Pay Yourself Salary from Your Business

Business planning and strategy: Pay yourself!

BY OLA EMMANUEL

Ola Emmanuel

Debby started her business about five years ago; trading in consumer goods. When she started back then, she believed the business needed to be nurtured very well for it to perform better so she had no option than to resign from her well-paying job to fully concentrate on her own business idea. Her decision was based on the little sparks the business was showing in customer patronage despite the fact that she had not really given her full capacity to the business. She was only pumping her monthly salary into the business to grow it with the belief that if the two ladies she had employed can give their best, it shouldn’t be a problem for her to resign in about a year down the line to take over the management of the business. However at a time, it was clear to Debby she had to resign her employment earlier than she planned due to the fact that the business, instead of improving in performance, had started incurring higher overheads with dwindling sales. She took this action about three years ago; throwing her life into the business.

Well located in one of the highbrow areas of Lagos, Debby assumed full control of her business with the mind of delaying her own gratification for a while. She would not earn any pay at least for some time since her husband had promised to support her personal finances. However, due to some unexplained circumstances, Debby had not been able to take the decision to start receiving regular pay from her business. She realised after paying other bills incurred by the business, she could not afford to load further costs into the business. She had resigned herself to this condition with the belief that tomorrow will be better and she should continue to put in more efforts, working harder and putting more work hours into the business.

I was alarmed recently when I bumped into her only to discover a lady that few years back was full of life had started showing signs of stress and ageing. My concern led to her telling me her story. What a way!

The situation above is not peculiar to Debby. I have had cause to interact with many small business entrepreneurs one on one and in groups especially during workshop and training and I had discovered greater percentage of them are running their businesses without them factoring their own remuneration into the business expense. Whenever our discussions reach the aspect of owner-manager remuneration, it’s always as if small business owners are in business to satisfy others while deliberately neglecting themselves. Though this business owners work day and night, some at the expense of their good health and well-being to pay their employees, pay other bills and pay various governments undue multiple taxes, it never occur to them to put themselves on regular pay as well. Whenever I ask ‘how much is your salary’, many would laugh with changed countenance. It’s as if I am asking for something that is outside the realm of human capacity — a non-existent phenomenon.  What some do resort to is constant taking of money from the business purse to meet their immediate needs without keeping track of how much they really spend on their personal needs over a period of time. Such untidy way of running business had caused many enormous stress and burn-outs. Not a few are unable to recover from the damage they heap on themselves with lack of proper business planning and management process.

How much income are you entitled to?

An entrepreneur earns money from his or her business in two ways: salary and profit. While profit is the reward for entrepreneurship, salary or wage is the reward for working in the business. A business owner who runs the business by himself is entitled to the two payments because he is also an employee of the business – though he owns the business. The salary or wage should be paid monthly while the profit is taken at the end of a trading period. If you are not directly running the business yourself, you are entitled to profit alone – that is the compensation for launching a business idea. But if you own the business and at the same time you actively handle the day-to-day running of it, then you are an employee of the business and you are entitled to earning a regular pay – weekly or monthly – that the business could afford, just like other employees the business had employed and it’s paying regularly.

One of the challenges facing SMEs is that the owners who manage their businesses themselves never see themselves as employees of their businesses. Their mannerisms, attitudes and behaviours always loudly say, “It is my business”. Small business owners operate their businesses with the mentality to treat the business’ finances just like the naira notes in their purses. Where this is the case, it means there is no respect for the business from the owner; and that is why the business is treated anyhow: appearing at work anytime, leaving the business premise at any time, not coming to work some time and using the money of the business as you feel like. Most small business owners are satisfied with letting people know they own the business – an ego thing – but are not readily interested to give the required mental capacity; they don’t know they should take the business to higher height so that the business can continue to exist when they are no longer available to run it.

In your business, you need to put yourself in a position as if you are an employee in another person’s business. Consider it, if the business is not your own and you are seeking to be employed by another business, like the size of your own, to perform the role you have assigned yourself (overall manager), how much would you ask to be paid as salary? When you mention your salary, the business will decide whether it can pay you or not. Whatever the business says it can pay you will also be considered by you (whether it is okay by you or not). But now that you are the one to conduct employment interview for yourself in your business, ask yourself: how much salary will be okay for you to work for the business (your business) to the best of your ability or capacity as the overall manager of the business? If you know that you need, for example, a salary of N300,000 per month to work in your business conscientiously, this is not a problem. Fix the amount you want as salary but be considerate and reasonable in what you do.

If the business is buoyant enough to pay you the salary, ensure you pay yourself together with other employees when they are paid. Salary account can be opened for all the employees (including yourself) in the bank your business uses and every month the bank is given a letter authorising the employees’ salary accounts be credited with each person’s salary. By so doing, you will discipline yourself to limit your spending for your personal needs to your own salary and stop dipping your hand into the business purse.

In your business template, there should be a page that contains names of all employees working in the business. As the owner of the business who is also working as the manager, your name should be the first to be written as employee for the business. Among the information to be supplied on the page is the salary paid to all employees (including your own) per month, how many hours each employee is to work for the business daily and how many days do you work in a month to earn the salary. At the bottom of the page, it should clearly be indicated how much the business is paying as salary to all the employees (including your salary) every month.

But if the business is not buoyant enough to pay your own salary, how do you handle your own payment? One thing is clear, other employees may throw in the towel if their salaries are not paid but you cannot do this to your own business because of the dual capacity you occupy (owner and manager). Though you have fixed your salary and it is known to the business (i.e. captured as part of your business monthly expenses) but the business cannot pay the salary yet, you may earn part payments that the business can afford, and the balance as the money your business owes you. Where the business cannot pay at all, let it be on record how many months’ salary the business owes you that you will receive when the business begins to perform better and could afford to pay. Also, you may treat the outstanding salary as capital re-invested into the business. Where this is the case, it means you have invested more money into the business and the value of the business has increased.

What are we saying here? You should you know how much your business is paying you as salary. It is part of expenses that must be incurred by the business if you are actively working as manager in the business.

Source: Punchng.com