Small Business How to Pay Yourself
In starting a business it is right to consider on how you will pay yourself. However, there are some considerations to follow in setting your salary.
Self-discipline is also important in deciding the salary.
Every entrepreneur who plans to start a business faces the age-old conundrum of what to pay oneself. With regards to this concern, there are various theories to consider. First is that you can pay yourself by minimizing the overhead in order to reduce the start up capital. The net profit will increase by reducing the overhead and at the same time maintain lean operating requirements. Second, is that determine the pay that you deserve. You can do it by creating a business plan that can help you identify the amount of capital needed in starting up a business. In this sense, you should pay yourself the amount you are worth so that it could not affect the operating costs of your business.
Planning plays an important role in getting over these two theories. By planning your income and cash flow you can have the chance to know the required operating capital from the formative phases until such time that your business is established. In addition, you need to equate your needs and the pay you deserve. This is important so that you can sustain your business against other operating requirements.
Projecting the Salary
You can use either of the two methods of determining your pay as you start your own business. Primarily, you should pay yourself with the right amount that can meet the living requirements. This means that you should receive the amount enough to cover the bills, food and other living expenses. However, you should ensure to stick with your necessities and do away with discretionary items. You should include in the planning all the financial statements as well as loans. Maintain a balance sheet listing all the common items needed. As much as possible, you should pay all your debts before starting a business so that it will not affect your capital.
Another way of projecting your salary is through your basic worth. You can determine it by writing down your hourly wage or current salary. This is one way of determining your market worth as you start a business. As much as possible you should include your salary in the business plan so that you can have an overview of your cash flow projection. Keep in mind that when you borrow capital from any bank they will check your business plan carefully. This is to ensure your capability to repay the loan. They will also check if your income and profit can cover your living expenses. Other options that you can choose to pay yourself are through dividends, fringe benefits and delayed compensations.
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