If you’re the one responsible for managing your small business, you can enjoy a variety of perks that come with being your own boss, including the freedom to choose your own salary. Being in charge of your enterprise, you have to deal with myriad expenses including employee wages, rent and other operating expenses. After all that, it’s difficult to determine how much of the leftover funds should be stashed away in savings and how much belongs in your own pocket.
It’s a delicate balance. On one hand, you’ve worked hard to keep your business afloat, and you deserve compensation that reflects the toil you’ve put in. On the other hand, greed can be damaging to your company’s finances and the morale of others around you.
How much, exactly, should you pay yourself? There are no easy answers. Here are a few guidelines, though, that should help you arrive at an appropriate dollar amount.
Compare yourself to your peers
Entrepreneur magazine recommends starting by doing some research on how much other executives in your field are being paid before making a decision about yourself. Jack Chapman, author of “Negotiating Your Salary: How to Make $1,000 a Minute,” tells the news source that many websites are out there to help you gather information about executives’ salaries.
“While these sites are not targeted to entrepreneurs, you can find a business similar to yours, see what people are getting paid, and use it as a benchmark for what to pay yourself,” Chapman explains.
Once you have a basis for comparison, think about how your job is different from others’. Is your company bigger or smaller? Do you handle more responsibilities or fewer? Then find a comparable salary that makes sense.
Think of how your employees will react
Of course, you’d ideally like to keep your salary confidential rather than reveal it to your employees, but sometimes secrets get out. If your workers do find out about your salary, you want to be careful to make sure it doesn’t defy expectations in either direction. If you’re making too much, it will make your staff feel jealous and alienated, but at the same time, you could also be making too little, which might lead them to respect you less. Your salary should achieve a happy medium.
Consider your workload
Sometimes, your role as an entrepreneur is more than just being an executive. It’s not unusual for a CEO to double or triple up on job titles, acting as a salesman, and/or a buyer, and/or a social media manager, and so on. If you work more than one job, it’s not unreasonable to be paid like it.
“If say you’re doing jobs that would cost you $250,000 to hire out, you might keep 50 percent of that for yourself,” Chapman said. “If the business can handle it.”
Ponder your business’ finances
You never want to overextend your company financially just to pay yourself. Before you decide on a salary, take a careful look at your books – and be sure to consider the future, not just the past and present. You know how much money your small business has now, but will future growth plans have an adverse effect on your cash flow? Are there market factors or competitors’ actions that might put a dent in your profits? Think about how much money you have now and how much will be left next year before you put away a chunk of change for yourself.
There’s more to it than money
Bankrate notes that paying yourself can be more than simply giving yourself a paycheck. If you can’t afford to collect a large salary, there are other ways to make the job financially worthwhile. Maybe you can offer yourself more affordable health care, or a better retirement savings package, as a way of offsetting the lack of dollars and cents. Alternatively, you could pay yourself in additional time, not money – a job is much more comfortable if it offers additional vacation time or sick days to break up the monotony.
Consult a professional
If you’re having trouble deciding on a salary, you can always ask for outside help with your decision. Bill Coleman, senior vice president of compensation for Salary.com, tells Bankrate that it doesn’t have to be an awkward conversation – by asking for a range of potential salaries, you can avoid getting into embarrassing specifics.
“To set them at ease, just ask them what they think a person should expect as an average salary for someone with your level of experience,” Coleman said. “You’re not asking them what they make, but just asking for a range. It’s a little sleight of hand, but it makes people more comfortable.”
Deciding on your own salary is never easy, but considering these tips will make the process less painful. What other advice comes to mind for you?
- How to Reopen Your Business After a Shutdown – Four Important Steps - July 14, 2020
- 8 Best Practices and Technology Tips for Remote Employees - March 30, 2020
- How to Stay Connected to Customers While Employees Work from Home – Six Tips - March 28, 2020