Paying yourself

Paying yourself

  • Just take the profit and leave a % in for the business. ( which can mean different pay each month)

    Votes: 27 61.4%

  • Pick a number from a hat.

    Votes: 8 18.2%

  • Or Say "I want to make $XX,XXX a year" And explain this one if you can.

    Votes: 9 20.5%
  • Total voters
    44
David O'Connell Jr

David O'Connell Jr

Moderator
Here is a good question that is hard to answer.

When setting up your business, how did you decide to pay yourself?

1. Just take the profit and leave a % in for the business. ( which can mean different pay each month)

2. Pick a number from a hat.

3. Or Say "I want to make $XX,XXX a year" and then project what was needed from there.

:cool:
 
I haven't paid myself a dime this entire year from my business. Every dime I have made I put it back into my business until I buy everything needed for my business to function fully. I basically want to take a typical companies three years and put it into 1 year. I can say I'm looking pretty good now for next year. I'm a part-timer for the remainder of this year but next year it's full time and when I do quit my day time job I want a smooth operation. (Yeah like that's going to happen!)
 
sharkpw said:
I feel the same way just as long as I'm seeing a good profit in the future.
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Guys, I respectfully disagree with you about this. You ALWAYS need to be making some money....don't fall into that "re-investment" trap. You'll never have everything you need, complete "smoothness", etc. Your mindset would be viable if this were a biz that sold for big profits, like a dotcom biz or some kind of manufacturing.

So you have two goals with a service biz like this: 1) provide yourself with a good living, and 2) be building it in a way that you can sell it profitably some day.

So with #1, you need to be paying yourself consistently. Many businessmen a lot smarter than me say you should ALWAYS pay yourself first--before debts, etc. I don't, but some say you should. And with #2, if you cannot show that you are making a sizable profit/salary/etc, you'll never sell your biz for any decent $$.

It is a common trap to keep re-investing, buying new trucks, trailers, machines, etc. with the thinking, "I'm gonna look the look, have the best machinery, and with those things people/commercial will hire me for the BEST work, and THEN i'll start making mad money." Guys, it doesn't work. The most profitable people (that I know) have mediocre equipment, trucks, etc.....they are PROFITING money, not re-investing in stuff that depreciates rapidly.

The "equipment addict" mentality is a dangerous one. People show pics, etc of their setups and it is easy to start thinking you need to measure up. First, many of the guys with fancy stuff do this as a second job, so profitability isn't always their #1 priority. Sometimes this is a "toy collecting hobby" rather than a profit generator.

It is a fine line. I bought two new washers last week, and I feel real guilty about it. Even though my others were broke, damaged, beyond repair, etc. I hate spending the $$. At the same time, I know I'll feel guilty about spending the $$, so sometimes I buy cheap crap that breaks down and I end up spending good money after bad.

My thoughts are, MAKE SURE you are making good money and paying yourself well.
 
I agree with your post Jon but in my case I see my situation as being a little different. The stuff that I have bought this year is the things a pressure washing company should have or should buy Example: Surface Cleaner, Water Recovery System, Longer hoses, Water Tank, Chemical pumps, Airless sprayer, etc. Unfortunately my first store front (4000 sq ft, took me about 6-7 hours) was done with a turbo nozzle but that's okay because it gave me the money needed to buy a surface cleaner or my first few decks were done using pump up sprayers and now I have automatic pumps that do the work for me (and now it takes me a 1/4 of the time to complete a deck) I can also say I have 0 financial debt in my company and it will show a profit this year. You know where I’m coming from on my post now?
 
I agree a lot with what Jon said. I have always taken a salary, my accountant told me to. Its gone up every year as needed for me to live and for tax purposes. When I went S Corp I take salary and can pull profits also. You really need to talk to an accountant who deals with small biz in the trades Field.

I also agree with not buying like crazy at the beginning. I went a few years before I started spending on better equipment, some because I just didn't think I needed bigger and better (more gpm) and second, I wanted to make sure I had the business to justify more and better equipment. I now do spend for equipment as I grow. I usually buy new because I don't want any hassles of used trucks or equipment.

I feel you should always be taking pay. I think it will help many to get a good accountant that knows. I have a real good one and man I am glad i do


I cant wait until i'm the Pressure Washing King and I make my 1st zillion lol


pressure washing myrtle beach
 
Very well put John, I would consider myself as having some of those "equipment addict" traits. With a secure income and retirement I can afford to return more profit back into the equipment I use. When I first started out I always dreamed of having this and that, now I have most of those things. Washing, has always been a crazy passion of mine since I picked up my wand and ran it over some dirty concrete before I became a fireman. I love providing for my family and having the right equipment to do that job more efficiently has become an addiction. Of all the addictions I have had in my life, I feel like this one is the most productive. I hope you guys here don't think I'm trying to show anybody up as far as equipment goes, I just love building things to make working more efficient and productive. I don't have a bunch of fancy toys at my house, I put my money into things that make me money, that is the best addiction I have had so far.
 
I have been full time since I started. In year one I put most of my profits back into the company not so much for equipment but for advertising, insurance, web site, etc. I now take out only what I have to, to pay the household bills and no more. My business has some debt but it is small. Business has been good enough to keep us going but the goal is to continue to grow and reach a salary figure comparable to what I earned before losing my job. I believe that is attainable.
 
Option #1 - Even though I am part time right now, I don't want to get into the mindset of reinvesting everything into the business. For me, that would be a hard habit to break. But, that's just me. Eventually I will set a number and go from there.
 
As a legit company with a s corp, you have to show a salary. You are also able to take a distribution or bonus at the end of each month as needed. Spending money on equipment for me is a neccessity not a luxury, we run our machines hard and long. We go about 2 years on our equipment and then we trade in for new..If your not putting hours on your equipment then the answer to the salary question is obvious.
 
Officers on salary. Budgeted expenses to reduce profit dividend.

The real world balance is trying to reduce your tax bill while still trying to show on paper that the business actually makes some money (in case you want to try and sell)
 
pressurepros said:
The real world balance is trying to reduce your tax bill while still trying to show on paper that the business actually makes some money (in case you want to try and sell)
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That's definitely right. You need to know how much money you need to put back in the company each year or you may not buy enough and you will be paying Uncle Sam the money you could have invested back into your company.
 
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