an expense in the Income Statement) to the commercial/market rate amount for the role. This represents the true operational profit for the business.  If the owner of the business is being paid a commercial salary that reflects the role, no adjustments are needed.

Here are some examples of when we would normalize an owners salary:

• The owner is paid only via a distribution.  There is no expense in the Income Statement.
• The owner is paid as an expense in the Income Statement, and the amount is over or under a commercial amount.
• The owner is paid as an expense in the Income Statement but does not work in the business.
• The owner is paid partly as an expense in the Income Statement and partly as a distribution.  The expensed component is over or under a commercial amount.

Salary adjustments can be made when loading monthly data or after loading monthly data.

Entering NOS DURING data loading:

1. When loading a month of data into RTC, you are prompted with a Normalization of Owners’ Salary screen.
2. Click Add an Adjustment.
3. Where it says ‘Start typing here to filter lines’ enter part of the wages account name that you want to adjust (wherever the owners salaries are posted, or would be posted if they were entered). The accounts tagged as Wages will appear. Click the one you want to adjust.
4. In the ‘Amount paid to owners that is included in costs’, enter the gross amount paid as an expense in the month you are loading.
5. In the ‘Commercial wage that the role warrants’, enter the market rate/commercial monthly amount. The system will then calculate an adjustment.
6. Click Add Adjustment.
7. To adjust a second account, repeat the above steps.
8. To edit the amount, you need to delete the adjustment just created, and re-do it.

Entering NOS AFTER data loading:

1. From the menu, select the Monthly Data screen.
2. Choose the month/year you want to adjust.
3. Click the Edit button (top-right).
4. Click on the 3 dots next to the Wages line to be adjusted. Select Reallocate.
5. In the appropriate month(s), enter the adjustment amount in the Reallocation Amount field. NOTE that this is the adjustment amount, not the paid and commercial. You can enter multiple months’ adjustments at a time if needed. For an expense account, a negative amount increases the expense, a positive amount decreases the expense. Check the Remaining Value line to see if your adjustment is correct.
6. In the Select a Line field, type ‘NOS (Indirect)’ or ‘NOS (Direct)’ depending on which section the wages account is. Select the Non Operational tag if the line is new and has not been tagged.
7. Click Apply.

Explanation of NOS Adjustments in the NOS line:

The adjusted amounts can be seen on the Monthly Data screen, in the Income Statement – Direct or Indirect Costs section in a line called NOS (Direct/Indirect).  The amounts shown here are the reverse of the adjustment to the Wages line. So if the NOS (Direct/Indirect) amount is negative, it means the Wages were increased; if the NOS (Direct/Indirect) amount is positive, the Wages were decreased.  Because this line is tagged Non Operational, it is excluded from the Dashboard calculations.