Management is a necessary input in any business. It has a cost and should be included in the total cost of production. It is not difficult to recognize this cost when management is "hired." However, management is often overlooked in the cost structure of family-operated businesses because labor and management are viewed as "one and the same person," the owner-operator. When determining the value of facilities, it is imperative that management be included in the calculation of "all costs other than buildings."
The problem arises, however, when one tries to assign a value to management when that management is not hired. This can be done in several ways. First, you may use the cost that would be incurred if a management person had to be hired. Second, you could use the salary that the primary management person would earn if he or she were to work in their next best alternative to managing the small business. This option would require doing some research into salary ranges in your employment market region. If you need assistance you might contact your state's department of labor or employment.
