Are You Paying Yourself Enough?
Few issues are more emotional in business than who gets paid what.That emotion is amplified when the person being paid is the owner, because everyone is interested in what the owner makes. Self sacrificing owners everywhere are worried about their employees thinking they're making too much.Most owners should direct their worry to other places. In my experience, far more owners are making too little rather that too much. There's even a term for it, "sweat equity".I'll be the first to admit that I've put in my share of sweat equity. It's very easy to think, "Yeah, I'm not getting what I deserve now, but my time will come."For too many though, that time never comes.One of the sources that adjusted my thinking on the issue of owner pay is the book "Profits Aren't Everything, They're the Only Thing". The author, George Cloutier, is a noted small business advisor. Through compelling anedotes and brute logic he stakes out a strong contrarian position that businesses must be managed for profit first. That means taking a set percentage off of the top line (according to industry), assigning that to profit, and adjusting expenses to make everything work.On pay, Cloutier recommends 3 to 4 cents for every dollar of revenue going to the owner. An alternate way of looking at it would be to pay yourself at least what you would have to pay a general manager to come in and do the job you do.That's pretty much the definition of market rate, and is only what's fair. Besides fairness, it's interesting the problems that Cloutier has found from owners not paying themselves what they should. Among those are loss of authority and lack of respect from employees. The lack of owner salary can also cover up problems in the business model.That makes a lot of sense too. Anyone can give stuff away. You're not in business to do that. You expect to be compensated fairly for what you provide. The cost of you is part of the expense in what you deliver, and to eliminate it is to set you up as a provider of charity, not business. Large companies certainly don't provide executive services for free, and neither should you.There's also a more subtle reason to pay yourself. If you're going to take care of your business, you have to take care of yourself and your family. If you don't, you'll be so distracted with those worries that you won't be able to give the business what it needs. The way to do that is to ensure that your businesss takes care of you so that you can do the same in return.That's why your first goal should be to pay yourself what your worth.