What is Accrued PTO (Paid Time Off)?
The Short Answer
Accrued PTO (Paid Time Off) explained simply
Accrued PTO is the paid time off that employees have earned but not yet used. Think of it as a bank of hours an employee builds up over time. When an employee works, they earn a certain amount of PTO. If they don't use all of it, it "accrues" or carries over. This accrued PTO is a liability for the business because the company will eventually have to pay for it, either when the employee takes the time off or when they leave the company.
Real-World Example
The Small Business Scenario
Imagine a small marketing agency with 5 employees. Each employee earns 10 days of PTO per year. At the end of the year, two employees have 5 unused days each, and one employee has 10 unused days. The total accrued PTO is 20 days (5 + 5 + 10). If the average daily wage is $200, the business has an accrued PTO liability of $4,000 (20 days * $200/day). This amount needs to be accounted for when valuing the business.
Why this matters
Accrued PTO matters because it's a financial obligation for the business. When you're buying or selling a business, this liability affects the true value. Buyers need to know how much they'll owe in unused PTO. Sellers need to understand how it impacts their business's financial health.
When selling your business, be clear about your accrued PTO policies and balances. It helps buyers understand the true financial picture and avoids surprises during due diligence.
When selling your business, be clear about your accrued PTO policies and balances. It helps buyers understand the true financial picture and avoids surprises during due diligence.
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