“Why am I making money but not keeping it?”
That’s a common question that busy owners ask, wondering why they’re working so hard and not seeing the dollars in their bank account. After payroll, rent and all the overhead plus materials, there’s not a whole lot left over. So, where does that leave the owner? In some cases, the answer is – unpaid. There are two competing realities when addressing owner’s pay, says Jim Huston, president of J.R. Huston Consulting. “First is federal tax code and its regulations, and second is market reality and the need to be competitive in an open market,” he says.
Huston says, “I tell clients that my job is to help them make as much money as possible. Their CPA’s job is to make it look like they’re going broke and keep them out of jail.”
Ultimately, owners need to get paid just as they would compensate a general manager of their businesses. Consider what you’d pay someone else to perform your function, Huston says.
The company bank account can’t act as the owner’s piggy bank – and yet, an owner needs to be paid fairly for the time and resources he or she dedicates to the business. “Do not try to pay yourself minimum wage and think you’ll get away with it,” says Mark Black, owner of Country Club Lawn and Tree Specialists in South Roxana, Illinois. (His accountant told him this could certainly throw up a red flag to the IRS.)
So what’s the happy medium between taking fair compensation for the work you put into your operation and making good with Uncle Sam? Huston and owners we spoke with share how they take their fair share from the pot.
Read the full story from the November issue here.