How much should you Pay Yourself?
Owning your own business has its benefits, controlling how much to pay yourself is exciting but it need careful consideration so that you’re not getting too little and you’re not getting to much so that your business struggles. Before you pay yourself 90% of a big deal you just made and purchase a new car like many of us would love to do, you need to consider many aspects with regards to your company. Taxes, wages, overheads and overall growth need to be calculated into the payment schedule so that value for money is being received on all avenues.
Grow Your Business
If you have just made this big deal or lots or little sales and cash flow is very positive; having the ability to decide the financial future of your business will be empowering, but understanding how to correctly invest such profits will separate the good and the bad managers and entrepreneurs. Now, consider the benefits and negatives of using majority of the money and where that money would go into growing an area of the business.
If you have made the correct decision to not pay yourself the entirety of your profits, decide now which aspects you want to invest and promote growth. One of the main benefits if you haven’t yet realised is that if the money you invested contributes positively, there will be more opportunities to pay yourself more and more and invest more and more.
Give Yourself a Wage
Develop for yourself as a manger and founder the correct amount per week/fortnight/month to pay yourself. Having a consistent amount will enable a particular living standard and will accurately reflect the accounts in regards to sustainable and manageable cash flow. Having an easily controllable and forecastable cash flow will also give you the chance to make educated managerial decisions to protect your investment.
Do some research into your industry; look at similar jobs and markets within to develop an understanding of what ‘in the ball park of’ amount you should be getting paid. Consider the responsibility, roles and tasks you undertake on the daily with regards to the average you are getting paid and also the current financial strength of your company.
Fair is fair
Making sure you have determined how much your ‘worth’ by analysing similar roles in your industry or calculating your time and expenses etc. will benefit both the company and you personally. A ‘Fair’ Payment plan will also consider the others in your business. For example; Paying yourself 80% of profits and leaving your next in charge on the minimum wage will almost always result is a resignation, unless your next in charge loves minimum wage… in that case what are their contact details?
The idea of positive, corporate environment is orientated around a respectful and understanding workplace. Having an equal and fair payment regime is but one step in a larger picture but it is important never the less. This doesn’t mean that the CEO should be getting payed the same amount as the intern! This simply means that if the business is highly profitable everyone is getting paid accordingly and if the business is doing poorly then the CEO isn’t withdrawing massive amounts of money.
So 90% right?
There are many considerations that need to be analysed and understood when making the ultimate decision. The understanding of all these key areas will enable the most educated and calculated of choices that will, In the long term, profit you more as your business growths than it would if you were to withdraw majority of your profits right away. That being said perhaps doesn’t buy your new car just yet, rather, wait until you can confidently purchase it yourself without the need for your business backing you and putting itself into deficit.