A small business owner is faced with a lot of challenges on a daily basis. Because of this, leaving room in the financial plan for a personal salary sometimes gets forgotten.
While the amount in each employee's paycheck typically is more important when starting out, an entrepreneur should always figure out how much money can go into their own pockets at the end of the day.
What is the right amount?
When starting a company, owners have many goals. While not everyone is willing to admit this, one of them is always to make money. Small businesses are faced with a tough task when trying to determine what is the perfect amount for owners' salary, but there are a few simple financial tips to get started.
One school of thought is that owners should pay themselves whatever they feel they are worth, comparable to the industry standard, according to Inc. magazine. This means their salary should be more than that of a traditional job, because of the added risk, stress and pressure placed on an entrepreneur.
Another solution is for small business owners to pay themselves whatever is left after all of the other expenses are taken care of, the news source noted. While this strategy means less in each paycheck, it might also be slightly safer. A financial plan will be more stable, because money will have already been set aside for bills and expansion.
Overall, the best choice comes down to the entrepreneur's personal goals. If wealth is important from the start, that could affect the salary. However, if business growth is the first priority, owners may want to take a chance and wait to reward themselves.
Planning for a personal salary
In order for small business owners to plan for their own salary, several items need to be looked at. Those who take the time to prepare before making the call could help a company thrive.
Three of the biggest factors when entrepreneurs are figuring out their paycheck are: The amount needed to cover personal expenses, what the company can afford and if it is comparable to their previous salary before leaving to form their own business, according to Entrepreneur magazine.
All of these should be considered, and a great place for many to start is determining what a livable wage is. The entire company's expenses should also be calculated, so a personal paycheck doesn't prevent it from running smoothly. The ideal range is a salary that still allows for growth while remaining relatively close to the amount an entrepreneur would get paid if they worked for another firm.