How much should you pay yourself?

| Categories: Cash Management , Profit First

Blog by Fuel Accountants

Great question!! And it can be a complex one too…

There are two considerations that must be factored in:

1. What are you worth as an employee of your company?

 If you needed to hire someone to do all the work you do, how much would you have to pay them? I’m certain it would not be minimum wage, right? You provide much more value than that. 

But this is an important question to consider. You deserve to get paid the same or more than you would pay an outside person to do your work. We call that economic compensation.

2. How do I optimize owner compensation for tax purposes?

When we consider income tax optimization, we sometimes choose between (or a combination of) salary and dividends. Paying dividends instead of Salary can save around $7000 in CPP contributions (but that does mean that you reduce your future CPP benefits and reduce your RRSP contribution room).

But that should not affect the amount of actual compensation paid to you. It merely comes to you in two different forms.

Ok, so now that we’ve established the amount of owner compensation, and have also established that it might come to you in two different forms, how do we store up the right amount of cash to pay you at the right time?

Thought you might stump me with that question? Well, think again, Buckwheat!!

We do this most effectively by using our Profit First Cash Management System (PFCMS). We create a separate owners pay bank account, and regularly seed money into it as an appropriate percentage of real revenue. 

That way, we ensure that you have the right amount of money, in the right place, at the right time, to pay your owner comp.

Never ever ever short yourself again. Get this set up to make sure you're compensated for your work adequately and timely.

We can help you set this up if you’re struggling in this area. We have a number of really happy clients that have implemented our PFCMS system!!

If you’d like to talk about changing the way that you are remunerated or alternate corporate structures then don’t hesitate to reach out to me.

Need more advice?