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10 Questions to Ask When Setting Your Own Salary

When trying to figure out your salary, consider how much your time is worth.

Lisa Girard

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Many people become entrepreneurs because they don’t feel they’re getting paid enough for the work they do in the corporate world. Ironically, they may find themselves even lower on the salary scale when they open their own business.

“They’ve made hundreds of thousands, even millions, for people, and just made a salary, so they go into business for themselves,” says Jack Chapman, author of Negotiating Your Salary.

“But then it becomes difficult to know how much to take out of the business, especially in the early days.”

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When trying to figure out your salary, consider how much your time is worth, whether it’s a good time to take money out of the business, and whether there are alternative ways of making ends meet for now. These 10 questions can help you settle on the right amount for you and your business:

10. What do other people in top management make?

Chapman says you can find some pay parameters by checking out various online sites to see how much other executives are being paid. He recommends Salary.com, which gets its data from larger corporations, PayScale.com, whose information comes from the executives themselves, and Glassdoor.com, a free jobs and career community that includes employee-generated content.

“While these sites are not targeted to entrepreneurs,” he says, “you can find a business similar to yours, see what people are getting paid, and use it as a benchmark for what to pay yourself.”

9. How will other employees react to my salary?

Start-ups, often strapped for cash, sometimes attract and retain key employees by offering them equity and other types of non-cash compensation. If that’s the case for you, your employees may react negatively if you collect a fat paycheck.

Employees – and investors – expect the founder or founders to apply the same compensation policies to themselves, says Joan Farre-Mensa, assistant professor of business administration at Harvard Business School. “If the entrepreneur is drawing a big salary, this can be interpreted as lack of confidence in the future prospects of the company, negatively affecting employee morale.”

8. How many jobs am I doing?

If you’re acting as CEO, purchasing agent, salesperson and social marketer, you deserve to be paid for those jobs, or at least a portion of what it would cost to hire people for those jobs, Chapman says. “If say you’re doing jobs that would cost you R1 000 000 to hire out, you might keep 50% of that for yourself – if the business can handle it.”

7. What is my cash flow, now and in the future?

Your salary will, of course, depend on cash flow – not only current cash flow, but even more important, future cash flow, says Steve Trojan, a CPA who specialises in small businesses at SMT & Associates, an accounting firm in Crystal Lake, Illinois.

He recommends that before starting a business, you develop financial projections to help understand how much cash flow will be generated over time, how much will be needed to expand the business, and how much might be available for your personal expenses.

This will help you understand how much money you should set aside for living expenses before starting the business and whether you might need a part-time job in the early stages of your start-up.

6. What does my company’s growth rate allow me to take in salary?

If a company is growing rapidly, you need to put any profits in the business and limit your salary. If you have a R12 million business that’s poised to become a R24 million business, it needs every bit of the capital it’s generating.

“Growing businesses are generally cash flow neutral or negative during their formative stages, and as a result, there’s no cash to take out,” says Douglass Tatum, associate professor at Middle Tennessee State University. “The entrepreneur has to reinvest into the business.”

5. Can my family afford to live on a small income – or even no salary?

Young entrepreneurs with no dependents can more easily limit their living expenses than those with children or other dependents, Farre-Mensa says. This is why many first-time entrepreneurs choose to start their businesses when they have fewer responsibilities.

But if you happen to be an entrepreneur with dependents, make sure that your co-founders and early employees understand your circumstances and don’t interpret your salary as a lack of commitment to the company.

4. Can I receive some of my compensation in a form other than salary?

Once the business is on its feet and the owner is able to start taking money from the business, the structure of these payments can be important from a tax perspective. If during the start-up days, the owner loaned the company money for working capital, he can start to pay himself back when cash flow allows, Trojan says.

“Making payments to owners via shareholder distributions – if the company is an S-corporation – also can reduce taxes, but you have to be mindful of the tax requirements that active owners must take a reasonable salary.” While the tax man has not defined “reasonable compensation,” a common definition is a wage you would pay another person for the job you are performing, he says.

3. Should part of my salary be based on the distribution that other investors share?

There can be some serious conflicts with investors and shareholders over compensation, but these issues can be minimised if a significant portion of the entrepreneur’s cash compensation is based on the company’s performance, Tatum says.

