Chances are, when you started your business, it was because you thought you could make some money doing it. As much as you may enjoy the work you do or serving the customers you work for, the primary motivation of starting a business is to make a profit, and hopefully have a better life as a result.
This is why it’s so unfortunate when I see business owners sacrificing so much and getting so little in return. The one thing to realize is that you’re the most important employee in your business and you need to treat yourself like that!
Think about your best employee right now. I’m betting that you take extra care to make sure they’re happy, and that includes paying them what they’re worth, right?
Well, guess what? That’s you! You’re the most important employee in the business and it’s time to start taking care of you the same way.
Gone are the days of paying yourself last with whatever is left over. Let’s talk about your Owner’s Pay allocation.
We recently put together your instant assessment (if you haven’t done that click here to go do that now) where we broke down where your business stands right now. The chart above is a benchmark for where your business should be depending on the annual real revenue generated. Take a look at the Owner’s Pay row.
Owner’s Pay is the amount you and the other equity owners take in pay for the work you do. This doesn’t count equity owners who do not work in the business, they just get a profit distribution. When considering your Owner’s Pay, take a realistic look at the work you do on a day-to-day basis.
You may call yourself CEO, but chances are you’re doing a lot of other work most of the time. Think about how much you would reasonably pay an employee to do the same work as your replacement, and use that as a gauge for how much you should be making. Determine your salary based on what you are doing 80% of the time in your business.
Owner’s Pay starts off high and tapers down as the revenue of your business grows because in the beginning you’re probably the only employee and are responsible for delivering nearly 100% of the service. As your business grows and you build a team to handle the service delivery, you move into the role of CEO more and more.
While you will never likely completely remove yourself from the work, you’ll be spending more of your time building systems and creating strategic partnerships as you grow. Typical CEO work, which means your compensation will come from profit distributions instead of a salary.
When it comes to Owner’s Pay, different business structures require you to take salaries in different ways. S-Corp and LLC are very different from a sole proprietorship so it’s important that you work with a Profit First certified accountant to make sure your money flows out properly and legally.
If you need help determining your Owner’s Pay and setting up the Profit First accounting system in your service business, reach out to us! We’re happy to help business owners start working on their business, instead of just in their business, click here to see how we can help!