Whether you run a small agency or are a business of one, it can be difficult to know how much #salary to pay yourself. You don’t want to be paid too much and cause your cash flow to suffer, but you also don’t want to pay yourself too little and not be able to pay the bills.
The reason you became your own boss is likely because you wanted enough income to stop worrying about money so you could focus more on creating and doing what you love.
But the economic system is set up on trading money for goods and services.
So how big of a salary is too much, and what amount is too little? Is it possible to find a balance with getting paid what you’re worth while still turning a profit?
When you start your business, calculating what to pay yourself is simple: Start with your sales and subtract operating expenses and taxes and that’s what goes into your wallet. Most #entrepreneurs cross their fingers and hope it’s enough to cover the bills. When your business expands, things get trickier. Sure, you could increase your take-home pay right off the top and pay the additional taxes that go with it. But what if business drops in the next quarter? Will your company have enough in the bank to cover its obligations?
I suggest that owners create something called “a variable component to a compensation structure.” Here’s what that means in English: You set up a modest, recurring salary, along with an additional monthly payment based on a percentage of your company’s earnings. But beware: If you don’t have the right business structure, a system like this can still turn your taxes into hell. Be sure to consult with an accountant.
Take a look at the plan below to cover the cost of your business. It will work for almost every entrepreneur.
This plan accounts for everything: The cost of doing business, taxes and an uncertain future. Some business owners (like myself) prefer to run a business without using debt products, but open to taking on investors. Based on my personal beliefs, I will make a salary decision of NO SALARY at least for the first few months.
The reason I’ll choose to do this is to give my business a fighting chance, by investing all the profits right back into it.
It can be difficult to choose this method, but if you’re able to find an employer, backer, or investor to pay the bills while you build an empire, this could be a smart choice. You can focus 100% of your ideas and creativity into this project, and watch it pay you back over time.