Entrepreneurs Salary: How Much Should You Pay Yourself?
Entrepreneurs salary: When you are your own boss, you are also your own remunerative. The temptation to pay yourself the profits is inevitable.
But beware, not all the profits belong to you (unfortunately!). Not to mention that you must also keep cash for the proper functioning of your business.
Even if the objective of creating a business is to live comfortably from one’s activity, each remuneration must be calculated as accurately as possible. So, how do you know the entrepreneur salary to claim?
The Definition Of The Entrepreneur Salary
The entrepreneurs salary is strongly linked to the company’s health, expenses, and profits. Moreover, it is not a salary, but a remuneration.
To calculate it, you must consider the evolution of the company and the social security contributions. These represent 30 to 48% of your profits, depending on your legal form.
Did you know?
The maximum income you can afford is between 70-52%.
Suppose you have opted for the status of a sole proprietorship or auto-enterprise or other companies subject to income tax. In that case, you are free to pay yourself the entrepreneurs salary you want.
The Principle Of 3 Months
The life of an entrepreneur is rich in the unexpected!
It may be taxes or levies that you would not have anticipated (the CFE, for example) or simply a variation in inactivity. Suppose you are in a very seasonal sector. In that case, your turnover may fluctuate wildly, and you will have months with little profit (and vice versa!).
Generally, accountants recommend paying yourself an entrepreneurs salary when you have 3 months of turnover on your professional account. These 3 months will serve as savings for unforeseen charges or off-peak periods.
Change In Remuneration
If you’re hoping to tally up your profits and then subtract the charges (operating costs and payroll taxes) to find your entrepreneurs salary, you’re going to run into trouble pretty quickly.
For starters: your pay will vary every month. However, how do you know your standard of living, and therefore your spending potential, if your income is cyclical?
To avoid pitfalls, have an overview of your fixed personal expenses (rent, electricity, car loan, internet subscription, etc.) and your earning potential.
Let’s take an example.
If you have $1,000 in expenses per month and your profits, fluctuate monthly between $1,500 and $3,500, pay yourself $2,000 per month, all year round.
At the balance sheet time, at the end of December or the beginning of January, you can always pay yourself a “bonus” if there is still cash available.
What About The First Year?
What is advised above is difficult to achieve in the first year. Generally, entrepreneurs avoid paying themselves during the first 6 months of activity, or even the first full year.
If this is not possible, draw only the minimum required from your cash flow. Don’t forget that you are entitled to state aid when you earn little money as an entrepreneur. This is the case of the activity bonus, for example, and the APL (for your rent).
Also, remember to ask for the ACCRE, which allows you to be exempt from part of the social security contributions during the first year of exercise.
And if your business experiences rapid growth (that’s all we wish you!), see the 3-month principle to know when to pay your first entrepreneurs salary.
As an entrepreneur, you think you have no restrictions on your remuneration. This may seem true to you until your numbers fall into the red!
Always keep a “mattress” for the unexpected, off-peak periods or any other unfortunate event. Then, be sure to maintain a linear rate of remuneration, even if it means increasing it the following year.
Following these tips will allow you to sustain your business, to achieve the standard of living you have always wanted!