Welcome to Advisory Board, a weekly department in which a panel of experts—made up of entrepreneurs and professionals—answer questions you have about how to run your business better.
This week, a reader asks:
“Four years in, my company is bringing in high six-figure revenues and continuing to grow at a sustainable pace. I have yet to take any money out of the business. When is the right time for entrepreneurs to start paying themselves a salary? And how do I calculate how much it should be?”
Here’s what the experts have to say.
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“Four years is a long time to go without a pay cheque; I presume you also have another source of revenue. I wouldn’t fuss too much about “calculating” how much you should pay yourself. You have two options: Take as much as you bloody well can without compromising the business, or take something less than that that fairly compensates you for your time.
“The degree to which calculations are needed centre on figuring out how much your time is worth. How much your time is worth to someone else is easy to establish because it will be reflected in what you are able to make doing something else. There will be several components to the value of your time. Monetary is easy; harder is the value of control or your own time, of being your own boss, of being someone else boss, of the “prestige” of being a business owner and so on. Your monetary compensation need not be as high as what you can make doing something else for someone else if the above factors have intangible value to you.”
—Charlie Reid, Charlie Reid & Associates, Kingston, Ont.
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“I don’t have a math solution for you, but if you’re in year four and a success, I’d say you should be paying yourself by now. Ask yourself, What am I worth to the business? Start there, develop a forecast, and run some numbers to see what’s doable.
—Christine Faulhaber, President and CEO, Faulhaber Communications, Toronto
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- 4 Smart Strategies for Selling Into a New Market »
- The Deal You Can’t Afford to Do Yourself »
- How to Reward Employees When You Can’t Afford a Bonus »
- When to Fire the First Person You Hired »
Do you have a question you’d like answered? Email us and we’ll put it to the experts. Have any advice to add to this list? Share your thoughts using the comments section below.