Skin-in-the-game, sweat equity and equity injections are crucial, but it’s also important to ensure that you’re setting up yourself as an individual for success in the long game. The temptation to channel each penny earned back into the business to pursue aggressive growth is unrelenting but you still need to secure yourself which means – paying yourself a livable wage, compensating yourself for hard work and ensuring you’re able to occasionally enjoy the things that refresh and energize you.
Practically speaking, ‘paying yourself’ can either be in the form of a monthly salary, drawings, dividends or even a combination of these. Whether and how you can use these methods depends on the structure of your business. There are also pros and cons of each of these methods that should be considered.
A salary is more stable and a recurring expense you can budget into your operating costs however, you do pay taxes on your income. As a salaried worker, you pay yourself as you would an employee of the company which means including this as an operating cost and making the necessary statutory deductions and paying income taxes. From the company’s perspective, these salaries are also tax deductible as they reduce profits and taxable income, and therefore the amount of corporation tax due.
Admittedly, in Trinbago there is less legislation (and enforcement) surrounding caps placed on salaries as compared to countries like the US, where there are compensation restrictions that require salaries to be comparable to similar roles in the industry.