A lot of people have questions about when and how much of a salary to choose from their enterprise. It’s a simple question with a straightforward answer, but not the type of answer most entrepreneurs would love to hear.
It is due to the fact that entrepreneurs don’t feel comfortable unless they can be wholly dedicated to their business – which means that they will require a salary to support them.
Unfortunately, this usually results in the business owners using their gains (that is supposed to be committed to the business) in order to support their lifestyle.
The Best Time to get a Salary
So, when is the best time to take a salary for a small business?
When all the organization’s reserves are filled (i.e.: General cash reserves, development and research, miscellaneous expenditures, investments, charitable, etc.). Then, and only then, can a business leader even think about taking a salary. It’s because only then is the business the most stable – and ready to match the ever-changing needs of the market and the economy.
When it isn’t done this way, it seems manageable for a time, until a major market shift, or an economic downturn happens that puts the business at jeopardy.
Therefore, as the saying goes:
“You need to make sure the base is laid before you reside in the home.”
Another question pertaining to salary includes how much of a salary a business leader should take. This is another very simple question with a simple answer – yet again, not a popular one.
“When all the other expenses and reserves have been covered, and there is still money left, then that’s your salary.”
This information is unpopular because usually after all the other expenses and reserves are covered, there’s not much money left. This also unpopular because it implies that in order to get enough to live on – a company leader will have to wait a few years until the company builds up sufficient income to support the lifestyle the company leader is looking for.
Now, there are a number of options: the business leader could run the business in such a manner that costs are kept low, and create more profit. Or, a business leader can maximize the revenues of the business through multiple profit centers, pricing strategies, etc. in a manner that results in more income.
Another idea would be for the business leader to identify other resources for supporting himself or herself such as: another spouse working, living off of savings, getting a part-time job in their field, etc.).
The best idea, of course, is to combine all these items, and create greater opportunity to increase profit to support the business leader.
In conclusion, before a business owner can take a salary the fiscal foundation of the business must be laid. This means the business owner can take a salary – but only when the time is right. Only then can you create the ideal environment where the company can grow, it is stable financially, and the business owner can take home some real money.