Most small business owners are up and out the door early to open the local convenience stores, restaurants, dry cleaners, retail stores, auto repair shops, small manufacturing companies, and other such businesses that come to life each day in your city or town. Most small business owners work long hours. There’s no time-and-a-half pay here. Many small business owners don’t even take a salary.
Only half in the U.S. do. And 44% of those pay themselves less than $50,000 a year. That’s what a poll by American Express Open found.
A recent article in the Boston Herald reported on these findings, making a blanket statement that "it's not good" for founders/owners to not take a salary.
The full text of the article is no longer available but the comments it drew are. I found the article to be misinformation written by someone who has never built a business.
One commenter pointed out that the decision to take a salary or not is situational and he is right.
Accountants are always preaching to pay yourself first; however, when the greater need is to use the money for something else, that is what business owners do. The idea of setting up a regular payment to the owner is valid, as owners should be building some equity outside their business. But when the business needs the money to pay staff or launch a new product or service or embark on a marketing program, then the owner makes a conscious decision to use the money where it will do the most good.
Most owners pay the staff, the consultants and the bills before they take anything for themselves. The past couple of years, survival has been the goal for most.
Companies that are founded upon other people’s money or are public corporations generally operate on a different basis, yet even in these cases, many CEO Shareholders do not take a salary but focus on building value.
For the owner-operated business, the goal is to pay the bills, invest in the future of the business and have enough for the family to live on. Some families need more than others, so the amount taken varies substantially. Once the business is generating more than what’s required to pay the bills and invest in its future, owners take more and they take it in many different ways depending upon their lifestyle and needs.
It is their money as business owner and operator-- not shareholders’ or investors’ money--and they make decisions accordingly.
It is not surprising nor is it any indication of the benefit of owning a business that 50% of owners do not take a salary and that of those who do, 44% take less than $50,000. The money an owner takes as salary is taxable income with the tax being due when the salary is taken. On the other hand, the corporate small business rate is lower and owners can carry losses forward and back, giving them more flexibility.
Owners who pay themselves as self-employed consultants can use expense deductions a salaried employee can’t. Income-splitting between couples is often used to reduce taxes, as are dividend payments.
Decisions based on what's best for the business
Most business owners focus and base their decisions on what’s best for the business, staff, clients, suppliers and the future of the business. Personal needs must be met, but beyond that, most business owners are very unselfish: they have a vision of the future and work tirelessly to achieve it, taking risk and making the sacrifices to build for their staff, their family and themselves. Small business owners are the true heroes of our time.
Generally (and fortunately), that hard work and sacrifice translates into money when it’s time to sell the business.
Some entrepreneurs have figured out how to work themselves out of a job early in the building process. Most of us continue to work hard until we sell.
A good business broker will maximize what a business owner gets when they sell. Working with a broader team of experts--lawyers, accountants, bookkeepers, wealth advisers, marketing specialists, insurance professionals, and business coaches—they can also help the business owner build greater value and/or to “retire on the job” with greater income and flexibility in their life. The Sunbelt network of professionals can help you achieve either of these goals. Feel free to contact your local Sunbelt office to speak to a broker in complete confidence and without obligation. Learn more about buying or selling a business through our free resources.