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On The Money: The Right Compensation Packages for Owners

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If you aspire to be a fair-yet-affable HVAC boss, good for you: There’s nothing like a leader who doesn’t take himself too seriously to keep the mood light when the lifting gets heavy. And if you care about the business you’ve built, chances are good you’re pumping money back into technology and assets, or spending to make sure your team is on top of their game out in the field.

That’s all well and good—very good, even—except for one issue. As the owner and contractor, the one person bearing the brunt of unfair treatment could be you. And that’s where financial experts agree: It pays to pay yourself first.

In fact, one of the biggest mistakes small business owners make is not compensating themselves properly. So why should you do this? And how do you calculate a wage that’s fair, and easy to track on the books?

One the one hand, maybe you have reasons for not paying yourself. It’s your business, you’re building it and want to do everything in your power to make it grow and flourish. What’s more, you may see this as a sensible way to conserve money—especially when you take into account a long list of expenses ranging from rent and utilities to advertising and marketing.

But on the other, it’s hard to dispute that paying yourself first is essential, not just for your well being but also to guarantee the success of your business. That’s right: the success of your business.

For starters, you’ll want to pay yourself regularly especially if you don’t have a huge savings buffer to lean on. Otherwise, you will run into two big problems. First, your personal money issues can cause chronic stress. And if most of your mind is on paying the bills at home, that poses a major impediment to making smart business decisions.

Second, dipping into your business funds only when you need to backslides your company into bookkeeping sloppiness. The optimal strategy? Set up regular payments for yourself in your accounting system, and stick to them. After all, you don’t want to set off alarm bells with the IRS, right?

Consider that giving yourself a salary can yield tax benefits s it reduces your company’s profit. Depending on whether you operate as an LLC, partnership or corporation, your accountant will know the particular advantages linked to each tax category.

Now, let’s get to the issue of how much pay is enough. Make sure that you don’t just pull a figure out of thin air, as you’ll want to pay as much attention to this detail as you do with the rest of your business.
If you want to do your own general research, the IRS has a page that outlines federal guidelines for what constitutes reasonable pay. You can also check out websites such as to see how salary compensation stacks up across various companies and branches of the industry.

Your own person-to-person research will help you hit the right target as well. For example: Ask yourself whether your pay sounds reasonable when you compare it to what your employees make. Or: Talk to other business founders and owners in the HVAC field if possible and learn how much they compensate themselves.

Finally, consider that paying yourself first keeps you on track with very important financial goals that guarantee financial security for you and your family, says Mike Chadwick, CEO of Chadwick Financial Advisors in Unionville, Conn. “If you make the financial plan first and then build your life around it, the outcomes are typically very positive. Most people do the opposite: They set up their life and then try to save after the fact when it’s painful to do so.”

In the end, paying yourself first needn’t conflict with the goals of growing your enterprise. Assuming that your business hums along, and you’ve got more than enough money to pay your bills at home, you always have the option of investing some pay back into your company.

In the meantime, you can keep encouraging the morale your team even as you give your own a shot in the arm. So long as you hold to the bottom line on your business and personal finances, you’ll be doing the right thing.

Lou Carlozo

Posted In: Management, Money

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