Business Development

May 29, 2014 In Business Development, Business Tips

Five Essential Components of an Entrepreneur’s Compensation

The two major ways entrepreneurs can take money from their business is through draws or by receiving a paycheck.  The type of entity in which their business is set up will determine which method can be used. In either case, entrepreneurs need to be careful not to shortchange themselves.

Especially if you’re running a service business, it’s easy to initially think you can do well with a similar hourly rate that you earned as an employee.  Here’s a quick list of five elements that should be included in the compensation of every entrepreneur:

  1. Competitive pay 

    If you were doing the same work for a company that hired you, what would your pay be?  Are you making at least market equivalent or better?  A lot of times, as entrepreneurs, we tend to focus only on this piece of our compensation when we set our pricing, and that’s a big mistake. It’s only 75 percent of what our total pay needs to be.

  2. Profit.

    As an entrepreneur, you take extra risk when you own your own company, and you should be compensated accordingly.  Your capital is tied up in your business and should be earning a good return in addition to your reasonable compensation.

  3. Benefits

    Employees get vacations, health insurance, and bonuses; and you should too.  This should be part of your compensation package as an entrepreneur.

  4. Taxes.

    Although our individual taxes are not deductible as business expenses, we need to compensate for them so that we’ll have enough cash for our living expenses.  It’s a huge chunk too.  We work about three and a half months every year, just to pay for our taxes.

  5. Retirement plan

    When you work for yourself, no one is going to fund your retirement for you.  Although the Social Security program helps a lot of seniors, it’s up to you to set additional money aside for a comfortable future.

Complete Compensation

Your compensation should include all of these components.  If it doesn’t and you feel like you can’t afford to pay yourself that much, then your pricing might not be reflecting all of these items correctly, you might have a volume problem, or your business model may need some adjusting.

It’s normal to take a smaller paycheck the first few years as we’re building our businesses, but if you’re still doing it after several years or constantly having cash flow issues, then something may be wrong.

If you’d like our help in this area of your business, please reach out and let us know.

Make sure your future is bright and financially secure by including all five components in your entrepreneur compensation.

Monthly Archives

Categories

  • Accounting (33)
  • Bookkeeping Tips (16)
  • Business Development (47)
  • Business Tips (85)
  • Cloud Accounting (2)
  • Cool Tech Tools (6)
  • Cost-Savings Tips (16)
  • Customer Service Tips (11)
  • Decision-Making Tips (5)
  • Expense Reduction Tips (7)
  • Management Tips (40)
  • Payroll Tips (5)
  • Profitability Tips (20)
  • QuickBooks Help (2)
  • QuickBooks Software (2)
  • QuickBooks Training (1)
  • Social Media (4)
  • Tax (1)
  • Time Management Tips (16)

6965 El Camino Real #105 PMB 683, Carlsbad, CA 92009 | 408-550-4325 | support@sandismith.com

Copyright Sandra L. Leyva, Inc. 2020 | Legal | Privacy | Cookies

We use cookies to offer you a better browsing experience, analyze site traffic, personalize content, and serve targeted advertisements. By clicking on or navigating the site, you consent to our use of cookies. Accept Read More
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Non-necessary

Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.