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EP3: How Much Should You Earn from Your Business as an Entrepreneur
“As entrepreneurs, our primary goal should be to build a business that is sustainable long term, that we can continue to earn a healthy living from for years and years to come.” - Adam Rundle (9:51 - 10:01)
Adam Rundle
ABR Consulting
Why you need to earn a consistent income from your business.
One of the primary functions of your business is to provide you with a consistent and healthy income for all the hard work that you do. But figuring out how much money you should earn from your business can be complicated, especially when you factor in other components like taxes, payroll, and managing overhead. These are frustrating topics that can keep you from serving your clients, generating sales, and fulfilling the purpose you had when you started the business.
Before we discuss how to determine the right amount to pay yourself, let’s clarify why you need to earn an income as the business owner. If you don’t take into account the cost of the work that you’re doing, you’ll significantly distort your business’ profit and loss statements, and you’ll be unable to measure how efficiently your business is running. Earning a consistent income will not only allow you to have a healthy relationship with your business, but it will also enable positive decision making in other areas of the company.
“Attaching a compensation amount to the work you’re doing as the business owner is the only way to reliably and accurately measure the efficiency and profitability of your business.”
- Adam Rundle (12:52 - 13:06)
How much should you pay yourself as the business owner?
To figure out how much you should earn as an entrepreneur, you have to consider the two mechanisms of income from your business.
The concept of compensation. Compensation revolves around the price you attach to the time and effort you put into your business, and all the functions you maintain including dealing with clients, managing advertising, and leading your team. While there’s no exact science to evaluate the price of your work as the business owner, you can think about it in a couple of different ways.
Determine how much it would cost to have someone else come into your business and fulfill the role that you currently play. Think about all the main functions you’re carrying out daily, and how much would you pay somebody else to do that work. You can also determine how much you would expect to get paid if you were to re-enter the job market and do similar work at another company.
The share of profits. Profits are how you reward yourself for running a business that is efficient and sustainable, even after you’ve accounted for your own compensation. As you decide on how much and how frequently you can draw a profit, you need to consider your business’ cash on hand at any given time. Cash on hand is vital for many reasons, one being that it dictates your ability to make investments to grow your business.
As a general rule, you’ll want to make sure your business has enough cash on hand to operate for two to three months, without requiring additional revenue. This will give you enough room to make any plans and adjustments, should you run into any issues. You can withdraw any funds that remain in your business beyond the adequate level of cash on hand as profits.
“A healthy relationship between an entrepreneur and their business is based on having clarity about how they can consistently and reliably draw an income and profit.” - Adam Rundle (25:41 - 26:05)
The only way to determine how much you should actually earn from your business is to have a significant level of clarity of how your company is working financially. Having a solid grasp on cash-flow, profitability, and overall business efficiency will allow you to you put the necessary structures and processes in place to earn a consistent income without negatively affecting your business.
How to get involved
If you would like more information about ABR, and the success businesses have gained through their work with the firm, visit their website.
If you liked this episode, be sure to subscribe and leave a quick review on iTunes. It would mean the world to hear your feedback and we’d love for you to help us spread the word!
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By Adam Rundle“As entrepreneurs, our primary goal should be to build a business that is sustainable long term, that we can continue to earn a healthy living from for years and years to come.” - Adam Rundle (9:51 - 10:01)
Adam Rundle
ABR Consulting
Why you need to earn a consistent income from your business.
One of the primary functions of your business is to provide you with a consistent and healthy income for all the hard work that you do. But figuring out how much money you should earn from your business can be complicated, especially when you factor in other components like taxes, payroll, and managing overhead. These are frustrating topics that can keep you from serving your clients, generating sales, and fulfilling the purpose you had when you started the business.
Before we discuss how to determine the right amount to pay yourself, let’s clarify why you need to earn an income as the business owner. If you don’t take into account the cost of the work that you’re doing, you’ll significantly distort your business’ profit and loss statements, and you’ll be unable to measure how efficiently your business is running. Earning a consistent income will not only allow you to have a healthy relationship with your business, but it will also enable positive decision making in other areas of the company.
“Attaching a compensation amount to the work you’re doing as the business owner is the only way to reliably and accurately measure the efficiency and profitability of your business.”
- Adam Rundle (12:52 - 13:06)
How much should you pay yourself as the business owner?
To figure out how much you should earn as an entrepreneur, you have to consider the two mechanisms of income from your business.
The concept of compensation. Compensation revolves around the price you attach to the time and effort you put into your business, and all the functions you maintain including dealing with clients, managing advertising, and leading your team. While there’s no exact science to evaluate the price of your work as the business owner, you can think about it in a couple of different ways.
Determine how much it would cost to have someone else come into your business and fulfill the role that you currently play. Think about all the main functions you’re carrying out daily, and how much would you pay somebody else to do that work. You can also determine how much you would expect to get paid if you were to re-enter the job market and do similar work at another company.
The share of profits. Profits are how you reward yourself for running a business that is efficient and sustainable, even after you’ve accounted for your own compensation. As you decide on how much and how frequently you can draw a profit, you need to consider your business’ cash on hand at any given time. Cash on hand is vital for many reasons, one being that it dictates your ability to make investments to grow your business.
As a general rule, you’ll want to make sure your business has enough cash on hand to operate for two to three months, without requiring additional revenue. This will give you enough room to make any plans and adjustments, should you run into any issues. You can withdraw any funds that remain in your business beyond the adequate level of cash on hand as profits.
“A healthy relationship between an entrepreneur and their business is based on having clarity about how they can consistently and reliably draw an income and profit.” - Adam Rundle (25:41 - 26:05)
The only way to determine how much you should actually earn from your business is to have a significant level of clarity of how your company is working financially. Having a solid grasp on cash-flow, profitability, and overall business efficiency will allow you to you put the necessary structures and processes in place to earn a consistent income without negatively affecting your business.
How to get involved
If you would like more information about ABR, and the success businesses have gained through their work with the firm, visit their website.
If you liked this episode, be sure to subscribe and leave a quick review on iTunes. It would mean the world to hear your feedback and we’d love for you to help us spread the word!