Hank Nunn is a year collision industry veteran. How Do I Make My Office Flow? How Do I Use My "Numbers" to Build My Business? I was curious about how much I should make and how I should pay myself. Compensation for employees is usually pretty simple.

We know how to pay technicians and other employees.

Flat rate within a market is pretty standard. Hourly rates are also market-driven based on job and required skill level. It may seem that the owner has the best job. But few understand the hours the owner puts into the business and the risk the owner has taken.

Hourly Salary for Auto Painters | ywepubuy.web.fc2.com

In a very young business, they sacrifice a lot! The owner works the longest hours, sometimes with no compensation so that payroll or other expenses can be met. The owner takes out and personally guarantees business loans. The owner is also on the hook for employee mistakes and can be sued for just about anything at any time. Owners earn compensation in two ways.

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First, the owner should earn a paycheck just like any other business employee for working in the business. Second, the owner should earn a return on their investment in the business. The decision on how much an owner should or could make is best made with the advice of a good, business-focused CPA. Owners should have a complete understanding of the company profit and loss statement.

The Paycheck As noted above, if the owner is functioning as a manager or technician or both , the owner should draw a paycheck just like all of the other employees. But there are several problems with this method of compensation. Taxes and benefits are deducted and paid just as with any employee, and the owner still has the option to draw additional funds from profits if warranted.

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How much should you pay yourself? If the business is in its infancy, probably nothing. Remember, the company has to make a profit before anyone can be paid. Most business consultants suggest that new owners make sure they have sufficient cash on hand to go six months to one year with no income from the business. The first year is tough! Business Plan In a perfect world, the owner creates a solid business plan prior to opening the doors.

The new owner may be working for nothing, but other employees are getting paid. Resentment builds, the new owner decides to pay himself too soon and cash flow issues result.

Cash flow difficulty is the No.

As a business matures, the owner can finally receive a paycheck. Owner pay comes in many forms. Obviously, there is the paycheck.

As noted before, the owner should be paid just like any employee if the owner works in the business on a day-to-day basis. But there are other ways that the owner receives compensation, such as a company car, contribution to retirement plans, flexible hours, expense accounts, insurance benefits, etc. Work with your accountant and tax advisor to make sure those additional benefits are appropriate. One rule of thumb: Be careful when adding those extra benefits!

The business needs to make money. Most use a minimum 10 percent of gross sales as a goal for net profit before taxes. That 10 percent net profit allows money to be reinvested in the business, loans to be paid and money to be paid to ownership as dividends if the company is a corporation.

What if the owner is doing work in-shop? If so, the owner should pay themselves an hourly rate or flat rate, just as the other productive employees are paid. As the business evolves, many owners hire managers to run the company. Some may wish to remain on the payroll in some capacity in order to stay on the health plan, continue to drive the company car and pay into Social Security and other taxes. Equity As a business grows, its value grows as well.

We all understand how a home increases in value over time, and the payoff is reduced over time by making monthly payments. Building a business is the same thing. Over time, the value of the business grows and the money owed against the business is reduced by making lease and loan payments. While business valuation is a complex issue, there are two basic methods of determining the value of any business: Pay yourself a salary within the first six months to a year of owning the business Allow your compensation to drive net sales below 10 percent Take cash from your business Do: Pay yourself via a paycheck like a regular employee Pay yourself a minimal paycheck after the first six months to a year Increase your compensation as your business builds Pay yourself if you manage the business the amount the business would have to pay for a general manager Cash flow valuation uses the net positive cashflow to determine the value.

In this method, the net positive cash flow usually EBIDTA or Earnings Before Interest, Depreciation, Taxes and Amortization is multiplied by a number to arrive at the business value.

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The number, or multiplier, is a negotiated number representing the number of years the buyer is allowing the net positive cashflow to repay the investment made in buying the business. Using that information, the owner negotiates a multiplier of 3. Remember, that does not include the real estate! In selling the business, the owner should negotiate a fair market rent for the property. Rental income is an area frequently overlooked as owner compensation. Often, the business owns the real estate housing the company.

As time passes, the loan balance diminishes while the fair market lease rate increases. The building and business should be separate entities, with the business paying a fair market rent to the owner of the real estate, usually the owner of the business.

The difference between the fair market rent and the payment can be income to the owner. Business owners should keep an eye on equity as they build their business. To maximize equity, the business must be profitable, should show steady sales growth and be systems driven so that the company is not dependent on the owner for daily operations. Naturally, taking cash avoids paying income tax and other taxes on the revenue.

The IRS can, and they do catch that!

The owner has money in his wallet, but that money did not go through the business and did not show up in sales. The owner is being paid a monthly salary plus benefits, with a company car and expense account. That would probably be paid on a quarterly basis, leaving 70 percent of the net to be reinvested in the business. Plus, as time passes, the owner is earning increased equity in both the real estate and the business.

The numbers and percentages used are for illustration only. In the real world, owners should work with their accountants to decide just how much the business can afford to pay the owner and how to structure that compensation in such a way that tax impacts are minimized.

In our example, maybe that dividend being taken should be made as a K contribution? By truly understanding the financial structure of a business, and working with a business-focused CPA or accountant, a good compensation structure can be created for the owner. Seth Greenberg Hank — thanks for the insight. Thanks so much for the help!

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December 8, 9: Hank Nunn, author View bio. Bio Recent Posts Popular Posts Hank Nunn is a year collision industry veteran. What Does It Cost? In-Story Video 1x1 target: Hank — thanks for the insight. I am in the: Floor Ad x target: