What’s your paycheck?

What’s your paycheck?

Benchmarking Your Business Report - 2018 Benchmarking Your Business Report

Know your numbers and be fair. Here’s how to determine an owner’s salary.

November 2, 2018

© Jeannie Phan

You assume great risk. You provide jobs that support others’ families. You can’t remember the last time you only worked a 40-hour week. As an owner, you deserve to get paid at least what you’d make as an employee at another landscape company. Don’t you?

“We take a lot of risks every day as owners, and to not pay yourself regularly is a mistake,” says Karl Schottler, who started Kansas City, Kansas-based Paramount Landscape in 2000.

Schottler figures his salary based on a budget he sets every year. “You’ve got to know your numbers and manage your budget in order to make (the salaries) happen,” he says. If the company outperforms the budget, he can offer salaried employees more while giving his own salary an appropriate hike, along with doling out bonuses to the workers who helped reach the goals.

Greg Strong, president of Strong Landscape in Salt Lake City, Utah, takes a modest salary that has fluctuated in the last several years, as he carries out a goal to reduce his debt to income ratio. “I’ve been taking less salary to get us in a stronger financial position,” he says. But, he can take dividends to supplement the salary, and these draws are determined between him and his CPA.

Kerry Hasegawa, president of MGT Landscaping in Littleton, Colorado, agrees. “Work closely with your CPA,” he says, adding that his salary is enough to support his family, and he’ll take monthly distributions.

“Treat yourself as if you are an employee,” says Jim Huston, green industry management consultant, J.R. Huston Consulting. “Many owners don’t take a regular paycheck and they think that their salary is what’s left over after all the bills are paid – and that is not the case. Owners should build into their budget a regular salary for themselves and be sure they get a regular paycheck.”

Calculating the right salary

There isn’t a set percentage of sales that an owner should earmark as their salary, Huston says. “But as the company grows, you should do better than what you would make somewhere else as a worker,” he says.

Overall, salaries (owner and office personnel) should be half of your overhead, Huston says. Overhead should be 25 percent of sales. So, 12 percent (half of overhead) of sales should be allotted for salaries. This does not include laborers – we’re talking administrative positions, including bookkeepers and owners.

One mistake owners often make, especially during recession times or slow periods in a business, is holding on to salaried staff when sales does not support their pay. “Owners hesitate to get rid of people because maybe it took them a long time to build a team, to train them, and they don’t want to lose that,” Huston says. “But you have to.”

Also, because entrepreneurs tend to be positive, they figure the down time won’t last long, Huston says. “They figure, ‘I can hold on – I don’t have to let my people go.’” But this mindset can quickly backfire. “It drains them of capital,” Huston says.

As an owner, your salary must stay in place because it’s fair that you are compensated as an employee. But be sure that sales can fully support the rest of salaried positions – and that those salaries do not exceed 12 percent of sales, which is half of your overhead. “This is a good benchmark to keep in mind,” Huston says.

When Drew Keenum first started Rainbow Lawn Care and Landscaping in Alabama, he paid himself an hourly rate. “But I stopped that because sometimes it felt like I wasn’t taking enough from the business, and sometimes I was taking too much,” he says.

Keenum says, “If you’re not paying yourself, then it’s hard to keep a healthy business,” he says.

Keenum’s operation is under $100,000 now, and he focuses on paying bills first and covering operational costs. He has two part-time employees who help out. Whatever is left over is his. “Sometimes it’s good, and sometimes it’s not so good, but the income has to be there for the business to sustain,” he says.

Today, Keenum tries to pay himself about 20 to 25 percent of gross profit.

“I figure a good salary is $40 per hour so I pay myself $80,000 a year – and my CPA says it’s perfect.” Jim Webb, president of Valley Landscape Service
Benchmarking your salary

There are industry resources to help business owners determine where to start a salary, Schottler says. He turned to the National Association of Landscape Professionals, which provides various operating cost studies offering salary ranges owners should draw to maintain a healthy business.

Jim Webb figures his salary based on 2,000 hours of work per year, which is 50, 40-hour weeks. “This is how I base all the guys’ salaries, and how I explain their pay to them,” says Webb, president of Valley Landscape Service in Jackson Wyoming. “I figure a good salary is $40 per hour, so I pay myself $80,000 a year – and my CPA says it’s perfect.”

Webb also takes a SEP IRA contribution of 3 percent, based on the $80,000 salary, and he takes distributions from the company profit.

Not sure where your salary should stand? Huston breaks down a realistic budget for a $1-million a realistic budget for a $1-million company this way: “An owner could afford to pay him or herself $1,000 per week,” Huston says.

The average base salary for a landscape business owner is $97,000 to $106,000, according to Glassdoor. The average small business owner salary (all businesses) in the United States is $72,169, with additional compensation of $5,165 in bonuses, $20,234 in profit sharing and $8,400 in commission, according to PayScale. Lawn & Landscape magazine’s 2018 Benchmarking Your Business report showed the average landscape owner salary is $75,000.

Huston says, based on profitability, an owner can take a higher or lower salary. So, a $1-million business should have $100,000 left in profit after the bills and owner’s salary are paid (pre-tax). If net profit is less than 10 percent, you’ll take a salary hit.

Remember, your business is not a personal piggy bank. Budget your lifestyle so it aligns with your salary vs. taking funds from business.

“Set a salary,” Huston says. “Get yourself on a steady budget by paying yourself weekly. This enforces discipline.”