I have been reading some great books this year (generally in the quiet of the early morning) and in one of them, the author speaks about the fact that your best employee is often under paid.
No, it’s not your top salesperson, or best manager, but it is you…(or your boss)…the Owner.
I see this too often in firms under $5 million, and in some firms under $10 million, and by rare exception I have seen it in large firms. (Definition of “pay”: I mean salary plus distributions.)
Why does this happen? It can happen when the company is growing fast, or is un-focused in its strategy, or when the owner’s loyalty is high and stability is the goal. But it also happens for reasons of poor budgeting and mistaken rationale that owner’s pay happens at the end of the year; and for reasons of low self worth.
It takes high self worth to charge what you are truly worth. (An important lesson: net worth comes from self worth, not the other way around.)
Last week I was speaking with Frank Mariani (Mariani Landscape) and Chris Griffin (Alternative Landscaping) about this very issue: In our industry, the owner’s self esteem needs to be higher, in order for our industry to take itself more seriously, including charge professional fees in order to run a more professional business.
This begs the question: How much should an owner pay themselves? I am asked this question often, and I don’t want to put a ceiling on the answer. So let me at least put a floor on it, and some walls.
The owner should earn:
- More than the top employee (with some rare exceptions, which I am happy to explain next time we meet up.)
- More than if they took at a job at their competitor.
- Up to 10%, for medium sized firms in their sweet spot (and it can be more: I have few clients that have built a laser-focused business that earns higher; so again, no ceilings!)
- A market-based salary plus a good “return on investment” when the firm grows into a larger firm.
These benchmarks are not always achieved. There is a great deal of risk inherent in our industry, especially when you are seasonal or do project work.
The higher the risk, the higher your (and the company’s) reward should be, or you will eventually go out of business because you can’t weather the hiccups.
My challenge for you: Start charging and pay yourself what you are worth — use proper overhead recovery. If the business is not cooperating in your earnings goal, you need to rethink your strategy or niche, so that everyone in your firm can do better.
Believe it, budget it, sell it, manage for it.