How Much Should I Pay Myself?
For business owners, deciding how much to pay yourself can be very difficult to do. On the one hand, you want to actually be able to enjoy the fruits of operating a successful business. On the other hand, you need to make sure that you’re putting enough money back into your business so that it’s stable, profitable and capable of growth. With a strategic analysis of your company and its performance, you can make that determination easily.
One of the factors that will play a role here is your company structure. You’ll pay yourself a different amount if you’re a sole proprietorship than if you have incorporated, for instance. Though the amounts may be different, it is also important to consider your profit margin and precise bookkeeping. Of course, the cost of living in your geographic area will also need to be considered. You need to pay yourself a living wage so that you can actually afford to live there – this will vary by region across the country.
Finally, you need to understand that running a business is not a hobby – it’s a business. That means most of the money your business brings in should really go back into the company, rather than into your pocket. Important areas in determining how much to pay yourself should be included in your strategic analysis, along with accurate bookkeeping and the profit margin you have set for each product or service you offer customers and clients.
For business owners struggling to determine exactly how much they should pay themselves, having the help with a strategic analysis is very important. With a competitive analysis, you are able to see what your job description would be elsewhere. Also, keep in mind that owners wear many hats in running a company so the job descriptions could be a number of different aspects. You can find the expert assistance you need with an experienced financial consultant. He or she will be able to take a look at your profit margin, your bookkeeping, your financial statements and other areas of your business and help you make the right decision regarding your personal income.
About the Author Barb Fisher
Barb is the CEO of Fisher Bookkeeping, an outsourced bookkeeping consultancy that provides small businesses with a full-service financial department. Her favorite aspect of work is to break down the accounting to meaningful bits, so entrepreneurs can make a powerful difference in their own business. She's also a power lifter (squat: 215, DL: 270).