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How much to pay yourself?

Should a business owner take a salary when his business has just started? Of course, says our financial expert
By Henry Ong |

Q: How should a business owner compute the monthly compensation that he will set aside for himself from the earnings of his business, especially if the business is still in the startup phase?

A: A business is considered a separate entity from the owner. The owner should set a salary for himself for putting his time in the business even if it is still losing at the startup phase.

The amount of his salary shall depend on the opportunity cost of the entrepreneur. If he used to work for a multinational company and earned P100,000 a month, then ideally, that\\\'s the salary he should set for himself. However, since the business is just starting, he can lower it to the level that he can afford, and consider the difference as an investment of his time in the business.

The initial goal for anyone going into business is to make the business capable of paying his desired salary and enabling him to invest all excess earnings to build his wealth.

 

Henry Ong, CMC, CMA, is president and COO of Business Sense, a business advisory firm that provides expert solutions to small and medium sized companies. You may reach him at hong@businesssense.com.ph.

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