When I started my own sign making business I thought that one of the best parts was paying myself. Boy, was I wrong!
My business partner and I came up with a great idea… we would just simply leave about $2000 in the checkbook, and split everything else 50/50. In theory this was a great idea, but in practice it was something else. We never built up enough capital in the business to invest in the equipment we would need to generate more revenue. Back to the drawing board! It took quite a while to get this one right.
If you struggle with paying yourself properly, this post might be just what you need. Here are 5 tips that will help you find balance and properly compensate yourself for all your hard work at your small business.
- Balance is key. If you pay yourself too little the IRS might put your sign business under the microscope and you may suffer some penalties. If you pay yourself too much there may not be enough left for your company. Paying yourself a balanced salary is key.
- Keep in mind your compensation and taxes are affected by your company’s legal structure. LLC? Sole proprietorship? What is best? Different types of compensation are taxed in different ways. Salary and bonuses will be taxed on way and what you receive as a shareholder will be taxed in another. Get some competent advice. (See #4, below)
- If you are unsure as to how much to pay yourself, try and find out what market rates are for CEOs in your industry that have similar sized businesses. If you belong to a trade association they will be able to offer you assistance.
- Additional advice on how to pay yourself properly may be provided by your attorney and your accountant.
- Most small business owners spend the first few years earning nothing or next to nothing for their efforts. If your business is out of this difficult period then don’t hesitate to compensate yourself accordingly when the business is doing well. I’m not saying get greedy, just give yourself a very deserved pat on the back.
Do you find it difficult to figure out how much you should pay yourself? Have you been able to strike a balance and properly compensate yourself for your hard work? Share your thoughts and tips for paying yourself in the comments section below.