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3 Ways to Determine Your Own Salary

September 18, 2013
URL: http://www.entrepreneur.com/article/227384

Jason Bussanich runs Westlake Chiropractic in Lake Oswego, Ore. His wife, Kyra, owns Crave Bake Shop, a popular gluten-free bakery. They work hard, and their businesses do well, but you wouldn't know it from their meager paychecks.

"For the first two years I ran the business, I didn't take a dime," Kyra says. "Even now I take just enough to pay my household bills." Her accountant says she could pay herself more, but Kyra would rather reinvest in her business.

Jason faces similar issues. "I feel guilty if I don't put money back into the business," he says. "I'm in my second year now, and I've been paying myself less than my employees so I could afford a recent remodel and new equipment."

By the Numbers
o Base your monthly salary on the lowest monthly earnings from the previous 12 months, not the highest.

o The National Federation of Independent Business says that, as a general rule, owners of profitable small businesses don't take more than 50 percent of profits for themselves.

o Start an emergency fund. "Try to keep a minimum of one month of expenses in the business, just in case," says entrepreneur Jason Bussanich. "It keeps stress down. I usually won't pay myself if it means dipping into that one-month buffer."

If you're in the trenches of running your own business, this couple's predicament likely comes as no surprise. But here's the thing: Like them, you probably didn't launch a business to make less money than you did at your last job. The whole point is to follow your entrepreneurial dream to a better life, right?

I'm here to tell you that it's all right to think about funding that better life sooner rather than later. While there is no one correct answer as to how to pull this off, there are ways to put money in your pocket and grow your business. Consider these methods:

1. Pay yourself what you're worth.
Make use of online resources such as Salary.com or Glassdoor.com to discover what others in your position and geographic region typically earn. Some business owners find that this method motivates them to succeed.

"I set a salary for myself," says Amanda K. Larrinaga, a serial entrepreneur based in Denver. "If I can't cover everything, I hold off on my salary but mark it as a debt the business owes. It's amazing how quickly I've adjusted [my costs] to be sure I get paid."

2. Make every month a bonus month.
Many business owners pay themselves whatever's left at the end of the day. "I pay all of the business-related expenses each month, set aside funds for taxes, and then the rest is salary," says Debbie Dragon, co-owner of Valley View, Pa.-based Trifecta Online. "It's different every month because the earnings are different every month."

3. Pay yourself the absolute minimum.
If your business is in growth mode (any new company's default), consider paying yourself just enough to cover your mortgage/rent, car and household expenses. The Bussaniches, for instance, draw enough income to put food on the table while funneling the rest of their earnings back into their companies. But be sure you're working toward a plan to pay yourself. If your business model doesn't include a line item for your salary that grows along with your company, it's not a realistic model.