Hartman is the primary salesperson, manager and so much more – like most small business owners in the green industry. For years, he paid himself $25,000 to $35,000 annually. “Finally, my accountant said to me, ‘Maybe you should start paying yourself more,’” Hartman says.
Figuring out a reasonable wage is tough. There’s no exact science, but there are two methods. You can set a salary that will ensure you meet your basic living requirements, or you can project a salary based on worth, usually meaning a current market value minimum plus a little more.
After the business goes beyond break-even, owners may pay themselves a bonus, along with a weekly fair market rate.
Hartman considered what he pays his operations manager. “I know how valuable he is to me, so I felt I could make slightly more than that for my role in the company,” he says.
“I have seen cases where a spouse has the checkbook and they are spending left and right. They see $1 million in the bank account and think it belongs to them.” Jim Huston, J.R. Huston Consulting
Ultimately, he decided to pay himself about $55,000. “And, there are company perks like a vehicle, cellphone and occasional tax write-offs,” he says.
Hartman’s key focus has been reinvesting in the business, and he has sacrificed cash pay to do so. “That’s more important to me than growing my personal savings,” he says.
Still, you work hard and you deserve to be paid a fair wage. The question is, what is really fair, and how can you draw a decent salary while maintaining solid profit margins and funding business growth.
Jim Huston, president of J.R. Huston Consulting, suggests starting here: “Ask yourself, ‘What would I pay someone else to do my job?’ If you say, ‘$200,000,’ I ask, ‘What would you really pay someone to do your job? $50,000?’”
Budget to pay yourself.
There are some basic owner’s salary benchmarks for the green industry, Huston says. The owner of a business doing $300,000 in sales will probably pay himself $36,000 annually before dividends. This is about 12 percent of sales, he notes.
If your business does about $500,000 in sales, you’ll make about $40,000 before dividends. And, for companies that are in the $1-million range, owners are looking at a salary of $60,000 to $70,000 (give or take another $10,000.)
“A steady personal income stream enforces discipline so you measure expenditures carefully before it’s too late. ” Jim Huston, J.R. Huston Consulting
“Owners get a fair market value salary, and after all the bills are paid the company should make on top of that a 10 percent net profit,” Huston says.
So based on profitability, an owner could take a higher (or lower) salary. For example, a $1 million business should have $100,000 left in profit after the bills and owner’s salary are paid. (This is pre-tax.) “If you can get that profit up to 15 percent, then fantastic. And if the profit is 20 percent after bills are paid and you get a legitimate salary, that’s amazing.”
But if your net profit is less than 10 percent, then you’ll take a salary hit. After all, the bills and employees must be paid. Basically, owners are last on the pay totem pole, and that’s where some owners run into trouble.
Another problem is not planning for profit and taking draws to fund your lifestyle. “I have seen cases where a spouse has the checkbook and they are spending left and right,” Huston says. “They see $1 million in the bank account and think it belongs to them.”
The same goes for owners themselves. They use the business as a personal piggy bank. Then come year-end, there’s no profit left and they’re struggling to pay the company bills, Huston says.
The solution: First, set a salary. Then, Huston says, “Get yourself on a steady budget.” Pay yourself weekly. For example, a $1-million business could afford to pay an owner $1,000 per week. “A steady personal income stream enforces discipline so you measure expenditures carefully before it’s too late,” he says.
In other words, you’re not using the business checkbook to pay for groceries. “Having a separation between business and personal finances is important so you can measure your performance accurately,” Huston says.
Pin down a salary.
So, do you pay yourself more or less than what a typical owner makes? What should you be earning to reward your commitment and hard work?
One way is to consider what you pay key managers. PayScale reports the average salary for a landscape manager is $44,525. The average salary for an account manager in the landscape industry is $50,103.
Meanwhile, a small business owner/operator makes an average of $59,243, according to PayScale data. Salaries range from $25,302 to $147,577.
Respondents to Lawn & Landscape’s 2016 State of the Industry Report survey whose title is president or owner make an average $59,000. Salespeople average $45,000 and crew foremen are compensated $35,000.
The reason many landscape owners make below average is because they tend to underprice and undervalue their work.
“As a result, there is less money to take out of the business,” Huston says. “It goes back to a pricing situation where they are not pricing accurately and recovering costs and, as a result, there are just not cookies left in the cookie jar to take out.”
Owners need to think seriously about what they are paying themselves for the skills, resources and time they spend on the business.
“You should be making at least as much and up to 1.5 times what you would working for someone else,” Huston says.