Entrepreneurship is a great way to become wealthy, but it requires hard work and luck. It's a risky venture, and you don't have complete control over the outcome. Even so, many people are drawn to the potential of starting their own business. Melanie Hopkins, founder of Finance Friend, a New York-based firm that helps entrepreneurs start and grow businesses, says there is no one-size-fits-all formula for how business owners should pay themselves.
It depends on the type of business, its legal structure, and other factors that affect the amount of salary a business owner pays for their services and experience. Along with these considerations, each company has different operating costs. People should be paid for their work, Hopkins says. They don't have it, because they have a scarcity mentality and fear that, even if they have budgeted and everything looks good, they have to keep the money in the company's bank account. Not paying yourself leads to exhaustion, so it is essential to make even a modest monthly payment.
Deciding what salary figure to land on requires some work, starting with creating a personal budget. You must determine how much you need to withdraw from business to live. Be realistic about how much your life costs, Hopkins advises. You want to pay yourself enough to be able to maintain the business and maintain your lifestyle. When Bajan decided it was time to start spending more on marketing, he had to reassess how much he really needed to eliminate from the company. After reviewing her personal expenses, she lowered her drawing to 35% and started paying herself every week instead of about every other week.
“What I was doing before was too much,” he says. “I felt like I needed to be smarter.” Until this month, Bajan and Artz had what Bajan admits is a strange way to pay themselves. At the end of each month, they would see how much money they needed to cover their personal expenses and then they would write a check for that amount. While they made sure that the draw was the same for both of them, the figure changed monthly. “Our wives' salaries would cover part of it, but we both have mortgages, credit card payments and countless other things to pay, so we would cover what their salaries can't cover,” she says. In March, however, Familiar Creatures became an S corporation, requiring its owners to receive a salary comparable to what someone in their position would earn elsewhere.
The IRS doesn't want people to pay themselves a small salary and then take the rest as dividends, which are taxed at a lower rate, Hopkins explains. Because of that change, Bajan and Artz had to determine a real salary, one that could be paid every two weeks. To do this, he looked at Glassdoor, a site where people anonymously post their salaries. The two co-founders call themselves creative directors, so they analyzed what a creative director of an advertising agency could do and took the lowest number they could find. After all these calculations, they still earn a much lower salary than in their previous jobs. “I'm paying myself what they paid me five years ago; it's in the middle of five figures” Bajan says.
Both Bajan and Eckert expect their salaries to grow over time, but Hopkins says getting more out of the business is easier said than done. In many cases, business owners forget to raise their salaries, especially if they pay themselves every two weeks instead of simply taking what is left out of the bank account at the end of the month. “You should recheck your salary” Hopkins suggests. Eckert plans to continue paying herself around 35% of revenues. If income grows, so will your paycheck.“According to my projections, if we reach our numbers I will be able to raise my salary because the company will grow” he says.
It gives me the motivation to achieve those goals. As for Bajan, he says that if his company has a big year then he would like to take a little more for himself; although he is not sure how much. Anyone who has been an entrepreneur understands how difficult it is; often extending into late hours of night and on weekends. The salary approach of entrepreneurs is practically identical to the way people are compensated in general workforce. In short; making money is one of the worst reasons to start your own business or another business venture. Brave CEO& entrepreneurs share; inspire and celebrate outrageously successful ethical companies and their leaders.
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