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How do your salary needs change?
BardStuff
subscriber Posts: 7
Ok, I`ve got a question. Right now I`m full time employed, taking in a salary as my sole source of income. My wife does not work. Say hypothetically that I started my own business, but everything else remained the same. In order words, the sole source of money now is the business. Skip the tough startup times for the moment, and jump right into when the business is running smoothly. (I realize that during the bootstrapping phase all the rules go out the window and you beg borrow and steal whenever you can ) i`m talking more about the lifestyle of the entrepreneur.How do/did your needs change? I know, for instance, that I put 70 miles a day on my car commuting, which would go away if I worked from home. That`s a cost. And I probably wouldn`t order out for lunch 3 days a week, either. But on the flip side I`d have to figure out a way to cover my health insurance.Do entrepreneurs, in general, pay themselves a salary? A good one? If not, how do the bills get paid? How do you know when it`s ok to go out and buy something pretty for the missus when you`re spending the company money?
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Comments
this is an important thing to have thought through before walking away from your fulltime salary.
let`s chip away at the concerns so we can get you in the zone for making this big step.
first, the vast majority of small businesses are started as sole proprietorships. i think 18 million of the 23 million small businesses are sole proprietor operators. and in this case you haven`t created a separate entity or structure for your business. it`s all coming into one pot and you use the money the way you want to.
as an alternative to sole proprietorships, the fastest growing entity (business structure) out there is called a LLC, a limited liability company, and it`s relatively inexpensive to create but provides some real advantages in the areas of liability protection without the double taxation common to corporations. when you create a LLC or any other formal structure, you immediately have to make determinations about things like salary and distributions (money/profit you take out of the company at the end of certain time periods that`s left over from business activities).
having said all of this about "formalities", i think you`re asking what`s smart to do, and what`s standard or reasonable practice? first of all, i`ve learned that the smartest thing in the world that you can do is buy something pretty for your lady. of course, i learned that lesson the hard way and had to receive explicit instructions on this point! but seriously, you have to ask yourself, "why am i running this business?" if it`s to live a great life, and you`ve got other very important people who you also want to benefit from the existence of the business, then BY ALL MEANS reward yourself. take money out in salary or distributions.
if, on the other hand, you`re interested in building as much value as possible into the business and you will need as much free cash as possible to achieve that--whether it be for growth, key purchases, collatoral for loans and lines of credit, safety net in slower seasons, whatever--then you need to limit the amount of money you pull out.
the wonderful thing about running your own show is that you call the shots. generally, i`d think of it this way: you`re running the business to improve your life. if that requires you to pay yourself a salary, do it. if you`re a maniac and want to build a fast-growth company, you`ll be frugal and limit the resources you drain from the business.
really excited for you...
rich
Matt
I think you just put my inner-most thoughts down on paper (well, sort of). The only thing I`d add in my situation is that I just really really really have had enough of accounting and really really really want to quit my job and work on something I actually enjoy. *But* I have a little fear in me because my father is a business owner and struggles. I don`t like the idea of giving up my security, but I don`t like subjecting myself to eight hours of torture per day either.
So, I`ve been saving like a mad woman and am probably going to try to just take that leap of faith at the end of June. I think I may take advantage of an opportunity to be an independent contractor with the company I earned my wedding and event planning certifications through, though, since it will provide at least a little security, but I`m still not completely solid in that decision because I am not sure I want to deal with them much more...they sometimes seem a little "flighty."
Congratulations on your new domain name, Bardstuff!
picture this: let`s say you want to set sail with a new business.
your startup is the boat, which in one scenario is connected to a mooring. you`re on the dock (your day job), staring at the boat bobbing in the water off shore. you`d have to jump off the dock in order to get to it. how cold`s the water? how deep`s the water? what`s lurking in the water? can you swim that far? you have to admit you don`t know the answers to all of these questions.
now picture that same boat. but this time it`s tied up to the dock. there`s a small half yard of water between you and the boat. in order to get on the boat and set sail, all you have to do is step onto it.
when you keep your day job and start part-time, you don`t have to worry about the water so much. with every day of activity you have the part-time business in motion, you learn a little more and draw the boat closer to the dock, until, like Tom Nardone knows, your dream business boat is snugged right up to you and all you have to do is step on board.
one other thing - we recently interviewed bob parsons, the founder of godaddy.com, on our radio show and he whispered to us during the break that he has the swaynester on commission...
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