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Why You Should Pay Yourself a Market-Based Salary!

3 Good Reasons You Should Pay Yourself a Market-Based Salary!

What Is a Market-Based Salary?

Often, I’m asked by our clients, “How much should I, as the owner of my company, be making?”  What a great question! After all, as owners of restoration businesses, they’ve probably worked tirelessly day and night for that paycheck! But how much is too much, and how much is too little for all that hard work?

In my previous article, “Are You Making Money?” I mentioned that business owners should be making a market-based salary. A market-based salary is a method of compensation determined by using market pay data of comparable positions and functions. A good distinction to make early on is that a market-based salary is not the same as taking distributions. Distributions are a reward for running your business effectively and making your company profitable. Your market-based salary is what you get paid for doing your job.

Why Should You Pay Yourself a Market-Based Salary?

There are three big reasons as to why you should pay yourself a salary instead of just drawing your paycheck from your presumed profit. If you’re not paying yourself on a market-based salary, you’re:

  1. Not putting enough money into your Social Security. This can rob you of money you’ve earned for retirement.
  2. Distorting your financials, and consequently, they’re lying to you. This is because you’re not properly stating your profit before taxes.
  3. In risk of an IRS audit. Nobody wants this, including your employees.

Bonus- your employees are watching what you do in your business. If they know you’re taking a fair salary (like them) and not constantly paying yourself out of the company’s profit, your employees will be more engaged, happy, and productive.

How Much Should a Small Business Owner Be Paid?

Think of it like this: “If I were hired by someone else to do the job I’m doing right now, how much would my salary be?”

If you find that question difficult to answer and you’re wearing multiple hats in your business, make a list of your top responsibilities. How much would it cost you to outsource each of those responsibilities? Combining all of the wages that you would pay to outsource those responsibilities will give you your market-based salary.

You can find hourly and yearly market pay data specific to owners (as well as employees) of construction, restoration, and remediation businesses through these websites:

  1. Glassdoor.com
  2. Salary.com
  3. Payscale.com
  4. SBA has good resources as well- https://www.bls.gov/data/#employment

So what’s your salt’s worth? To help you get to the next level of profitability for your business (and yourself), Business Development Associates (BDA) is offering you a FREE Gift in the form of a Profitability Assessment that is a value of $997. Contact us by email to schedule an initial discovery call to discuss your profitability.

At BDA, we believe that every restoration business owner has the right to expect that their company can deliver to them what they want out of life- freedom and the ability to create wealth.

May the Profit Be With You!

John Capponi, CR
Operations and Management Consultant  |  Business Development Associates, Inc.
john@gobda.com |  Cell: 407-745-7698

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