How Much Should Pet Franchise Owners Pay Themselves?
Waiting on Promotions and Pay Raises a Thing of the Past in the Pet Franchise
Corporate America is a stressful world to live in. Performing a job based on quality of work is ideal–equal pay for equal work. Unfortunately, this is not always the case, and more often than not, this is not how it works out. Many go to work, do the majority of their department’s work, then go home uncompensated. Stuck in a rut of hoping for a raise next quarter.
Commission based jobs are even more stressful. Individuals working under these circumstances rely on factors outside of their control for compensation.
How does one escape the aggravation of corporate America?
A possibility for entrepreneurs is the pet franchise. Investing into a franchise offers all the incentives of having a typical career: income, stability, health, benefits, and safety. It also allows one to become their own boss. This inadvertently leads to one being in control of their own pay.
But once you become a franchisee, how do you figure out how much to pay yourself?
Calculating What to Pay Yourself
Gross Profit – Overhead – Taxes = Salary
What you put into your wallet is essentially the above formula. Overhead includes operating expenses including taxes, retail products, employee salaries, and funds set aside for unforeseen circumstances. This is a fairly simple calculation. When things begin to blur is when your pet franchise begins expanding.
Dealing with Expansion
The above formula is still accurate, but what happens if business drops next quarter? For a pet franchise in the north that see’s the majority of their business in the summer. What happens when business falls in the quarter that falls under the winter?
Stephen Wagner–a private equity investor and financial strategist–offers his solution he calls the “variable component to a compensation structure.”Wagner suggests to set up yourself up with a modest salary with an additional monthly payment based on percentage of monthly earning statement. Wagner does warn that taxes will be drastically affected by this. Consult with a certified public accountant before making changes to your books.
Monthly Pretax Earnings Breakdown
- 20%-> Invested in employees: Raises, bonuses, and team-building events.
- 20%-> Build company’s cash reserved until enough has accumulated to cover at least six months overhead.
- 30%-> Covers estimated taxes.
- 30% -> Distributed monthly on top of base salary which they’re set to equal the median salary of employees.
Wagner’s advice offers a total coverage plan. It is a conservative method of paying yourself. The plan allot for taxes, operating expenses, and unforeseen business expenses.
Realistically, going into a franchise needs to be worth the risk. So when does the pay off of this risk happen?
When your company makes excess funds give yourself a mid-year bonus. The bonus is based on company’s performance to date. This is based off a conservative projection for the final two quarters. Since this done mid-year allows time to make adjustments before the end of the fiscal year.