If the company has professional investors, they’re going to make sure the compensation plan rewards the founder’s performance appropriately, with anything leftover going back to the investors. If the investors are friends and family, they should be given the same courtesy, Tatum says.

“In other words, treat them as if they had appropriately negotiated their investment positions as professionals. This could significantly reduce some of the tensions around the issue of compensation. This is a good idea even if the investors are unsophisticated and have not pushed the issue with the entrepreneur.”

2. Do tax considerations enter into my compensation?

Tax evasion is obviously illegal, but tax avoidance is good business, Tatum says. A good tax advisor can develop ways for an entrepreneur to increase or defer compensation in a tax favourable manner. Be sure to consult with a tax expert sooner than later, Tatum says.

“More times than not, an entrepreneur shows up at the last minute with ideas for his accountant, and it’s too late to implement them. A little bit of thought ahead of time can save a lot of money.”

1. Have I put down in writing what I expect to be paid?

It’s critical to document compensation agreements when you have to answer to other people – whether business partners, a board of directors or investors. “If you’re at a board meeting and someone says, ‘You should get 10 to 15 percent of the profits,’ ask them if they mind if you put that in writing,” Chapman says.

“Write it down, get it notarised and file it, so there are no questions later. The clearer you are about money up front, the better off you will be on the back end.”

Lisa Girard is a freelance writer who covers topics as diverse as golf fashion, health and beauty, the hardware industry and small business interests. She also has been Senior Apparel Editor for PGA Magazine for more than a decade. Lisa lives in New Jersey with her four children and two dogs.

Accounting & Payroll

The Importance of Outsourcing Your Payroll

One of an organisation’s biggest overheads is that of salaries and wages. And yet, if these are not processed on time, it can negatively impact staff morale and create the impression that the company is not financially stable.

CRS HR And Payroll Solutions

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For a small business, payroll is normally the responsibility of an accountant or bookkeeper, but even administrators can sometimes be roped in to do the job, even though they have no expertise in the matter. This is where the value of outsourcing your payroll comes in.

When should you outsource?

  • If you want to grow your business but are not aware of ongoing legislative changes that could pose a risk to your company, then it is better to get professionals to assist.
  • Accountants and bookkeepers are not specialists and do not keep up with the compliance environment. If you outsource your payroll, you enable them to focus their core duties and not get bogged down by legislative complexities.

How to choose an outsourced service provider

Understandably, payroll is a sensitive subject dealing with highly confidential information.

This is often the last thing a small business owner wants to outsource. It is therefore vital that the company does its homework and researches the potential outsourcing partner thoroughly.

Instead of going with the first available service provider or the cheapest one, here are some questions to ask:

  • Is the service provider a one-man band and, if so, what backup resources are available?
  • Is the service provider a recognised payroll provider belonging to a professional body?
  • Do they have the necessary training and skills on payroll?
  • What does the service provider do to ensure it stays up to date with legislation?
  • How secure is the payroll data and can the service provider take on historic data?
  • How easy is it to recover your payroll data in the event of a disaster?
  • What value-adds can the service provider offer? These can include anything from leave management and third-party payments, to employee self-service, time and attendance management, and any other related human resource service.
  • Can they process salaries and/or wages hourly, weekly, fortnightly, or monthly?
  • Can the service provider accommodate your growth requirements if you open new branches?
  • Is the service provider able to assist with payrolls in other African countries, manage their currencies, and deal with their regulatory environments?
  • What processes are in place to ensure the timeous processing of payrolls?

The advantages of outsourcing your payroll

One of the most obvious benefits of going the outsourcing route is freeing up your resources to focus on your core strategic objectives. This ensures you provide quality of service and control costs while an experienced partner takes care of your payroll.

Here are a few other benefits:

  • Reduce operating costs.
  • Statutory compliance and consistent service delivery.
  • Access to the latest technology, as well as skilled and dedicated payroll resources.
  • Access to a secure, risk-free and confidential payroll environment.
  • Increased flexibility and responsiveness.
  • Streamlined internal processes and procedures.

This article was originally posted on Entrepreneur.com/sa.

