Different owners have different methods of calculating their salaries. How much salary you receive and how much you spend depends on various factors and can also vary from person to person. There is no single solution that fits all. You must judge, calculate, and adapt to your business earnings and expense schedules to set a decent business owner’s salary.
Entrepreneurs require special money management plans aimed at covering their operating expenses, taxes, paying off debts (as large businesses usually have a few of these in their pockets) and finally some decent savings. It’s time for a more in-depth approach towards your owner salary calculation:
1. Net Income
Think of your salary as a big fat cake you gift yourself at the end of every month. Now if your salary is a cake, the net income would be its base, the foundation on which you will make your cake. Calculating this is easy as you only need to subtract the business expenses from your gross income, and viola! You have your profit.
Different business owners prefer to calculate the net income of their business based on different periods. For eg., a yearly, half-yearly, or quarterly plan. Pick your preference and stick to it.
2. Taxes are inevitable
Taxes are inevitable and should be your priority right after you’ve calculated your profit. Anything else such as investments, loan payments, fancy decorations and anything else should be your second priority. There are various budget concerns to consider, but the sweet spot is around 20-30% based on your business. Once you’ve calculated your profit, make sure you set aside at least 20% of it for tax payment (or more if you have a higher tax bracket).
You can also hire an accountant or an income tax officer to do your bidding for you. If you’re just starting and can’t afford an accountant, 30% is a good place to start.
3. Debt time!
So, you have calculated your profit, paid off your taxes, and finally, it’s time to buy that watch you’ve been eyeing for the past couple of months. Stop! Remember the worry of all your business debts, and now is the time to deal with them.
Owners usually borrow money from banks and there would be a fixed monthly instalment to pay. However, if a personal party is involved, they too must be paid a minimum amount of money each month. Only in this case, you can add a few hundred bucks to the payment to speed up the process, if you have something leftover from other expenses.
Now that the taxes and the debts are taken care of, it’s time to think about investments. Business is a continuous growing process. Know how to manage your resources in the most efficient way possible.
There are a lot of things to consider, and each topic is capable of taking up the entirety of this article.
Emergency funds, yearly expansions, personal investment – the possibilities are endless. Before you start writing your paycheck, take a look at the list of things you need to consider so that you can write beefier paychecks in the future.
Equipment and new employment
As your industry grows, you will need some extra pair of hands to manage the added workload. Keeping aside some money for future expansions is always a good idea.
Developing new products
The F&B and retail industry is always evolving. If you want to remain in the game, you must be able to adapt to any situation. The success of a business depends significantly on its vision, how the top management grasps onto trends, and how they adapt to the customer demands. The same goes for launches. When you’re launching a new idea, it needs to be impactful and must have an everlasting impression on your target audience. Launch events can be an expensive proposition, so make sure to plan ahead.
It has become mandatory to create a website to represent your business on the internet (if you want to remain competitive, that is). In order for your vision to grow, you must make it accessible to people around the world and observe what they think about your product and services. Attractive website design can captivate your visitors to feel compelled to subscribe to your services.
Possibly the most important of them all is the emergency fund. Ensure that you have 3 to 6 months of capital as a backup in case you turn over a bad stone on your journey. These funds should remain untouched unless an emergency has put a cork on your cash flow.
The priority of the above list is for you to decide. See which one sticks out the most and requires an immediate resolution.
5. Be practical
After sorting out the necessities for your future, look at what’s left. Compare your wants with what you need. You should not buy something just because someone else is rocking it. Don’t just observe and act. Judge your actions and act accordingly. Don’t get swept away in a superfluous flow. You may have made necessary arrangements, but there might be situations where you must be able to handle whatever comes at you with ferocious wisdom.
There is no harm in double-checking. Anything above double-checking is absurd. If it’s OK then it’s OK. You must be confident enough to make conscious decisions. If the numbers are right, then they are right. If you are right, then the decisions you take are also correct.
Make sure the money you’re investing suits your current financial position in a healthy way. Having prior knowledge of your priorities will help you deal with them in a more efficient and resourceful way.