HOW MUCH TO PAY YOURSELF?
Each entrepreneur pursues his own goals when starting his own business. Someone is tired of working for a stranger and wants to be their own boss, someone needs a free schedule, and someone just wants to do what they love.
But in any case, whatever the secondary reasons for starting your own business, the main goal is to financially support yourself and your family at the expense of a new open enterprise.
Of course, profits do not appear immediately. Anyone will have to go through a tough start-up period when a business will require a lot of hard work and still come up with losses. When this period has passed and the enterprise got on its feet, the question arises: “How much money can you take as a reward for your work?” The question is not so simple as it might seem at first glance, and it touches on several aspects:
Before deciding how much money can be withdrawn from the enterprise, you need to calculate the profit. It is important to remember that not all funds credited to the company’s account are profit. You must first deduct your expenses from the funds received.
If you have an accountant on staff, he certainly won’t let you go wrong. If you do your own accounting, a properly selected and tailored program for your business will help you. However, it should be remembered that even the best program can fail, and it is still advisable to double-check the results.
There are times when the owner of the enterprise withdraws a large amount from the company, even if the business is at a loss, or, despite the profits, on the contrary, is afraid to take the amount he needs and can barely make ends meet. The remuneration of the entrepreneur for work must be adequate. With a successful business, there is nothing wrong with taking the amount that will allow you to live comfortably. After all, in the end, it was for this that the business was opened. The main thing is to follow some rules so as not to harm your own business.
Firstly, you should not withdraw large sums one-time. It is better to pay yourself regularly, for example, monthly in small amounts than to “bleed” your business with large seizures once a year.
Secondly, you need to take into account the organizational and legal form of your enterprise. An individual entrepreneur can dispose of the company’s money quite freely, but, for example, an LLC must document the owner’s remuneration and pay it in accordance with the documents.
For the successful functioning of the enterprise and the effective work of employees, the adequacy of the remuneration of the entrepreneur in relation to other employees of the company, as well as to the salaries of the corresponding position in the labor market, is very important.
If the remuneration of the owner is much and unreasonably higher than the salary of the employees, the employees will feel cheated and will not “feel sick” for their work. Feelings of unfairness can seriously affect the efficiency and productivity of staff. And, of course, in the event of a financial crisis at the enterprise, when employees are not paid or are seriously delayed wages, the owner’s remuneration should be postponed.
How do you determine the amount of your own remuneration and how often do you pay it? Please share if this is not a trade secret 🙂