You’ve done it. You’ve started your business, you have a killer product, business plan, and customers who love what you do…you’re living the dream. The dream, that is, until it comes to the tough questions. Most people don’t start a business because they love to crunch numbers and figure out a budget. The fact is, however, that you need to pay yourself, and that means sitting down and budgeting out every facet of your business, including your salary.
The key question is, then, how much do you pay yourself as a business owner?
Know Where You Stand
It’s good practice to pay yourself from your profits rather than revenue, when possible. With that being said, you need to know what you’re working with, what cash you have available, in order to pay yourself.
Take the time to sit down and know the ins and outs of your expenses; not just your payments to vendors and utility bills, but also taxes and items that may not come out on a monthly basis.
Keep in mind that your compensation will not just be your base salary; make room for consideration of items such as a 401k, health insurance, and other perks your company would offer to other employees. Investing in a good accounting program like QuickBooks or FreshBooks can help expedite the process and give you the info you need to make the right decisions.
Your business will not be the same forever, and you’re likely planning on adding employees or taking on new ventures. Getting paid is obviously important and necessary for your livelihood, but you don’t want to slow the growth of your business by setting your personal salary too high. Whatever your expenses are, having good financing can help. Nav can help you find the best financing options for your business.
Be sure to update your business plan as you encounter new opportunities to have something to reference as you plan out the future.
Keep it Simple
So, then, how much do you pay yourself? The answer may be simpler than you think. It does, however, require a step back and an honest look at the value of your role.
While “owner” or “founder” sounds cool and looks awesome on your LinkedIn profile, take some time to list out your exact, industry-specific responsibilities and skills to determine a less general job title.
From there, you can find plenty of data online specific to your area regarding average pay for your position. This can generally give you a low and high point to look at while you determine your salary. A hard look at your experience and the quality of your work can then give you a good idea of where you fall on that scale.
Give Yourself Credit
While an honest look at yourself and your business is crucial in making this decision, don’t forget to give yourself credit for the hard work you put into your business. You work hard, you put in long hours, you’ve made your business what it is. With an honest and critical eye on your business and a healthy consideration for your hard work, you can make the right decision to keep your business running smoothly and meet your personal needs.
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