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How much salary should an entrepreneur earn?

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QsId 113
Asked by Isaac Thuku
Category Personal Question
Title How much salary should an entrepreneur earn?
 

How do I determine my salary if I am self employed?

Tags salary, self employed, entrepreneur
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Isaac ThukuWhen you are formally employed, you get a pay check weekly, biweekly or monthly for the services rendered to your employer during that period. When you leave formal employment and decide to start a business, it is important that you pay yourself a salary for the time and effort you spend on the business.

Your salary should be included in the financial projections of the business plan, at least for the start-up phase where the business has not reached the break-even point

How do I determine my salary if I am self-employed?

There are various factors for you to consider when determining your salary as an entrepreneur:

- How much do you need to cover your bills?

This allows you to meet your monthly financial obligations. It is hard to concentrate on building the business if you can't pay your bills.

Make sure you exclude all unnecessary expenses. If possible pay off as much personal debt as you can before starting your business because the lower your expenses the higher your profits will and the business will have better chances of survival.

- How much are your services worth in the current market?

If you were earning $15 an hour at your previous job, try and keep your salary close to that amount minus any bonuses and commissions.

Salary raise far entrepreneurs

Once the business reaches the break-even point, you can raise your salary accordingly. Here are some factors you should consider before raising your pay:

- How much has the business grown.

If let's say the business has seen 20% growth, it recommended that you raise your pay by approximately 20%

You should also evaluate the following before raising salary:

- The legal formation of your business.

Depending on whether you are running a sole proprietorship, partnership or Limited Liability company, the amount of salary you pay yourself will vary and also affect how much you pay in taxes

- Taxes

The taxable income is arrived at after deducting all of your overhead expenses. The higher the taxable income, the higher your taxes will be so you need to keep an eye on that so that it does not affect your business' profitability or tax liability

It is worth your while to consult your business attorney and tact account to make sure you are paying yourself well and legally.
2015-10-26

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