Business Owner Salary: Matthew Mazotas’s Guide to Setting Yours
“If you don’t plan your time, someone else will help you waste it.” – Zig Ziglar
There’s an old saying I’m sure you’ve heard about time equaling money. But do you operate your business like it’s true?
And do you know the value of your time, as the leader of your business?
It’s certainly something to focus on if you haven’t given it much thought before now. Because if you aren’t aware of what your time is worth…
…You’ll underprice, because you don’t consider your time a cost.
…You’ll operate in an overwhelmed state, because you won’t know when to hire or delegate.
…You’ll miss growth opportunities because you’re consumed by low-value tasks.
Come to a firm conviction of what your time is worth, then set your salary accordingly.
Here’s my advice on how to do that…
When setting your business owner salary… You should pay yourself first
The “whatever’s left over” method of paying yourself each month signals zero financial planning (and is the reason most Connecticut entrepreneurs go broke).
If you don’t set a firm target salary, you can’t accurately value your time. You need a plan for how much you’re going to pay yourself based on accurate calculations. For how to make said plan, read on.
When setting your business owner salary… You have to draw the line
Here’s a starting framework for how to set a salary that actually reflects the value of your time:
Step 1: Set your base earnings target. Start with how much money you need (or want) to earn annually. This should cover your living expenses, perks, retirement contributions, emergency funds, and any other personal financial goals.
Step 2: Calculate workable hours in a year. Let’s say you work 244 days a year (about 5 days a week with vacations and holidays removed). Multiply that by 8 hours per day = 1,952 work hours annually.
Surprisingly (or maybe not), you’re not working productively 100 percent of that time. The true percentage is more like 50–70. Apply a productivity factor to reflect this.
Step 3: Run the numbers. Calculate using these equations:
– Base annual target salary / 1,952 hours = base hourly rate
– Base hourly rate x productivity factor = true hourly rate
If you’re getting lost here, let me illustrate with an example…
Say your target salary is $120K/year. Take $120K and divide it by 1,952 hours, and that’s your base hourly rate (about $61 an hour). If you determine you’re productive about 60 percent of the time, you need to earn $102 an hour during productive work time to hit your salary goal.
Now that you have a baseline, you can use it to help you with decision-making. As a few instances, you can use it to evaluate whether or not to take on a certain client, when to delegate a task, or if you need to raise your prices.
When setting your business owner salary… You also have to hold the line
Your business needs to be able to support this salary you’ve determined without compromising your operations or growth. If one or the other has to give to make it work, you need to look at your business’s cash flow. Are you wasting money on unnecessary expenses? Are your margins too tight? Or is your pricing too low?
For the short term, you may need to rework your pricing and find ways to cut non-essential expenses.
But in the long run, your aim is to grow into being able to support your set salary. See the gap as a target. Strategize for what would need to happen (in terms of monthly revenue, client load, or profit margins) for your business to support your salary, and create a step-by-step plan to get there.
Once you really understand the value of your time, the way you run your Connecticut business will never be the same. Why? Because your decisions start aligning with your true worth. Your business starts to be built on intention. And I’m happy to join you in this building process. I want to help you understand the true value of your time as a business with your salary and beyond… and never budge on it:
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