How to Calculate your Own Salary as a Business Owner

How to Calculate your Own Salary as a Business Owner
  • Opening Intro -

    Business owners have the freedom to set their salary having built their businesses from the ground up.

    However, the decision is not easy for most entrepreneurs.

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For a new business, the entrepreneur can only take home the difference between the gross profit and expenses. The difference may be little because sales are low in the first year of business.

The decision becomes harder as the business grows. The owner has to consider the employees, investors, and partners before setting a salary. If you are running your own business, here are some insights on how to calculate your salary.

1. Take a Percentage of the Profits

One way to set your salary is to take a percentage of the profits. The percentage, in this case, will depend on the development stage and profitability of your business. Consider the amount you need to invest back into your business to keep growing. It is hard to predict future profits accurately, especially for a startup. Use past profits as a benchmark for setting the percentage. You can adjust the percentage as the business grows. Be flexible and willing to go with a lower percentage when the profits are low. Your focus should be on the long-term profitability of your business.

2. Seek Advice from a Tax Attorney or Account

Sometimes, setting the percentage of profits is a hard task, especially when you cannot analyze the profits trend accurately. You may need the help of your accountant or a tax attorney when running a large business. The investors and partners may be suspicious if you set a very high percentage, even when your business can afford it.

An accountant will help you factor in all the necessary variables when setting the figure. The variables, in this case, include taxes, loan repayments, salaries, strategic plans, and other operating costs. You can hire a consultant for this task if your business cannot afford a permanent accountant.

3. Learn from your Competitors

You have more lessons to learn from your competitors than marketing tactics. Visit websites like Salary Site to learn the amount your peers in the industry earn. The idea is to get the average income and not a specific figure. Remember that the variables in your business are different from those of your competitors.

For instance, the growth rate, profits trend, business model, operating costs, and location will be different. You may have to settle for an amount lower than the average income of your peers to ensure that your business maintains its growth trend. Stay within the industry average to avoid raising red flags with your partners and tax authorities.

Conclusion

Your salary as a business owner will vary across the highs and lows of your business. It is important to consider all the current and future needs of your business when setting your salary. You also need to factor in the number of hours you put into the business and your personal expenses. The figure should balance between the amount you deserve and the amount you need to maintain your lifestyle. A certified accountant or tax attorney can help you set a fair amount or percentage of your profits.

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