An alarming number of business owners believe that when they're building a business they shouldn't pay themselves a salary. They sacrifice their own income for many years to get their business up and running. Venture capitalists call this "sweat equity". I call it working for nothing and being a fool.
The inability to pay yourself a reasonable salary is a red flag that your business is not working. Making loans to the company so you can pay yourself, and not charging the company rent if you own the building, are equally foolish. If your business doesn't allow you to pay yourself a living wage, what are you doing wrong?
Of the more than 6,000 businesses I've worked with, I can't think of a single one that failed because the owner paid himself or herself a decent salary. You've got to take care of yourself first. There's a pervasive belief among small business owners that "One day I'll get mine." These are good people raised with the simple edict that you should work hard, treat people fairly, and be patient. THERE ARE NO RICH MARTYRS! When they have a bad year with no profits, they take a second mortgage on their homes so they can afford to pay their workers a holiday bonus. It's nice to treat people fairly, but not at your expense. The only thing you're going to end up with is a large amount of personal debt.
Always work to make a good salary. THEN cover the expenses. Not the other way around. And if things are tight, don't be the only one to take a pay cut, everyone should make adjustments. 5% pay cuts all around and if you fear employees will leave, let them. If they're that uncommitted to their job, why would you want them to stick around? You are not in business to be a benefactor. You started your company to make money and build wealth. Why work for free so others don't have to tighten their belts?
I have established a rough formula for how much salary business owners should pay themselves, before profit distributions.
FORMULA: Pay yourself 3 to 4 cents on each dollar of revenue for doing the job of CEO. If you have a ten million dollar business, the ownership, should be receiving $300,000 to $400,000 in total salary.
Remember, after you and the owners pay yourselves salaries, your business should still be making profits equal to the top quarter of your industry, not the bottom half. If you can't afford to pay yourself the first few cents on every dollar, there's something seriously wrong with your business model and you need to fix it.
Paying yourself is not just a way of keeping check on the health of the business. If you're sacrificing yourself and scaling back on expenses for yourself and your family, you're not in the best position to lead. Take care of yourself first so you can stay sharp and become the kind of boss you need to be to take your business to the next level. You can't lead the way if you're behind the pack. And then by all means enjoy the good life.
The inability to pay yourself a reasonable salary is a red flag that your business is not working. Making loans to the company so you can pay yourself, and not charging the company rent if you own the building, are equally foolish. If your business doesn't allow you to pay yourself a living wage, what are you doing wrong?
Of the more than 6,000 businesses I've worked with, I can't think of a single one that failed because the owner paid himself or herself a decent salary. You've got to take care of yourself first. There's a pervasive belief among small business owners that "One day I'll get mine." These are good people raised with the simple edict that you should work hard, treat people fairly, and be patient. THERE ARE NO RICH MARTYRS! When they have a bad year with no profits, they take a second mortgage on their homes so they can afford to pay their workers a holiday bonus. It's nice to treat people fairly, but not at your expense. The only thing you're going to end up with is a large amount of personal debt.
Always work to make a good salary. THEN cover the expenses. Not the other way around. And if things are tight, don't be the only one to take a pay cut, everyone should make adjustments. 5% pay cuts all around and if you fear employees will leave, let them. If they're that uncommitted to their job, why would you want them to stick around? You are not in business to be a benefactor. You started your company to make money and build wealth. Why work for free so others don't have to tighten their belts?
I have established a rough formula for how much salary business owners should pay themselves, before profit distributions.
FORMULA: Pay yourself 3 to 4 cents on each dollar of revenue for doing the job of CEO. If you have a ten million dollar business, the ownership, should be receiving $300,000 to $400,000 in total salary.
Remember, after you and the owners pay yourselves salaries, your business should still be making profits equal to the top quarter of your industry, not the bottom half. If you can't afford to pay yourself the first few cents on every dollar, there's something seriously wrong with your business model and you need to fix it.
Paying yourself is not just a way of keeping check on the health of the business. If you're sacrificing yourself and scaling back on expenses for yourself and your family, you're not in the best position to lead. Take care of yourself first so you can stay sharp and become the kind of boss you need to be to take your business to the next level. You can't lead the way if you're behind the pack. And then by all means enjoy the good life.
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