It’s an age-old conundrum that faces every entrepreneur planning their business: What do I pay myself?
Unfortunately, many business owners fail to record their own salary as a cost to the business. Although I am not a Tax Advisor, there are 2 common reasons for this:
- It is not tax advantageous, or
- The business isn’t earning enough.
However, I strongly recommend business owners to consider themselves as an ’employee’, with a start date, salary level, superannuation, and all benefits which the rest of the team are granted.
When it comes to the question of “how much” here is my advice:
You have to do some planning and simple mathematics.
Ascertain the market level salary for someone with your qualifications and experience relevant for the position. Whether this figure is taken as salary, dividend, or left in the business as profit is not relevant at this point. The essential factor is: include the salary into the company budget, so that your sales target and gross profit target are correct.
Here are some other things you should also remember to take into consideration:
Contributing superannuation into your retirement fund is critical, and remains one of the best options for your future, as well as minimising tax. And if you aspire to contribute to your Self Managed Super Fund (SMSF) with a view to investing in property – review the qualifying criteria by the banks to ensure that you meet the expectations of paying regular amounts into your SMSF so as to provide confidence that you could indeed meet the regular mortgage payment obligations.
Annual, and Long Service Leave
Just as important is recording your annual leave entitlement. Imagine that one day you decide to sell your business, and on that day, you discover that all of your staff get paid out their leave, but there is no annual or long service leave record for you, and so you don’t get a payout!
You are an important investment in your business – so don’t let your owner entitlements slide.
If you would like some help to put some, or all, of this into action, then give me a call for a complimentary consultation session to develop your game plan.
I am here to help.