Updated: Jun 10, 2019
Starting and running a business has its benefits. Being your own boss or pursuing a lifelong passion are both captivating propositions. However, the rewards are not without cost. It may not look obvious at first, but one of the things that you need to think about is your salary. In the corporate world, your salary is discussed during the job interview. When you get promoted, a salary increase may come into play and again. But, how will this work if you’re the boss? Of course, you want to receive the right compensation for all of your hard work and sacrifices. At the same time, you need to think about the future of the business.
What should be your salary as a business owner? To help you decide, here are several tips to take into account:
During the hiring process, one of the many questions recruiters get is about the expected salary. A job candidate usually has a general idea of how much he or she is worth, and that’s one of the things that both parties discuss during the interview. Small business owners owners also need to know how much they are worth.
To find out the right salary for you, make sure to assess your earning capacity based on your experience, knowledge, and time spent on the business.
Keep in mind that you have to determine your salary early and keep it consistent, instead of deciding how much you should earn every month.
It’s natural to want to make more money. It can be tempting to consider paying yourself a massive salary since you’re the one calling the shots, but starting and running a business is costly, especially in the early years.
When you are determining how much to pay yourself, it’s important to understand the economics of your business. Your bottom line will ultimately dictate what sort of flexibility you have with your own salary.
Priority number one is keeping the lights on, so make sure you are paying yourself an amount that your business can actually afford. It may be helpful to work with an accountant to make sure you are knowledgeable about your PnL and aren’t crippling your company by pulling out too much cash for your salary.
As with any endeavor, planning is crucial. You cannot run a business properly and keep it afloat without a solid business savings plan.
Being a business owner, you will face various issues that will challenge your will and your wallet. Make sure to have enough funds set aside to meet the needs of your business in the near future. These needs may vary depending on the nature of the company as well as your plans over the coming months. Are there plans to add a new product or service? Do you want to move to a bigger office anytime soon? Will you hire new employees? As your business grows, do you have money for additional insurance policies?
These things, and more, need to be considered when creating a business savings plan because these will significantly affect how much you should be earning. It’s essential to make a list of priorities and set aside the appropriate funds before deciding on your salary.
Not everyone is open to the idea of saving for retirement right now, especially younger entrepreneurs. But regardless of your age, the sooner you save for your retirement, the better.
Research shows that one in three Americans has less than $5,000 saved up for their golden years. This is not enough to live on, especially when you’re no longer generating an income.
As a business owner (or individual for that matter), it behooves you to think about saving for retirement as soon as possible. If possible, you can set aside a certain percentage monthly in an account dedicated for your retirement savings.
Retirement is a crucial factor to consider when deciding on your salary since you can save more in the long run if you have higher pay. If you’re not sure about what to do, it’s better to consult a tax professional so you can weigh the pros and cons of your options and avoid any inconvenience later on.
Unlike in a corporate setting where you are sure to receive salary monthly, being a business owner may mean going without a regular paycheck at first. There are a lot of risks in running a business, and during challenging times, you may choose to opt to go unpaid rather than sacrifice the paycheck of your employees.
Several factors should be taken into consideration when deciding the right salary for you as a business owner. It will depend mainly on the net profit of your business, so if your business continues to grow, you can expect a higher salary.
In the beginning, it may not be as lucrative as you imagined it to be but don’t worry. Keep working hard and maintain your employees’ and customers’ trust. Eventually, your business will grow, and the paycheck that you’ve dreamed of will be in your bank account in no time.
Emily is the Content Marketing Specialist at CoverWallet, a tech company that makes it easy for businesses to understand, buy and manage commercial insurance online.