Often times I deal with business owners who have over extended their personal life and draw too high of a salary to pay for it. They try to justify their higher than normal wage by explaining they deserve to be paid that much because they work hard at their business. However, my question to them is: “Are you building a business or funding a lifestyle?”
Here are some tips to avoid this:
Tip 1: Take a fair Market Value Salary, build up profits and equity and then take a higher salary and increase your lifestyle once your business can support it.
There is nothing wrong with running a business to support your lifestyle, but there are consequences to that choice. Do not get frustrated when there is little profit left and you require money for that big customer you finally landed, and the banks say no to your request for an operating line or an increase because your lifestyle is over extended. Banks do not want to support your lifestyle; they want to help your business grow.
Tip 2: Strategically build your business. Think about what amount of salary you can draw or what amount the company can afford and then let that drive your personal lifestyle.
The same thinking will work on the type of vehicle you should buy. Simply because you want to drive a brand new BMW, does not mean that you should at this time. Ask yourself, “How much can the company afford to pay in vehicle expenses?” Let that amount drive the type of vehicle you use.
Tip 3: Do not over extend in lifestyle luxuries until your business can support it. Once your business can support it, go for it! You deserve it!
All too often I run into small business owners who are driving the best cars, using the latest in phone technology, eating at the best restaurants, renovating their homes, etc. but then wonder why, at the end of the year, they have no profit. So my question to you again is, “Are you building a business, or funding a lifestyle?”
There is nothing wrong with either one, but with each one come a different set of consequences. Figure out what it is you are doing and accept the conditions that come with the decision, if you do, you will find your stress levels will be reduced.
Lessons Learned:
- Take a Fair Market Salary as income
- Do not over extend in lifestyle luxuries
- Strategically build your business
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