Being the boss means you get to make all the big decisions about your business – including how much to pay yourself in wages, salary or drawings.
As the owner, you might need to underpay yourself in the early stages of building your business, so you can reinvest the profits. But your time is valuable – and you need enough money to pay the bills. So how can you find the right level of pay? It has to be enough to keep the mortgage paid, while also building a thriving business.
So if you’re trying to decide how much to pay yourself, here are a few questions you should be asking:
What can my business afford?
You need to leave enough cash in the business to keep it ticking along, pay your basic costs, and meet your tax obligations with Inland Revenue. Once you’ve considered all those outgoings, how much does that leave you as a potential salary? We can help you work out what that number is, so you can establish a sustainable rate of pay.
What’s the market rate for my role?
In other words, what would you have to pay someone to do the work you’re undertaking in this business? Maybe you wouldn’t actually be able to find anyone to work the same long hours. But, if you were hiring someone with your experience, to do the same sort of work for 40 hours a week, what would they expect to be paid? That number is a good starting point for thinking about your own salary or drawings.
If you’re being underpaid, it’s time to think about ways to grow your profits. On the other hand, if you’re being overpaid, congratulations on building a highly profitable business!
Could reinvesting profits grow my income faster?
Consider the possibility of taking all the profits out of your business. Doing this could give you a strong and sustainable income. However, you may also like to consider reinvesting your profits. This could grow your business faster, therefore leading to a higher income in the long term. You might choose to spend some of your profits on advertising, a better website, or developing a new offering, for example. Alternatively, you could pay for assistance in some areas of the business. As long as this investment leads to further growth, it might be well worthwhile.
We’ll help you run the numbers
Being a business owner can be rather stressful – there’s so much to think about. Let us make your load lighter. We can help you figure out how much your business can afford to pay you, analyse the potential gains of a business investment, or weigh up the pros and cons of hiring someone to help you.
Get in touch! Our team of experienced business advisors would love to hear from you.