EmpressofBiz, Biz tips. How much should you PAY..

Just answered the question to a group  that I belong to..
How much should I pay myself?
Should I pay myself if I am the owner of the business. 

Paying yourself most definitley YES! 
HOW MUCH?  ...Depends...some things to think about BEFORE you give yourself a salary!

My clients and students often do one of two things:

1. They do not figure their salary needs at all in the business.They will take their salary from the "profits" .  Yet rarely is their enough profit to take a salary and quickly put their personal credit and home life in jeopardy.

2. Or they pay themselves a ridiculous amount and take all the money out of the business and put the business in jeopardy

A REASONABLE SALARY is a MUST! What is reasonable?

My answer to students and clients is:

1. How much is your personal budget? What do you need to take out of this business to make sure your personal commitments are taken care of? It makes no difference whether you have a partner or spouse who is "willing" to pick up the budget...while you are starting the business...you must have your salary amount in as part of your costs.

2. What would have to pay someone to do your job? It usually isn't any small amount.

3. Paying yourself is part of establishing your costs so you can give price your product or service accurately.

4. BTW...supporting you and the business usually does not last long and resentment quickly rears its head. Plan to contribute from day one...it eliminates a good deal of family problems. You can start low...but start and raise it as you go..
I hope this people thinking of what salary they need to take out of the business. Check out my blog www.empressofbiz.blogspot.com for more comments on small business.

ELIMINATING the CONFUSION

COST ACCOUNTING vs TAX ACCOUNTING

Accounting, a word that conjures up the image of Ebeneezer  Scrooge sitting at his desk with quill in hand entering numbers in a ledger.  Not a favorable image is it?  Yet keeping records is essential for business success.  Few companies make it a priority to keep their records up to date.  Nor do they take the time to understand the difference between tax accounting and cost accounting.  Both are necessary and yet each one has a different goal. 

Tax accounting, is what you do to make various government entities happy and report to them.   It aims at taking advantage of all the opportunities the government offers to reduce tax obligations. It doesn’t care about all the details of cost.  Instead it deals in gross figures.  It accounts for insurance premiums paid rather than rates of insurance, for example.  It allows plans of depreciation for investments rather than expected time of replacement.  The lower the profit calculated, the lower the tax obligation.  It is difficult, if not impossible, to develop proper pricing from tax accounting.

Cost Accounting,  is aimed at calculating all of the costs incurred in producing a product, service or project so the business owner or manager knows how much the company must charge for the item.

Management priorities are to stay in business, recover the owners’ investments in the business itself, earn a reasonable return on the investment in the business for the owners, pay off company debt, build a reserve to reduce the need for debt and produce a reasonable profit, after taxes, for the company’s growth.

In order to accomplish these objectives, cost accounting must allocate costs where they belong. Deductible  taxes and employee benefits must be attached to the proper categories:  materials that become an integral part of the project, labor with varying rates for different categories, such as, social security, medicare, unemployment insurance and retirement benefits.

Other project costs must be added, like the transportation of materials and workers, the cost per hour or mile for each vehicle or piece of heavy equipment (original cost, years of life, maintenance costs, repair costs, insurance costs and the expected annual hours of use) and subcontractors fees.

Administrative costs, finance costs, plus commissions and royalties must then be added.

Neglecting the tasks and details of cost accounting for pricing products and services properly is one of the reason ninety percent of businesses fail within the first ten years of their beginning.

                     - JoAnn Forrester & James W. Martin, SI Business Associates, 412-440-6969

Hate to do this...give us a call...with our Price it Perfect Cost Management,(TM)

 CFO in a Box System it is a snap for us...412-440-6969.

P.S.  Watch for our upcoming E-book on Pricing...coming soon!