Finance Operations

How to Budget Your Salary as an Owner

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Managing an Owner's Salary
An explanation of how to pay yourself as an owner.

Adam Liu has owned his shop, New York-based M-Spec Performance, for 10 years now, and is at the point where he runs a second shopwith a third coming soon. He’s been a service advisor, office manager and, finally, an active owner, overseeing marketing, paperwork and management duties.

As his roles have changed throughout the years, he’s learned a lot about setting up his salary as an owner, and how owners should pay themselves based on differing roles and situations.

Many shop owners choose to pay themselves little or nothing as their businesses grow, which can cause a wide range of problems. As an active owner, you are legally required to pay yourself a reasonable wage. Having a consistent, reliable number is also important should you decide to switch roles. Liu provides some insight on how to pay yourself a fair, livable wage while keeping your business growing.

 

I started as a service advisor, and my partner was the tech. We paid ourselves a flat, weekly salary, which was far too little back then. If we didn’t have good weeks or months at the time, we would not pay ourselves. The only logical portion was, we need some money to take care of our lives, and thought we could take home $500–$600 per week. There wasn’t really any rhyme or reason to it.

Knowing what I know now, I wouldn’t have set things up the same way. A lot of owners want to put everything they can back into the business, but that can be dangerous. If you’re the one that’s really driving the whole business, you might not be able to function well if you’re thinking about both your business and all the bills piling up.

You need to take what your role is and, at the very least, pay yourself for that. Depending on your role in the shop, you want to set things up so you’re paying yourself what you would a technician or a service advisor. If you’re spending 80 percent of your time as a technician and 20 percent of your time in the office, you should at least be paying yourself what you’d pay a technician so that everything looks right in your budgeting, especially when you’re expanding and growing. That should be at least $1,000–$1,200 per week. When the time comes and you want to move to another role in your business, it allows you to plug somebody into that role with a similar salary.

If you’re an owner that turn wrenches or write service, (say you’re a general manager) the same rule kind of applies there. You want to think about what you’d pay a manager if you needed one in the store. I’m at the point now where I’m running two stores, and I’m not as involved in the business. I’m not necessarily a daily manager, I’m not a service advisor and I’m not a technician. I do marketing, paperwork and some bookkeeping, so I make sure to at least pay myself the level of a possible replacement.

You have to think about, what do I do if something changes and I can’t work in this business anymore? If you’ve never built your business to the point where you can pay for a replacement, and you’re paying yourself maybe $500–$600 per week, you’re going to be in big trouble. One fallacy is not to pay yourself at all, and a lot of shop owners will pay themselves last, which could hurt you. If you don’t factor in what you have to make, your whole budget is going to be off.

Additionally, as an owner, the net profit is all yours at the end of the year. If your net profit goal is around 15 percent, your goal should go into your budgeting so that you know for what you’re aiming. Instead of saying at the end of it all, I’ll make 15 percent, you should say, as a prerequisite, I have to make that each month. If we don’t set the bar high for ourselves, then we won’t push ourselves to reach our goals.

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