Settling on a Salary

It’s somewhat disheartening that 40% of working Americans believe they will never save enough money to retire.1

There may be nothing you love more than running your business today. However, you may not be willing and able to stay involved forever, and there could come a time when your interests or passions lead you elsewhere.

When your company’s bottom line improves, it may be tempting to give yourself a raise and use the extra money to enhance your current lifestyle. But if you want to be in a position to finance your retirement dreams, you may want to think about how you can use some of your business proceeds to benefit your financial future.

Good Time to Grow

Owners may work the longest hours, but for better or worse their paychecks come from whatever is left after other business expenses are paid. One rule of thumb is that no more than 50% of the profits should be taken as salary, but more may be required to meet personal needs during lean times.

As revenues grow, consider whether it might be beneficial to forego a certain amount of salary and reinvest back in the business. Modernizing equipment or facilities, hiring new employees, or ramping up marketing efforts could help boost your company’s productivity, market share, and future profits.

Budgeting for Benefits

Depending on how your business is organized, you may be able to take advantage of personal tax benefits by deferring some salary and contributing to a qualified retirement plan. It may also be worthwhile to devote some resources to funding other types of workplace benefits such as life, health, and disability insurance for both you and your employees.

Of course, you own a business so you will have the income you need to live well today. But it might be possible to choose a salary and benefits that could also help you to lighten your tax burden, grow your business, and save for a comfortable retirement.

1) CNNMoney, April 13, 2011

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