How to determine your salary as a business owner
Learn what factors determine how much income you should earn from your business. Coco Soodek is a radio show host, business consultant, and paid contributor for Wells Fargo.
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Frequently, business owners just take the cash that's left after expenses instead of setting a real salary, and that's not really the best way to run the business. Instead, you should set an actual salary for yourself.
You're working for the business. You're crucial to the business, and you deserve to be paid.
You can figure out what other people are paid and therefore, what is reasonable, from lots of different sources.
There are websites that aggregate salary information. There are trade groups in your industry. And the Federal Bureau of Labor Statistics keeps these records.
Balance your overall business needs with your salary. You should be able to take out reasonable amounts, but not so much that you hurt your business or your creditors or your employees.
Obviously when you're starting out, it may not be possible to pay yourself, but as soon as you can, you should.
It's important that you keep some cash in your business to cover expenses and to build equity. Bankers, investors, and potential purchasers of your business will want to see that you keep some cash in the business.
If you take too much out of your business, it can really hurt your credibility. I've seen too many investors walk away from a deal because the owners of the business took too much compensation before the company was ready to pay it.
Always make sure that the books and records of your business accurately show what you've paid yourself. Creditors, investors, bankers, and potential purchasers may need to see how your business spent money.
You can work with your accountant to make sure that your records accurately show how much you've paid yourself, but also that you've paid yourself enough to satisfy the IRS.
You started this business for a reason, and one of them was to make money. So as soon as you can, pay yourself a reasonable salary. It's good for you, and it's great for your business.