Related: Thinking of Immigrating to America from SA? Now Is The Time

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Accounting & Payroll

Wilting Away – How To Boost Your Financial Management Team After The Big Financial Year-End

Is your finance team wilting after a gruelling financial year end? Here are some great ideas to help them bounce back.

Revel Africa

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Your finance team has put in long, back-breaking hours lately to ensure your business could close off the financial year. Aside from saying ‘thanks a lot’ here are some great ideas to breathe some fresh life into them, reconnect them with each other and with the business, and let them have some much-needed fun in the process.

Before we start, let’s clear up some misconceptions around team building events. When you think of team building, you probably think of awkwardly passing an orange squeezed between your chin and your neck at school, or awkwardly falling backwards into the arms of an embarrassed colleague at work.

This is why most people shy away at the thought of doing team building, because they fear embarrassment, or even worse, wasting their time. The source of the problem is that most HR departments and management view team building days as an activity-based agenda that will have a productivity-based ROI. Almost like a once-off fix – play games equals 12% increased productivity. However, they are mistaken.

According to the University of California: Team building is an ongoing process that helps a work group evolve into a cohesive unit. The team members not only share expectations for accomplishing group tasks, but trust and support one another, and respect one another’s individual differences.

So, we understand now that team building is:

  • A regularly recurring thing, not just a once-off activity
  • A combination of work, leisure, collaboration, problem solving and projects
  • Can be anything from a small picnic at work, to a weekend retreat.

When done well, team building is shown to make employees more co-operative, collaborative and, generally, more engaged in their work. According to Gallup’s findings on employee engagement in America, only 34.1% were engaged – which means a shockingly high percentage (nearly 70%) just couldn’t care less about their work.

us-employees-engagement

While team building has its flaws, it is still one of the best ways to drive employee engagement. With that in mind, here are some great ideas to improve your finance team’s engagement for the remainder of 2019.

1. Accounting game show

Use a popular game show format to share and quizz information in an engaging format.

1. Split the department into teams.
2. Use questions that the team can use in their everyday work. You can even throw in interesting facts about employees (with their permission of course), particularly positive stories about their finance careers or accomplishments.

2. Idea-sharing lunches

Dial it down a notch and take the team out to a restaurant of their choice, or – if you are choosing – to a place that serves good food, for a casual staff lunch.

Use this time as a general catch-up session as well as a platform for creative conversation. You can also use this time to have a SME (subject matter expert) share some insights into relevant topics that will empower the team, but this should not be the sole purpose of what is meant to be a relaxing lunch.

3. Shape it up

In this fun exercise team members need to arrange themselves to form shapes as they are called out.

  1. Divide the team into groups of 10 members.
  2. A game coordinator shouts out a shape (for example, a diamond) and the teams must form the shape quickly within a limited time frame (eg 5 seconds).

Begin with simple shapes get everyone comfortable, then start calling for more complex shapes like “an oval on top of a rectangle” or “square inside a triangle.” Communication and cooperation are vital here to successfully form the shapes.

Ofcourse, the team that forms the shape first wins. The larger the group the more challenging the game is.

4. Guess the word

This tried and trusted game is where team members must guess a word that is pinned on a hat that they are wearing and cannot see, while the other members of the team try to explain it to them without saying the word.

  1. Bring a hat or cap, slips of paper, tape, marker.
  2. Write several mystery words on slips of paper, each word big enough to be read from two meters away.
  3. Split the teams into two.
  4. Start with the first team. One member wears the cap with the word taped onto the front.
  5. The one wearing the cap must guess the word by asking a series of questions within a minute.

The ones who know the word can only answer yes, no or maybe.The one wearing the cap must be able to deduce the word within the allotted time.

The team that gets to answer a mystery word fastest wins. Mystery words can be related to the company’s business, staff or completely random items.

5. Game of possibilities

Laughter, bonding and problem solving are all part of the team building experience. This game is ideal for both.

But first, it’s the rules of this game that make it fun! They are:

  • The person may not speak while making his or her demonstration
  • The person must stand while demonstrating
  • The demonstration must be original

Here’s how it works:

  1. Give a paperclip to groups of 5 to 10 participants.
  2. A person from each group takes turns to demonstrate a novel way to use the paperclip that has nothing to do with its intended purpose.

