Lines 19 and 21 represent your Minimum Monthly Salary Range When put income added up your annual personal expenses, divide that number by 12 to come up with the monthly salary you'll need to receive. Next, decide what portion of your savings you'll feel comfortable drawing on during the early stages of your company.
These must be separate savings from the funds you'll use to launch your business. If you plan to keep your job, add your annual salary to the personal savings figure.
Subtract this number from your total annual personal expenses and divide by This gives you the minimum monthly salary you'll need, even if you choose to supplement your startup salary with personal savings or employment income. Now you have a range that runs from the minimum salary needed to cover all your personal expenses to the bare minimum salary you can afford to take by supplementing your income.
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This is your minimum salary range. Determine What You're Worth Now you need to figure out what your salary should be given your knowledge and skills, the time you'll put in and the work you'll perform.
There are two equally valid methods for computing your market worth: Open market value. Given your experience and skills, what would you be paid by put income employer in today's market? While this salary won't take into account the additional time you'll put into a startup, the income put income sacrificing to start your business is a useful benchmark in setting your salary.
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Comparable companies. What do the owners of similarly sized firms in the same industry and geographic region pay themselves? To get comparable salaries, check with trade associations, other entrepreneurs in your industry or the local Small Business Development Center.
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- And in exchange for opening a position by selling a put, the writer receives a premium or fee, however, he is liable to the put buyer to purchase shares at the strike price if the underlying stock falls below that price, up until the options contract expires.
- The options industry uses a lot of different words to basically describe the same, or similar, ideas.
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Neither of these methods takes into account the additional work you'll be taking on as an owner, nor the risk you're taking in starting a business. Some entrepreneurs boost market-worth-based salaries by 3 percent to 5 percent to offset the added responsibilities and risk.
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Put income look at the potential long-term advantage of owning a successful business as compensation for these factors. What Can Your Business Afford?
Once you know the salary you need and the salary you deserve, it's time to balance that put income against your business's finances. You'll need to check the cash-flow projection in your business plan to ensure that you have enough money coming in to cover your own draw and other operating expenses.
Ideally, your cash flow will have a surplus large enough to pay put income market-worth salary, reinvest funds in the business and leave a little margin for error. Unfortunately, that's unlikely. Since most startups initially operate at a loss -- anywhere from six months to two years -- plan to start within the put income salary range.
You can ratchet up toward a market-worth salary as your business breaks put income and continues to grow. Because your business income may ebb and flow initially, a base salary with a bonus structure that kicks in when your business reaches the break-even point is usually the best course for early-stage companies.
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You might, for example, decide that when your business moves into the black, you'll take a percentage of profits every fiscal quarter as a bonus. These bonus percentages range widely, depending on an owner's goals for the business, personal financial needs and philosophy on reinvesting business earnings. But while your aim may be to reach your market-worth salary rapidly, it's a good idea to leave some profits in your business as a safety net and to fund future growth.
When your business is consistently profitable, it's time to re-evaluate your salary. Typically, this means taking a salary put income equal in percentage to the business's annual growth rate, then reinvesting the remaining profit in your business. But as with your bonus structure, there is no silver bullet equation for determining the appropriate salary hike. You'll want to factor in the nature of your industry and your business goals.
For example, if you're in a turbulent or cyclical industry, you may want to retain the quarterly bonus structure and the flexibility it affords.
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Or, if your business has the potential for rapid growth, you may want to forego the salary boost and use the extra capital to fund new products, expansion plans or marketing initiatives. Whatever you decide in the early phase of your business, reassess your compensation every six months.
As your business evolves, its cash-flow model and capital needs may put income dramatically -- as may your own.