This guest post was written by Dean Carlson, certified Profit First Professional and founder of Fit For Profit.
Are you paying yourself what you are worth? Are you paying yourself at all?
According to a report in Business News Daily, only 51% of small business owners take a regular salary. Review the Zen Planner Boutique Fitness Benchmark Report, and you will find those industry reports to be right in line with that number; 27% of gym owners pay themselves a regular salary and 25% paying themselves from salary plus profits, for a total of 52%.
And the other 48%? They report paying themselves out of profits. That is a huge red flag when it comes to the value and long-term viability of those businesses, as well as the ability of the owner to have financial stability.
Why Paying Yourself What You Are Worth is Important
Paying yourself regularly what you are worth is important for you and your company. If you aren’t paying yourself a regular salary, then your books don’t accurately reflect the health of your company. Why? Because your expenses are missing a large and very important cost – YOU. As long as you, the owner, are an integral part of day-to-day operations you need to be paid as such.
Could you get away with paying an employee the way you are paying yourself? Do you know what your Market Based Wage (MBR) is? The simplest way to calculate your MBR is to list all of your responsibilities and then calculate how much you would have to pay someone else to do the same jobs.
There is no way you can make important strategic business decisions such as raising prices, cutting expenses, increase marketing and any other adjustment your company needs to succeed without knowing what your Market Based Wage is. And, your business is not nearly as valuable when it comes to getting credit, attracting outside investors, or if it’s time to sell your business to the highest bidder.
There is an at-home reality too. If you’re always worrying about paying the bills at home, especially if you have a family, it’s really hard to focus on all the things it takes to run a great business.
You must take a regular salary from your business. The model we use calculates that as a percentage of total income. The beauty of this system is your salary automatically increases as your business grows. It may not be at the level of your MBR yet, and that’s ok. It’s the habit that counts, especially when you are just starting, and cash is tight. Not paying yourself can be a hard habit to break.
My definition of profit is “A reward for a business well-run.” In other words, the amount in your profit account is directly correlated to the health of your company. Make no mistake, the cash in the profit account is yours. However, that money should be treated as a bonus and taken quarterly as a distribution, just like the big companies do it.
Your Work and Pay Matter
You do really important work in an industry that does really important work. You should be compensated as such. It won’t happen by accident. Be purposeful about your pay. Calculate your Market Based Wage. Create a plan to close the gap between where you are and where you should be. Putting yourself first when it comes to getting paid is not selfish, it’s the only way to long-term viability, and having the physical and mental capacity to serve your team and clients well.
Learn more about how gym owners pay themselves. Download your Benchmark Report below!
Dean Carlson is a certified Profit First Professional and founder of Fit For Profit, providing fitness business owners with the coaching and tools they need to manage their cash easily. His experience as a gym owner came full circle in 2018 when he sold his award-winning gym Get Fit NH for a seven-figure price. He is passionate about helping fitness entrepreneurs stop worrying about finances and start building the business of their dreams. Learn more about Dean at fitforprofit.com.