This is a very common question and the answer, although not always very popular, is relatively easy to determine from a prudent financial business standpoint.
There is a point during the life of most startup businesses where the owner(s) are heavily involved in the operations in addition to the strategic and emotional leader(s). This is very common and, in most cases, highly recommended. This approach ensures that the owners are very knowledgeable and skilled members of the operations team. If the owners know every job in the company then they will be better suited to hire the right team, identify inefficiencies, step in when needed, gain the respect of their staff, and effectively lead the organization.
If you’re planning to build the company into more than a “mom and pop” business, you’ll need to create well defined systems and pass along the operational tasks to your staff. But for the sake of this conversation, let’s assume that as the owner you’re performing at least some operational tasks that you plan to pass along to someone else.
Separate the tasks that you currently perform into two lists:
- Operational items that are relatively routine. These types of items repeat daily, weekly, monthly, etc. and will need to be passed to an operations team sometime down the road in order to grow your business with a strong foundation.
- Strategic items that the owner should be overseeing regardless of the existence of an operations team.
Let’s focus on the operational list. In order to determine how much pay you should be receiving to perform these tasks, you need to determine how much you would have to pay someone with your skill level to complete those jobs. For example, if you’re cleaning the sales area every night, mopping the floors, cleaning the windows, wiping down the displays, cleaning the bathrooms, and arranging everything in its place, then you would want to look at how much “after-hour” janitors or cleaning crews would cost in your area. That is the amount that you should be paid for those tasks. Perform this analysis for each of the items on the operations list.
For the strategic list, if the company doesn’t make money then you should not be receiving pay for anything on this list. Plain and simple.
If your company is making a profit, then you should feel entitled to some but not all of those profits in the form of a paycheck. There is a caveat; if your business does not have 3 months of expenses in a liquid bank account then you would be wise to grow your cash reserves prior to paying yourself for any strategic functions. I would also recommend speaking with your accountant about how much money you plan to receive in a paycheck. Your accountant may have some advice for you depending upon your business classification and taxes.
Other considerations should be any capital expenditures your company may need, such as a new oven, televisions, new hire, or any other items that are not routine purchases. You will want to make sure that you have insurance or warranties to cover anything that would cost your company significant capital if it were to unexpectedly break or fail.
If you’ve reached this part of the post and you have completed the recommended steps, then you’re ready to determine the amount of payment you should receive for your strategic duties. Again, this is only the case if your company has enough money in the bank to cover three months of expenses, you are covered by insurance and warranties for unexpected interruptions, and you have enough money in the bank, in addition to the three months of expenses, to pay for any planned capital short term expenditures including human resources.
The amount that you receive for strategic duties should not turn your net income negative for the month. Other than that, there is no right or wrong amount. But again, depending upon your business classification and taxes, there may be other things to consider, which is why you should speak with your accountant about your planned paycheck amount.
