07 May You Are the Most Important Employee—Pay Yourself First!
As the owner of a home service trade business, it’s imperative that you pay yourself a salary. To some, this might seem incredibly obvious; after all, if you’re not getting paid, what’s the point of having a business? More to the point, you simply can’t live without generating an income for yourself. A business in which the owner doesn’t get paid is not sustainable in the long run—yet we encounter many service trades where the owners don’t take a salary, for any number of reasons.
As you consider your owner’s salary, here are just a few important points to keep in mind.
Owner’s Pay and Profit are Not the Same Thing
Every time you make a bank deposit, you should be setting aside some money as profit. (You can learn more about this through our Profit First coaching services.) It’s critical to understand that this profit is not your salary. Profits are the return on the investment that the owner or stockholder receives after costs and expenses. Your owner’s pay should be separate.
Owners Should Be Paid an Hourly Wage for Their Work on the Job
Even as the owner of the company, you may be in a position where you’re still working jobs—whether that means actually being present at a work site, alongside your technicians, or even just driving materials and supplies to technicians in the field. This may not happen every day, but on the days when you do work on jobs, pay yourself an hourly wage. This is part of the job cost, and should be factored into your job pricing.
Owners Should Also Get a Regular Salary for Owning the Company
In addition to these hourly wages, you should be paid a regular salary for being the owner of the company. Again, this isn’t something you take out of your profits; it’s an overhead expense. But at the end of the day, you’re the one who’s taken the financial risk by starting this business, and you’re the one who’s ultimately accountable for it. You should be compensated accordingly.
This may seem like a simple idea—owners getting paid for their commitment—but actually, it’s something that has a major impact on the way you run your business. Your hourly wages should be factored into job costs, while your salary should be taken into account when calculating the overhead.
Again, this is important for keeping your business afloat in the long run—because companies where the owner doesn’t get paid simply don’t last. For guidance in figuring out how to pay yourself properly, we’d encourage you to contact our accountants and coaches. Reach out to Contractor in Charge to schedule a consultation.