To take a Salary or not?

It can be beneficial for entrepreneurs to reflect a salary in their financial statements and to talk to their accountant about the best way to get that money back into the company as needed.

Entrepreneurs with new ventures hesitate to pay themselves, believing it isn’t in the best interest of their company. Some entrepreneurs don’t want to take a salary because they’re worried how their employees are going to perceive it. They want to send the signal they’re sacrificing for their company so everyone else should as well. In the long run, it’s not a way to attract good people to your organization. They’re likely to wonder that if you can’t afford to pay yourself, how stable is their pay cheque?

It is a legitimate concern not to want to starve the business for cash by paying yourself a salary in the short run when you expect a positive cash flow down the road. However it is better for an entrepreneur to pay themselves a salary — even if they’re sinking every penny of that salary back into the business. This will solicit two results. One, it will allow you to realistically assess the profitability and therefore the value of your business, should you decide to sell. Two, if at some point you wish to put someone else in the managerial position, without selling, you will have a realistic idea of the amount of money left over to support yourself.

Discuss the concept with your accountant to find the mix of salary and dividends/withdrawals that are best for you and your company.

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