No business can afford to pay its founder a salary, however you are expected to draw a salary from the business as the owner. This is because you started the business with skills and experience acquired over many years. Starting a business is like pumping oxygen into an inanimate object and bringing it to life.
Why draw a salary from the business?
You withdraw a salary because, as the business owner, you are still responsible for your individual tax. You are not the business and vice versa, hence you have separate tax numbers. Being self-employed does not let you off the hook; you become the employee in your own business. The company must register for Pay As You Earn – this means all the deductions made relating to the company salaries will be withheld in correspondence to the company’s PAYE. This part of your business is referred to as ‘Payroll’. The fact that you are a small business does not exclude you from this process, in fact, these are the most basic business operations that every business owner must know and practice.
How do I pay myself / calculate my salary?
As I have initially explained – no business can afford to pay the founder on its startup phase. For obvious reasons, the business requires Capital which, as the founder, you need to organize, therefore most of the time you will compromise for its survival sake. At the same time, you cannot compromise the common practice of earning a salary as the business owner. It is advisable that you start this as early as possible. That way you get used to the process and a clear discipline will be drawn between you and the business.
How do I calculate my salary from my start up business?
I always advise that when starting your business, your first priority should be paying off your debt. You certainly do not want to have a huge financial burden when trying to focus on building the business.
You start by getting real about your personal expenses. You start by looking at the following factors:
FIXED EXPENSE: These are necessary living expenses that don’t change from month to month, such as your Rent / Bond.
VARIABLE EXPENSES: These are necessary living expenses that fluctuates month to month, such as groceries etc.
EXTRA EXPENSES: These are fixed or variable expenses that are not essential for you to live, such as eating out / entertainment.
You can therefore gauge your expenses from the abovementioned factors and transfer the same amount monthly into your personal account as a salary. Prepare your pay slip and make sure you stick to the process and the budget, irrespective of the business growth. This will help you grow the business.
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By Ms. Dee – Founder & MD http://www.matsobanemetja.co.za
Matsobanemetja Business Consulting Pty Ltd 