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How much should you pay yourself?
Two different numbers get confused here: what a manager doing your job would cost, and what is left over at the end. You should be taking both, and knowing which is which.
Method reviewed by Darren Lim, US CPALicence CPA.74253602Free · No email required · Nothing leaves your browser
Your numbers
What you can take
$378,000
$121,600 as a wage for the work you do, and $256,400 as profit for owning it. Two different things, and you are owed both.
Your pay is two things, not one
The first is a wage for the work you do. You run jobs, quote, manage people and answer the phone at seven on a Sunday. If you stopped, someone would have to be hired to do it, and that person would have a salary. That salary is a cost of the business, and it belongs in overhead whether or not you actually take it.
The second is a return for owning the thing — the profit left after every cost including your wage. It is payment for the risk you carry, the money you have tied up, and the fact that your name is on the lease.
Owners who take "whatever is left" are collapsing both into one number, and the consequence is specific: the business looks more profitable than it is, because the cost of a manager was never charged to it. Price a job on those books and you price it as though your own time were free.
What a replacement would cost
The honest starting point is what you would have to pay somebody to do your job. Not the number you would like, and not what is currently in the account — the market rate for a working manager in your trade, in your area, doing the hours you do.
Then add the burden. If you replaced yourself with an employee you would be paying payroll tax, workers comp and benefits on top of the salary, and the business would have to carry all of it.
What the business can actually afford
Gross profit, minus every overhead cost that is not you, is the pot your wage comes out of. Whatever remains after your wage is the profit, and profit is what funds the next truck, the slow season and any chance of the business being worth something one day.
If the number comes out negative, the business cannot currently afford a manager — which is a finding, not a failure. It usually means margin is too thin or overhead is too high, and both are fixable once they are visible.
How you actually take the money is a separate question that depends on your entity type and has real tax consequences. That belongs with your CPA, not with a calculator.
Common questions
- Should my pay be a fixed salary or a percentage?
- A fixed amount, for the wage portion. It has to be predictable enough to live on and it has to be in the overhead figure you price against — a percentage moves with revenue and makes both impossible. The profit portion can vary, because it is genuinely variable.
- What if the business cannot afford to pay me properly?
- Then that is the most important number on your P&L and it has been invisible until now. The two causes are almost always margin or overhead. Costing a few real jobs properly will usually tell you which within an afternoon.
- Does this tell me whether to take a salary or a distribution?
- No, and be careful with anything that claims to. How an owner takes money out depends on entity type and carries specific tax rules — including reasonable compensation requirements for S corporations. This calculates what the business can afford. Your CPA decides the mechanism.
What we do about it
Owner pay appears as a real line in your overhead rather than as whatever was left in the account, so every price you set carries the cost of you doing the job — and the profit figure underneath it is the real one.