5 Ground Rules for Entrepreneurs Setting Their Own Salaries
One of the most common reasons that people start their own businesses is because they are tired of using their own hard work to make other people rich. While you should be able to make a nice living for yourself by owning your own business, there are no guarantees that you will get rich. As you sit down to figure out how much of the company’s profits will become your income, there are five steadfast ground rules every entrepreneur should follow.
Pay Your Staff First
The honest truth is that if you ever get in financial trouble, you have your business to help you out if necessary. But if you don’t pay your staff, then their only alternative is to find work elsewhere. Constant employee turnover costs any business a lot of money, and you will find your company teetering on the brink of bankruptcy quickly if you do not pay your staff before paying anyone else.
Start Off As Low As You Can
As the owner of your business, your income should grow with the company’s growing success. Brand new entrepreneurs have to understand that there has to be financial sacrifice on their part when their business is first starting out. But as the business grows, it is perfectly acceptable for the owner’s income to grow as well. It is important to keep the owner’s income growth in proportion to the rest of the company to avoid the owner’s salary becoming a financial burden.
Your Pay Should Vary Depending On Cash Flow
If your company does not have sufficient cash flow to pay bills or meet staff pay requirements, then your pay should reflect that. If you can cut some money from your income for a pay period to help the company pay its bills, then that is a sacrifice you have to make.
Explore Your Options
There are instances where your income, as the company owner, could become a tax break if your company has the proper legal set-up. As you are exploring legal structures for your organization, talk to your attorney or accountant about the options that could help you use your income as a tax deduction.
Always Pay On A Schedule
One big mistake new company owners make when they start paying themselves is they pay a little here and a little there when they need it. If you want to develop the financial discipline it takes to run a company, then you need to be able to budget your personal money in the same way you would budget your company’s money. You should pay yourself on the same pay schedule as your staff, and never give yourself the chance to grab extra money when you need it.
Owning a business is a dream come true for many people, but there are plenty of mistakes you can make that will turn that dream into a nightmare. When you start your business, you should get into good habits about paying your salary right away and get used to putting the needs of your company ahead of your own.