How to Determine Your Salary as an Entrepreneur

Figure out what you actually should be paid. To have healthy finances in your business, it is fundamental that you set a salary. Learn to ca...

Figure out what you actually should be paid. To have healthy finances in your business, it is fundamental that you set a salary. Learn to calculate the real value of your work.

When they decide to start a business, many entrepreneurs have a dream: to achieve their financial independence. But if you are the owner of the company, how to calculate the real value of your work? This is an important point to keep a business's finances healthy, especially during the early years.

How to Determine Your Salary as an Entrepreneur
In principle, your salary will depend on what you spend to live, your current financial situation and the income you will need in the medium and long term. Therefore, the first factor to consider is to know what your personal expenses are and then identify the areas of opportunity for saving. Once these amounts have been calculated, it will be easier to determine how much you should earn.

There are two common mistakes you should avoid: assigning a payment that your company can hardly afford and bring the entire business income to your personal account. On the other hand, depriving yourself of pay for your work will not only make you despair soon but also seem unprofessional to your potential partners. In that sense, it is recommended to be cautious and realistic.

Make a comprehensive list of your annual spending as detailed as possible, so you have a clearer idea of how and in what you spend. Warning: If you fall in red, there is a good chance that your business will also do so.

Determine how much you are worth

Once you have finalized the calculation of your monthly expenses, you will have a basis to determine how much your salary should go up. Although there are variables that are difficult to measure, such as investment in time, academic preparation or work experience.

There are two methods to calculate your value in the world of work:

1. The value in the open market.

Given your knowledge and skills, how much would an employer pay you? Although that salary does not take into account the extra time invested in starting your business, you should not leave aside the income you are sacrificing to undertake as a useful benchmark to determine your salary.

2. Similar Companies. 

How much do business owners (of similar size to yours) pay themselves in the same industry and geographic region? To obtain comparable salaries, consult other people who are in the same situation as you or ask for advice in the local chambers or associations.

It should be noted that none of these methods consider the extra work you will be assuming the owner or the risk that it entails starting a business. Therefore, some entrepreneurs add to their first salary between 3 and 5% to offset additional responsibilities and risk. Or, there are those who are satisfied with the idea that the long-term success of your company will compensate for setbacks.

Always think about your business

Since you know how much you need to live a quiet life and what the salary you deserve, it is time to compare the figures with your company's real finances. To do this, you need to review the cash flow projection in your business plan and make sure you are getting enough money to cover your own outline and other operating expenses.

On a possible level, your cash flow should report a considerable surplus to pay your salary at market prices, reinvest funds in the company and leave a small margin of error. Unfortunately, the history of several entrepreneurs starts with a deficit, for a period that can go from six months to two years. The advice is to start with the minimum wage range and when you pass the boot time test, consider a possible increase based on market growth.

Another option to make your salary an incentive and do not suffer is to design a scheme of commissions. That is to say, to your minimum wage you can add an amount to an account for new clients and closure of deals. In addition to motivating you to work harder to earn extra income, you will help develop your business. These commissions will be a reward for the effort.

You could also, for example, decide that when your business reaches black numbers, you will take a percentage of the profits each fiscal quarter as a bonus. This figure can vary, depending on the goals you as a landlord set, the personal financial needs and the philosophy of reinvesting the profits of the company.

Starting a business requires a lot of patience and some sacrifices. So the advice is that you put into practice the idea of investing some profits to aspire in the medium term to a salary like the one you would have if you were employed. The moment your company begins to report earnings, it is time to reevaluate your salary. 
Generally, this translates into a wage increase equivalent to the percentage of the annual growth rate of the business.

However, as with your bond structure, there is no gold equation to determine the appropriate increase. You must calculate it according to the nature of your industry and the goals of your company.

Whatever the decision you make during the first stage of your business, check your compensation every six months as the cash flow and capital needs model can change dramatically as it evolves. This monitoring will depend on the adjustments to your salary, which should be for both the organization and your personal finances.


Complete this table with your data

  • $ _________ Rent / Mortgage 
  • $ _________ Medical 
  • Insurance $ _________ Auto Cost (monthly, insurance and maintenance) 
  • $ _________ Other transportation expenses 
  • $ _________ Recreational Activities (restaurants, movies, exhibitions, etc.) 
  • $ _________ Food 
  • $ _________ Services (light, Water, gas, maintenance, etc.) 
  • $ _________ Communication services (telephone, cell phone, pay TV, etc.) 
  • $ _________ Payment of credit and department cards 
  • $ _________ Personal care (gym, aesthetic , etc.) 
  • $ _________ Payment Of taxes 
  • $ _________ Other expenses 
  • $ _________ Total annual expenses

Analyzes the results 

  1. $ _________ Amount of personal savings invested to start the business 
  2. $ _________ Salary or other income 
  3. $ _________ Result of adding the two previous concepts 
  4. $ _________ Result of subtracting the total annual expenses less the previous sum: essential annual minimum wage 
  5. $ _________ Divide the previous result by 12: monthly essential minimum wage 
  6. $ _________ Total annual expenses: annual minimum wage 
  7. $ _________ Divide the previous result by 12: monthly minimum wage

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