Are you paying yourself too little?
Posted on 28th March 2024
Most people get into business to make money as well as the self-satisfaction of working for themselves. But finding the right balance and getting your salary right is important.
Pay too little and your motivation goes down whilst your bills go up. Pay yourself too much and you could actually be at risk of breaking the law (many countries have rules around how much a business owner can take out)
SO WHAT IS THE RIGHT SALARY YOU ASK?
The purpose is to arrive at a figure that is close to the industry standard for the role you do and your type of organisation. You also need to know your numbers, do you have a clear understanding of your revenue and expenses?
Look at the job market and see what you would have to pay someone to do your job for you. Ask other business owners what they pay themselves and make a comparison.
The legal structure of your business may also impact how you pay yourself and you need to think about the most tax-efficient way to withdraw funds.
If you are in a growth phase and you don't think your business can afford to pay you market value, you do have options. For example, you could create a written agreement to pay yourself later.
Your business structure affects how you take pay and how you're taxed on pay. Xero has a great guide on paying yourself - How to Pay Yourself as a Business Owner | Xero AU
THE KEY IS TO GET EXPERT ADVICE
We'd be happy to give you some feedback about your pay structure and help you to maximize your tax benefits.
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