When Small Business Owners Should Take A Salary

When Small Business Owners Should Take A Salary

Many people have questions about when and how much of a salary to take from their business. It is a simple question with a simple answer, but not the type of answer most entrepreneurs would like to hear. It is because many entrepreneurs do not feel comfortable unless they can be completely dedicated to their business - which means that they will need a salary to support them. Unfortunately, this usually results in the business owners using their profits (that is supposed to be dedicated to the business) in order to support their lifestyle. The Best Time for a Salary So, when is the best time to take a salary for a business? When all of the organization's reserves are filled (i.e.: General cash reserves, research and development, miscellaneous expenses, investments, charitable, etc.). Then, and only then, can a business leader even consider taking a salary. It is because only then is the business the most stable - and able to weather the ever-changing needs of the market and the economy. When it is not 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 have to make sure the foundation is laid before you live in the house." How Much Salary Should I Take? Another question pertaining to salary includes how much of a salary a business leader should take. This is another simple question with a simple answer - yet again, not a popular one. Here it is: "When all of the other expenses and reserves have been covered, and there is still money left, then that is your salary." This advice is unpopular because usually after all of the other expenses and reserves are covered, there is not much money left. This also unpopular because it implies that in order to have enough to live on - a business leader will have to wait a few years until the business builds up enough income to support the lifestyle the business leader is looking for. Now, there are some options: the business leader could run the business in such a way that expenses are kept low, and create more profit. Or, a business leader can maximize the revenues of the organization through multiple profit centers, pricing strategies, etc. in a way that results in more income. Another idea would be for the business leader to identify other sources for supporting himself or herself such as: the other spouse working, living off of savings, getting a part-time job in their field, etc.). The best idea, of course, would be to combine all of these things, and create greater opportunity to increase profit to support the business leader. In conclusion, before a business owner can take a salary the financial 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 right environment where the business can grow, it is stable financially, and the business owner can take home some real money.

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