How to Be a Responsible Entrepreneur
August 3, 2020
By Serah Blackstone-Fredericks with Books in Harmony
If you are a business owner, you know that balancing the books and still making sure that you are taking care of your own salary can be a fine line. Many entrepreneurs understand that business can require a lot from you. Not just a sacrifice of your time and talent, but also deciding on what your salary is going to be.
The first step in assessing what you should be making begins two of the most important numbers in your organization. Your gross and your net profit. Which one are you taking your salary from? As someone who spends every day helping both individuals and larger businesses get a handle on their books, I can tell you that many people are doing the math on this important aspect all wrong. Many business owners are looking at their gross profit only and taking a salary from this amount. The problem with this aspect is that it doesn’t take into account operating expenses, taxes, or payroll.
Many new business owners take very little in the way of salary when they are first starting out. With achieving your dreams and building the life you want, you know that there are going to be some sacrifices you will need to make in the beginning. But when the time comes that you are ready to begin paying yourself a consistent salary, you want to make sure that you begin with the right mindset. This begins with the right number focus so that you understand the where, when, and how. So where do you begin to take your salary from? You begin with your net profit, not gross. Why? Because in the beginning, you have to make sure that the lights stay on and that your team gets paid. Those are all operating expenses. Once you have done the math to find out what you have left, post expenses, then you can figure out what you are making in revenue after expenses and take your salary distribution from that amount.
Yes, it may be a while before you can pay yourself what you want, and what you feel you deserve. The goal as your grow and scale your business is that you will make enough money to not only cover all of your expenses but be able to pay yourself the salary you want.
So, how do you get there? You have to see growth. Measurable growth will be something that you can see with a good bookkeeper providing financial reports. Start by reviewing your Profit and Loss statement. If something is unclear, request a meeting or clarification. As that number of your Net Profit grows, you will be able to assess the growth, the stability of that growth, and look for patterns to great sustainable growth. When you are serving your clients and doing what you love, those numbers will grow. Service speaks for itself. There is only one you, and no one is going to be able to serve your client base the way that you do. Your business will grow as you grow and if you remain dedicated to seeing that growth and serving your company and your clients, that salary will begin to grow too. Keep watching the numbers, and you will reach new levels of success and serve a greater audience and when you are ready, I will be here to help you grow those books and your salary!