Entrepreneurs Pay Themselves What They Are Worth

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Read Other Articles By Art Consoli & Check Out His Author Bio

The Entrepreneurs Guide Series
How To Evaluate And Profit From A
Business Opportunity
By: Art Consoli

Entrepreneurs Pay Themselves What They Are Worth
The Entrepreneurs Guide Part 17

When you are the owner of your own business, one of the most difficult decisions you will make is how to pay yourself and how much to pay yourself.

By: Art Consoli

First, there is the issue of adequate cash. If you are doing things on a shoestring, you may not have enough money to pay yourself. Suppose that you do, but it will be a struggle. You might opt to pay yourself but to not run the pay through all of the deductions. In other words, you treat yourself as an independent contractor -- or maybe you just borrow enough money to meet your monthly needs.

On the other hand suppose you properly capitalized the business -- either with your own money, investor money or bank loans. In this case you can pay yourself and pay all of the associated payroll expenses. But how much do you pay yourself?

In either situation, I suggest that you go back to the projections you made when you first started looking at the business. In those projections, you included expenses for salaries and you had a number in those projections for yourself. Or, you should have.

What was it? How did you arrive at that number?

One way would have been to consider how much you wanted, how much you needed to live on. A second way would have been to come up with a figure based on what you were worth. If your last position was President of a multi-national corporation, and you were paid a million dollars a year -- then that's what you are worth. Right? A third way would have been to establish a salary based on what the going rate is for a person to do the job in a business similar to the one you now own. Industry statistics are available and this amount should be fairly easy to determine.

But you bought or started this business because there were things you and you alone were going to do to make it an incredible success. You could never find a person who would be able to do what you have the vision to see and to accomplish. You can easily convince yourself that you are worth more that the industry average.

And last, since you own the business, (without investors for this example) you might feel that you are entitled to everything that is left, and you could just ignore the fine lines between salary, perks, bonus and distribution of profits.

I may be in the minority here, but I suggest that if you are serious about business and about making what you bought or started into a successful business -- treat it like a business and run it as a professional manager would. In fact, go to the point of wearing two hats -- a manager and the owner. While wearing the owner's hat decide how to pay yourself while thinking about how you would hire and pay a well-qualified professional manager.

Separate compensation into parts. The first should be for showing up (basic salary). The second for perks to clear away the static that can prohibit performance (some clubs memberships do put you in contact with business prospects), and the last, a bonus based on some combination of increased sales (just a small piece) to increasing profits (a bigger piece) and making the projections within say 5% (plus or minus)…. the biggest piece.

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Art Consoli's unique background and skills allow him to speak and write about how someone with limited experience can do a self-evaluation which will let him decide which business opportunity is best, how to evaluate opportunities and gain control over the one which offers the greatest potential and then manage that business to success. Readers of his book call and write to tell him how much his book has helped their lives and improved their business. The author can be reached at www.businessstrategyartconsoli.com.