Five Essential Components of an Entrepreneur’s Compensation

The two major ways entrepreneurs can take money from their business is through draws or by receiving a paycheck. The type of entity in which their business is set up will determine which method can be used. In either case, entrepreneurs need to be careful not to shortchange themselves. 

Especially if you’re running a service business, it’s easy to initially think you can do well with a similar hourly rate that you earned as an employee.  Here’s a quick list of five elements that should be included in the compensation of every entrepreneur:

1.     Competitive pay 

If you were doing the same work for a company that hired you, what would your pay be? Are you making at least market equivalent or better? A lot of times, as entrepreneurs, we tend to focus only on this piece of our compensation when we set our pricing, and that’s a big mistake. It’s only 75 percent of what our total pay needs to be. 

2.     Profit.

As an entrepreneur, you take extra risk when you own your own company, and you should be compensated accordingly. Your capital is tied up in your business and should be earning a good return in addition to your reasonable compensation. 

3.     Benefits

Employees get vacations, health insurance, and bonuses; and you should too. This should be part of your compensation package as an entrepreneur. 

4.     Taxes

Although our individual taxes are not deductible as business expenses, we need to compensate for them so that we’ll have enough cash for our living expenses. It’s a huge chunk too. We work about three and a half months every year, just to pay for our taxes. 

5.     Retirement plan

When you work for yourself, no one is going to fund your retirement for you. Although the Social Security program helps a lot of seniors, it’s up to you to set additional money aside for a comfortable future. 

Complete Compensation

Your compensation should include all of these components.  If it doesn’t and you feel like you can’t afford to pay yourself that much, then your pricing might not be reflecting all of these items correctly, you might have a volume problem, or your business model may need some adjusting. 

It’s normal to take a smaller paycheck the first few years as we’re building our businesses, but if you’re still doing it after several years or constantly having cash flow issues, then something may be wrong. 

If you’d like our help in this area of your business, please reach out and let us know. 

Make sure your future is bright and financially secure by including all five components in your entrepreneur compensation.  

Is It Time for Spring Cleaning Your Business Files?

How much time do you spend each day looking for information about orders, customers, vendors, or employees?  If it’s a lot, a little spring cleaning might pay off.  Here are five quick tips to assess and improve your information access.

Your Librarian

Large companies often have a librarian on staff that is in charge of stored documents, both physical and virtual.  It’s not a bad idea to have this function in your small business, although you certainly don’t want to devote an entire headcount to it. 

Today, a company librarian might be in charge of the company’s document portal, which is a very secure area where company documents can be stored.  It might be on the company server or in a secure area of the cloud.  There are companies that offer secure file storage, accessible through document portals. 

The librarian will also be in charge of creating recordkeeping policies and procedures.

What’s in a Name

One such procedure that brings order to chaos is setting naming conventions for client files and folders.  Set consistency by using a naming standard such as having a client file name always start with the last name of the client followed by a birth date, or something else unique. 

It will save time each time you look up a file because you’ll always know where to look.  Even if it’s only seconds saved per lookup, that time will add up to minutes and hours saved over a year.  That will save you labor costs.  A naming standard will also look professional in front of the client. 

Permanent vs. Transactional

Get uber-organized by separating your important long-term legal papers from your transactional documents.  Long-term papers such as your corporate by-laws and tax returns should have a special place away from your day-to-day invoices and receipts.  Also keep major purchases such as settlement documents from real estate transactions in a special file that you’ll keep for many years. 

Your daily transactional files should be batched up by month or year and stored accordingly.  You’ll be able to delete these files after their retention period is up, while you’ll want to keep your long-term legal papers almost forever.  You still won’t be able to throw away your annual documents too soon – some agencies require you to keep transactional documents for as long as 11 years. 

Paper or Paperless

What percentage of your business documents is scanned and stored online?  If you’d like to increase this percentage, then make a plan to convert your paper into scanned documents you can access online.  So that it’s not such an overwhelming task, break it down into smaller chunks:   start with one area of your business at a time or one vendor at a time.   

Purchase a scanner for everyone in your office, and you’ll soon find your office getting more and more paperless by the week.  You can also have fun taking pictures of receipts on your cell phone and uploading the documents to your document portal.    

A Backup Plan

So that you don’t lose your documents to a catastrophe, theft or any other disaster, make sure you have a backup of all of your documents so you are able to recover them. 

This is where paperless shines over paper, because there is always risk of fire with the latter.  It’s also where a secure document portal beats your company server anytime because of the elaborate layers of security that are required for secure commercial data centers. 

After you implement these five tips, you may not even need to do a spring cleaning.  You’ll be organized and efficient, and that’s good for business.