Numbers that mean something
Too often a business owner under pays themselves. If you need proof, look at your social security statement contributions. It’s nearly impossible to know how efficient your business is functioning without having a true owners salary for their function in the business. An owner should receive a salary for what they do in the business and receive a return for what they own. It’s impossible to compare your results as an organization against the industry norm without nailing this number first. Without doing this you run the risk of compromising any exit strategy you may have.
Return on Equity
If you get paid for what you own, having a market wage allows the business valuation to rise. While this may not be a big deal in year one of the organization. It becomes a big deal as the net income of the business becomes a larger aggregate total and thus a business owners distributions continue to increase exponentially. Without compromising the health of the business. This even further increases your exit strategy options. Sell, retire, etc.
Keep the IRS Happy
What is one of the most common audit red flags? An underpaid business owner. It’s a tax scam and in all reality all it’s doing is scamming yourself out of unrealized earnings down the line. If you’re a salesman in the business. What would it cost to replace your role? This is what your salary should be. Then receive a return on how the business performs on quarterly basis.