If you don’t pay yourself a salary, you better read this
Why is it most trade business owners we speak with sell themselves short when it comes to paying themselves a salary?
Now don’t get me wrong, we completely understand the fact that when you first start your business, many trade business owners will simply opt not to take a salary so that they can leave the money in the business.
This makes complete sense when your partner has a steady job and guaranteed income you can rely on whilst you find your feet.
That being said, fast forward three, five, sometimes ten years down the track and still no salary is being deducted for the owner and they think this is okay.
Let us be completely clear on this one – it is not okay to sell yourself short.
By not paying yourself a salary every week means you are not paying yourself superannuation, which means you are not taking care of your future.
Let’s stop to think about this for a moment. The government isn’t going to help you later in life when you need money to survive. You need to work out how to support yourself. It starts with your super.
Not to mention, seeing a steady stream of money coming into your personal bank account provides you with some feeling of value. To see a reward for the hard efforts you put in. It gives you encouragement that you are doing okay.
That being said, every trade business is different. Some accountants will suggest you take a salary every week. Alternatively, they may suggest taking company dividends (which you eventually pay super on at the end of the year) as the right set up for you. This is a conversation with your accountant to ensure you have the right arrangement due to your personal circumstances.
Either way, the result will be the same.
Once your trade business is out of ‘start up phase’ and earning profit, it is important to start paying yourself consistent money.
This often raises the question – so how much should I pay myself?
The obvious answer is – enough to cover your expenses, however one person’s living expenses far exceed someone else’s.
The best solution is this… If you weren’t there within the business to manage the team and co-ordinate the work, someone would have to take your place. To do that, how much would you have to pay them for their time, skill set, co-ordination, management and leadership skills?
If you aren’t too sure then check out the employment sites like Seek to see advertised pay rates for positions in your industry, or something similar. You could perhaps consult the Award rate through your Association.
When you understand how much you would need to honestly offer a replacement, this is how much you should be getting paid.
Ultimately, it makes sense not to go crazy and pay yourself too much. But, if your trade business is a profitable one, then there’s no reason why you shouldn’t reward yourself and your income should align with your success.
Interested in learning more about money rules for your trade business?
Visit Next Level Tradie for our schedule of free live events.