How much, however, is a tougher question to answer especially in start-up mode...you feel the urge to not take a salary while the business is getting started, but you also have personal expenses that need to be covered...so here's some tidbits on how you can handle the situation:
- Make a list of your expenses. Write down all your monthly, quarterly, semi-annual expenses (car insurance, magazine subscriptions, trash pickup, life insurance, cable, credit cards, student loans, etc). Add a cushion you think is appropriate for entertainment, personal and unforeseen things that may happen. Total these up for the year and divide by 12. This gets you your minimum monthly salary just to squeak by.
- Now take a look at the open market value and comparable companies. What are other Chiropractors of similarly sized companies in the same region paying themselves?
A couple of things to watch out for is your tax situation and business structure. If you're a sole proprietor, the government considers you and your business a single entity. All profits from the business are taxed, regardless of whether you withdraw them for yourself or they stay in the business.
If you decide to incorporate (which I hope you do!), your business is a separate entity and must pay taxes on the profits it earns, but the salary you pay yourself and employees you may have are considered deductible expenses. In a corporation you can also pay yourself a dividend, but these are taxed twice, something I wouldn't do!
As your business grows, you will most certainly adjust your salary appropriately...a general guideline is to increase your salary along the lines of the percentage growth rate of the business. You'll want to review your compensation strategy every six-months, allowing you to act appropriately as the capital needs and cash-flow of your business changes.
Be smart with your money...don't go too crazy too soon with paying yourself and overly exorbitant salary, but don't be too conservative so that you go into the red with your personal expenses. Be conservative with your pro formas and with hard work and Lasting Purpose behind you, you will easily meet these projections and more!
Most chiropractic students graduate thinking they are worth too much just because they have the degree. Truth is you're only worth what you can produce. DO NOT take out a business loan and over pay yourself based on what you hope to be earning. That is living beyond your means. I've seen many of the best chiropractors struggle and not pay themselves a dime for a long time. It's the reality of starting your own business. Eventually you will be ok but you need to eat a nice warm slice of humble pie when you are starting out.
ReplyDeleteBeautifully said! And of course, the key to increasing your success and income is to stop focusing so much on being successful and focus more on being valuable, for the more valuable you are to your community, the more it will compensate you with its business!
ReplyDeleteBrian - Pursuant to a commenter last week inquiring as to your own future and you being in business school -- It kinda seems like you are leaving the field? Or at least exploring other options.. So to be direct(and I mean no offense) Is this because you were unable to make the kind of money you hoped?
ReplyDeleteI know you said you are committed to chiropractic but lets be honest here... Lets address the reality of the situation...Why are you not in practic and going to business school...and again I am not trying to be aggressive or out of line...I just want to understand your background as a biz writer and how you see your future in Chiropractic developing
Thanks anon for your question...
ReplyDeleteTwo reasons I am getting an MBA...
1. My job position at Life University is the coordinator of the business program for the college of chiropractic. Even though I have run successful chiropractic practices in the past, it seemed essential to me to match that experience academically to bring concepts and practices learned in biz school to Life's program. There's nothing more fulfilling to me at this point in my life than teaching...I absolutely love it! The program is still a work in process but we're making headway...
2. I certainly would love to advance my position at the school and accept more responsibility as time and gained experience dictate and having a terminal degree is one piece of that puzzle to get there.
Thanks!
Thanks for this information. It was no mistake that I have been agonizing about this very question as to what and how to pay myself. I have been in practice for 3 years and still treading water. I started the practice on a shoe string budget. I am determined to have a referral only cash practice. I am pleased that I am still in business when most have not been able to stay afloat within the last few years. I believe that only thing that has kept me in business is my strong philosophy and love of Chiropractic. Yet I still wrestle with myself considerably over how to consciously pay myself. I never pay myself directly but instead pull out money when and if absolutely needed. I am uncomfortable with taking anything from the practice for fear I wont have enough to grow it. By the way its not growing at the rate I thought it would. I have been examining why. I am not living beyond my means and neither is the practice. I guess the big question is how do you pull money out of the practice to pay yourself if the practice needs it. I equate the struggle I have with taking food out my child's mouth. The practice feels like my baby and if it needs something it gets it before anything else. Is this an issue with balance or just the way it is in the first few years? I agree that I should be paying myself but I guess that the conflict comes with my equating the practice with being one of my children. It is possible the practice is not growing at the rate I think it should because I am not paying myself consciously. I think I am afraid if I do the calculations suggested above I wont have enough to pay myself! Working on it. Thanks for the great info from this one and the others before it. I really benefit from them.
ReplyDelete