The Kelly Roach Show

963. The Owner’s Draw Dilemma: Why You Need To Start Paying Yourself More

Oct 19, 2023

Kelly challenges the conventional wisdom of minimal owner's draw and compensation, emphasizing the link between financial security and mental health. Underpaying yourself can lead to financial stress, affect your ability to lead effectively, and distort true profitability. Paying yourself what you're worth helps drive growth and make informed decisions. The podcast also discusses maintaining work-life balance and building scalable businesses.

23:09

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Quick takeaways

Paying oneself a reasonable salary is crucial for mental and financial well-being, as underpaying oneself and relying solely on dividends can lead to a mental health crisis and financial instability at home.

Underpaying oneself can greatly reduce the ability to negotiate and achieve the desired sale price when selling a business, as potential buyers evaluate the continuity of profits and the cost to replace the owner's role, highlighting the importance of accurately compensating oneself for the job performed.

Deep dives

The Importance of Proper Owner's Compensation

Paying oneself a reasonable salary is crucial for mental and financial well-being. Underpaying oneself and relying solely on dividends can lead to a mental health crisis, especially for breadwinners with financial responsibilities. It is important to be on the payroll for an amount that allows for comfortable living, saving, investing, and supporting one's family. By doing so, business owners can ensure stability and reduce stress during challenging times.

Introduction

2min

The Importance of Paying Yourself as a Business Owner

3min

Maintaining Balance Between Work and Personal Life and Building Scalable Businesses

2min

Paying Yourself Adequately as a Business Owner

12min

The Importance of Paying Yourself and Understanding Your Owner's Compensation

3min

Kelly challenges the conventional wisdom of minimal owner's draw and compensation for tax purposes.

She urges entrepreneurs to pay themselves a salary that covers their needs, savings, and desired lifestyle, emphasizing the link between financial security and mental health. Kelly uncovers the pitfalls of underpaying yourself, from jeopardizing your family's well-being during tough times to diminishing your negotiating power when selling your business and how it’s important to accurately represent your company's true profits to potential buyers.

Also in this episode:

Mental And Physical Health: Underpaying yourself can lead to financial stress and negatively impact your mental and physical health, which in turn can affect your ability to lead your business effectively.
Preparing For Business Challenges: Relying solely on dividends when your business underperforms can lead to financial instability at home.
Negotiating Power And Business Valuation: Potential buyers will assess what it would cost to replace you and your role within the company, which should be a reasonable compensation benchmark.
Understanding True Profitability: Underrepresenting your compensation can distort the true profitability of your company, making it difficult to make informed decisions and strategic changes.
Clear Vision For Growth: Paying yourself what you're worth helps you see your business's performance clearly, allowing you to make necessary changes and decisions to drive growth.
Tax Considerations: It's important to strike a balance between minimizing taxes and maintaining financial stability.

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The Kelly Roach Show

963. The Owner’s Draw Dilemma: Why You Need To Start Paying Yourself More

Podcast summary created with Snipd AI

Quick takeaways

Deep dives

The Importance of Proper Owner's Compensation

The Impact on Business Saleability

Clarity and Decision-Making in the Business

Remember Everything You Learn from Podcasts