5 Tips for Setting Your Salary as Business Owner
Houston Business Consulting for Women Entrepreneurs
1. - No Magic Formula. - If your business is still in startup phase, your salary may still be essentially
what’s left over after your operating costs and bills have been paid. But if your business has shown consistent profit, then you should feel free to take a percentage of those profits, or set a salary for yourself in accordance with industry and regional standards.
How your business is legally structured also impacts your compensation. Talk to an accountant or tax attorney about the best options for you, because overpaying yourself can raise red flags with the IRS. For example, if you operate a corporation, avoid taking too great a percentage of total revenue as your salary. Your accountant can help you determine what’s reasonable.
2. - How to Set a Salary as a Percentage of Profits. - Of course it’s hard to forecast your profits for an entire year, so if you’ve been in business a few years, review your past performance and use it as a benchmark. Determine what an appropriate percentage of that figure would be, after factoring in your business costs, taxes, and future growth plans, and set that as your tentative salary. Most small businesses limit their salary percentage to 50 percent of profits.
3. - Check Out the Competition. - One standard practice is knowing the average income for your industry, field, or peers. Don’t forget to factor in regional variations and remember, you may not be able to pay yourself an equivalent salary yet, but you should know the average.
4. - Factor In Employee Pay and What You Give Your Business. - Remember that the time you invest in your business may vary considerably from the hours of your key employees. And while you don’t want to overpay yourself, don’t limit your salary because you feel that your hourly earnings are more than your number two employee. This is your business, after all, and while you may be investing 50 hours one week, you may put in 65 the next. So your salary needs to reflect the elasticity of your time investment. So if you’re using your hourly commitment to help determine your pay, make sure you account for the extra hours when you do your calculations.
5. - Seek Advice. - Even if you don’t have an accountant on retainer, seeking the counsel of an accountant to review your figures will help you factor all the variables that help determine your salary. These may include taxes, employees, operating costs, loans, personal costs, marketing, and growth plans. Accountants, or even lenders, also can help you make related decisions about how to manage your profits. For example, it can be tempting to pay off loan financing as soon as you turn a profit. This, however, will reduce what you take as a salary and could affect your lifestyle.
Source: sba
Patty Block, President and Founder of The Block Group, established her company to advocate for women-owned businesses, helping them position their companies for strategic growth. Charting the course for impactful, sustainable, profitable businesses, the beacon is control: of your strategic direction, your money, your time, your staffing, and your ability to bring in business. The Block Group brings together the people, resources and ideas that build results.
Houston Business Consulting for Women Entrepreneurs.
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