As you can see, this game can be used with other office items as well, instead of a paperclip (e.g., pen, water bottle, telephone, etc). Hopefully, your team will think up new and unusual uses for everyday objects and translate this experience to creating new ways to solve problems, use resources or motivate a team.

6. Campfire stories

This classic activity inspires storytelling and improves team bonding. Storytelling is at the heart of the community experience, and can get a large group to loosen up and share their experiences, and know each other a little better. Here’s how:

  1. Gather teams of 6 – 20 participants into a circle.
  2. Use a set of trigger words to kickstart a storytelling session, words like “first day”, “work travel”, “partnership”, “side project”, etc. Add these to sticky notes.
  3. Divide a whiteboard into two sections and stick all the sticky notes from above on one side of the whiteboard.
  4. Invite a participant to choose one trigger word from the sticky notes and use it to share an experience. They then stick their sticky note on the other side of the whiteboard.
  5. As the participant is sharing his/her story, ask the others to note words that remind them of similar work-related stories. Add these words to sticky notes and paste them on the whiteboard.
  6. Repeat this process until you have a “wall of words” with interconnected stories.

Always have a clear ‘why’

Whether you take your team away for a retreat, or simply do an on-site breakaway, be sure to have a clear understanding as to why you are doing this, and what goals you want to achieve through these activities. Otherwise you might fall into the ‘doing activities simply for the sake of activities’ trap. Remember, it’s always about making your team feel more connected to each other, and to the business.

You could consider involving some team members in the planning process, and over time, you’ll find which strategies are the best fit with your team. Schedule team-building exercises on a regular basis to maintain a more content and productive team. These activities will become a part of your office culture, and can help to promote retention.

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Accounting & Payroll

How To Strategically Minimise Accounting Costs As A Start-up

“Financial Compliance can be a costly exercise when approached carelessly”.

Kenlin Stride

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As a practicing accountant one of the most common phrases uttered by clients is that “I will get to my accountant when I can afford one”. The reality is your accountant costs can be minimised when you applying some simple tricks to avoid being charged an arm and a leg.

I have compiled a few areas where you can streamline your business to minimise your businesses accounting fees. Please bear in mind these are guidelines and a consultation with your accountant will still serve you best.

1. The ‘Shoe Box’ strategy is dead and gone

The shoe box is a box filled with all your company and supplier invoices jumbled into one box. As an accountant when faced with the shoe box we smile because now we get to charge our hourly rate doing admin that could have been done by either you the business owner or one of your employees. Accountants make a large portion of their turnover from doing admin that could have been avoided if business owners had more foresight.

2. Separate personal from business transactions

Nothing is more time consuming for an accountant then having to comb through a business income and expenses only to realise through consultation with the client that personal items were accounted for as business income or expenditure.  As a rule of thumb remove all personal income and expenditure from your business in totality.

Related: Financial Management and Accounting Support for SMEs

3. Record keeping! Record keeping! Record keeping!

Simple record keeping can be your best friend in reducing costs. Here are a few guidelines to live by:

  • As pointed out in Number 3 have a separate bank account for business and another for personal
  • Date and Number your invoices, sounds simple but very few start-ups put emphasis on this administrative function.
  • Provide complete statements for the period requested by your accountant for your credit card and bank statements.
  • Keep supplier statements as this will aid your accountant especially during the financial year end of your business.
  • When submitting your debit/ card receipts and there is no accompanying invoice list on those receipts what was purchased.

4. Ask your accountant for a Retainer Agreement

A retainer agreement is a great way to ensure your monthly accounting costs do not fluctuate. With a traditional agreement your fees may spike when it is your company’s financial year end or when your taxes are due. With a retainer agreement your able to budget for a set figure payable monthly. This also translates to an attractive for your accountant who can now rely on a guaranteed cash flow injection monthly.

The bases for an accountants pricing will involve what their hourly rate is , the longer they spend on doing record keeping and deciphering what activities took place in your business the more you will be charged. Remember regardless of how close you are with your accountant or how simple you feel your business structure is your accountant will need as much information as possible to represent your business activities accurately on your financial records.

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