starting salary for owner/manager

A

agadele

Registered User
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Hello there
for all small business owners out there, how did you decide how much to pay yourself when you first started out, and at what stage did you start paying this to yoursefl - immediatley, after 6 weeks, 6 months etc.
thanks
Agnes
 
We started by getting advice from accountant based on our projected sales and expenditure. It was a minimum to start with but after a month or so we increased it a bit when we could handle it and then we review it every 6 months. It's 2 years next month and we're still in business and making a profit so worked out ok so far!
 
Not sure if this is relevant to your business, but my accountant recently advised me to draw a salary of €34k in order to stay in the lower threshold (providing I can live on that of course ) and then maximise the rest in a pension or similar? If I needed more cash I can always withdraw it at any stage throughout the year and just pay the tax at 41% and PRSI etc.
 
i just take out what i want . lol i wish. My wife/partner pays all the household bills. We bank all my income from the business.. A VERY GOOD SYSTEM.. Keep the wife working .
 
Hi agadele

When you set up in business for the first time, the business has to be your first priority. You have to put personal luxuries such as expensive holidays etc. on hold. You take the minimum out of your business or as much as is required to use up your lower tax bands, as Buttermilk has pointed out.

I have review the affairs of a few friends who told me that their businesses were losing money. I discovered that they were making profits before salaries of say €50,000 but taking out €80,000 to fund their lifestyle. In fact, I know of a few businesses which went bust because of excessive salaries. Of course, they all blamed "the taxman" for their demise.

Starting a business is tough. There will be pressure on you from your friends, peers and competitors to show that it is flying. Don't be tempted by shows of extravagance such as new cars and holidays to pretend that the business is going brilliantly. Conserve cash.

Brendan
 
Hi all
thanks for the replies. It was just something I was curious about as you mainly hear about those that over-salary themselves at the start. If your in debt just by a small amount @5K, do you just not pay yourself anything until cleared, or do you give yourself a nominal amount? I am a sole trader BTW.
Just wondering what others do?
Cheers
 
Hi,
I set up a limited company last year, with another investor. I run the business, and work approx 70 hours per week. I invested the same amount as the other guy and we split the equity fifty-fifty. All investment was made as a loan to the company.
What I did is review what my net earning was in my previous role as a company manager and issue myself the same net payment on a monthly basis. This is treated in my accounts as a stage repayment of the loan, and I think it is fair.
I have not taken any further money out of the business, nor do I intend to until we have a significant cash surplus. At that trigger point, the other investor will get his loan back, and I will pay myself a back-salary for the past year. So until I reach this stage, there is no PAYE/Salary outgoings from the business, only loan repayments. However in a few months, I can no longer treat my monthly cheque as a loan repayment as the intial loan will have been fully repaid at this stage. But the trigger point is approaching so I'm not too worried
 
Hi amgd28, You should be sure to pay yourself some salary just to make the most of your tax credits as once the year is over they will be gone forever.
 
Sounds to me as if you are working for nothing as your money is just your own money back and your partner will still have a credit.
 
Hi amgd

Having a partner introduces a complication to the original question. You will both have to decide what is a fair salary for your contribution so that you can calculate profits.

But your approach of paying off the loan first is the right strategy, subject to using up your tax credits. It is astonishing how many companies don't do this.

Brendan
 
woods said:
Sounds to me as if you are working for nothing as your money is just your own money back and your partner will still have a credit.
Click to expand...

In some ways yes, but my partner did facilitate the setting up of an offshore development operation and allowed me to scale quickly at reasonable cost. He has also underwritten further equity requirements should they be needed, at a high pre-money value for one portion and form of a no-equity bridging loan for the other, so in general terms, I think it is a reasonable deal.
I am aware of the tax credit issue, but between now and end of the year is an important time for the co, so I will avail of it if it the company can afford it, but as most of the company's projected income is due to land in January, I may need to give it up.

Thanks for the responses, I hope I didn't hijack the thread
 
As you are a sole trader you are not taxed on the salary that you take but on the profit that the business makes. You might make a profit of €100k for the year which could all be sitting in the bank account. Even if you only draw a salary yourself for the year you will still be taxed on €100k
 
sorry - I dont really understand that . So if there is 100K in an account, and thats the business profit. My salary comes out of this profit, but regardless of the salary is 10K or 90K, Im still taxed on 100K, is that what you are saying?
just to clarify.
Many thanks
 
I started my business in Nov last year and since Jan have paid myself 1500 per month which is just under my tax threshold - so I dont pay any tax. I have to decide shortly how to change this as I'm starting to build up cash in the business but the wife is complaining I dont earn enough!

BTW - As a previous poster stated, I know a number of people who take massive salaries from their business and then wonder why their business isn't making big profits....

Mike
 
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