Paying Yourself

B

baughman

New member
I read on here alot about people saying. Dont think you will get paid for the first year or so. Are you talking about profit or an actual salary? Do most of you work for the profit or a salary?

When working on my business plan I have been putting in a salary for myself and my wife. The plan is for us to be open monday through saturday 11am-9pm. With my wife and I spliting the management shifts. We both have alot of pizza managing knowledge. Also both good at the basic day to day paperwork, both of us have ran a store at one point or another. Have not done food cost or anything yet. Since I am still working on product at this time. hoping to keep labor under 30% or so the first year or 2.

We had planed to pay each of us a set amount a month that was enough to pay us about what we make now. which is 52k a year.(combined not each) With one of us always there to run shifts. Would help keep labor costs down with us being the only ones in the store during slow periods.

Do alot of you actually work for next to nothing?

We are working on one business plan based on a Ny Style dine-in carry out with slices. trying to run it with little to no labor beyond us most of the time. Mostly my wife and i and maybe a cpl of others to help during peek times. having ppl come to the counter to pick up there food when its done.

I realise when I managed a Cpl of Big 3 stores. That most stores turned a slim profit. Figured a good chunk of that reason was paying 9% of sales out the door before you saw a dime do to franchise fees and advertising to corp. Not even counting local advo. The store I managed did 22k a week, with 23 % labor and 25% food cost and we turned only a cpl of k a month in profit. After all things got pulled out. we had been the owners highest profit store out of the 8 he owned. I mean we did 2% profit. After all was said and done. seems wrong, but I guess when someone grabs a good chunk up front it happens.

its the main reason I lean strongly to being indy instead of a franchise.

So I guess after my long winded rambling my question is the same as up top.

Do you pay yourself a set salary? Or do you only take the profit? I guess that would also depend on what type of company you are. owner. LLC, S corp, C corp.
 
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There is no reason AT ALL why an indy with one or even several stores should be a C-corp. An S-corp is the way to go with a husband and wife team or a single owner. If you have investors that do not work in the place and want to split profit other than exactly by ownership an LLC can be a good choice. You have to be nuts to do it as sole proprietor.

We take a small salary and the rest as S-dividends. S-corp dividends are exempt from fica which saves you ~15% on those earnings. An LLC does not offer this advantage but does allow profit to be divided more flexibly.
 
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yes, bodegahwy is correct. S Corp is the best way to go. I also take a salary and take the rest as s-corp dividends.
 
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baughman:
Do alot of you actually work for next to nothing?
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Year four . . . I drew my first paycheck that I get to keep. Lots of back story and melodrama in my last 15 momths that contributes to being this late drawing pay, but it was Year 2.5 before we even tried taking a draw of cash of any sort from the business. Small town of 2500, and a largish debt load at the time. Now with new build out costs to pay down and real estate purchase looming in three months, I suspect that we may fall back a little in drawing money again.
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baughman:
Do you pay yourself a set salary? Or do you only take the profit? I guess that would also depend on what type of company you are. owner. LLC, S corp, C corp.
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Our accountant recommended taking some sort of salary before taking dividends to reduce the discomfort the IRS would fell in seeing all of that untaxed income and wanting to come look for a share of it.
 
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IF I remember my business law classes. ( been 15 years) Doesnt an S corp tax you twice. Once on the profit and then the pay check? Were an LLC you only get taxed the one time?

Its the 2 I am leaning taword going. have not done much reading on the 2 yet since i am still heavy in the product part for now.
 
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baughman:
IF I remember my business law classes. ( been 15 years) Doesnt an S corp tax you twice. Once on the profit and then the pay check?.
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Profit = takings minus expenses
‘Pay’ is an expense - so no it doesn’t tax you twice (on profit and pay check) although you may suffer some employer/payroll taxes.
 
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Any profits of an S-corp, whether retained or distributed to the shareholders, is considered income to the shareholders. An S-corp does not pay federal corporate income taxes.

If paid out as wages (and the IRS expects a reasonable amount to be paid to working shareholders), you must pay payroll taxes.
 
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S-Corp without a doubt, but I still pay myself a generous salary b/c I have to CMA with regard to me personal expenses (mortage, etc) since my wife stays home with the kids.

Just wondering for those of you that take only dividends in order to avoid payroll taxes…do you either not have any expenses, have other income to cover those expenses, of just use dividends to pay them
 
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took the time to go read.

Seems if you are not the major owner by money, but are doing all the work and plan to split money evenly. LLC is the best way.

If you are putting up all your own money or a loan. Maybe Scorp is best.

LLC i pay as self employed. Scorp I use payroll tax.

Have a guy who might back me with most of the money then would just pay him a % of sales until I could pay the loan off, or pay a set % of interest over a number of years. If I go that way seems I pretty much have to go LLC. because if I go S-corp he is the owner and I am just the employee. Since he would basicly put up all the money.
 
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Yes, baughman, you managed to re-sumarise my first post.

With an investor and a profit split that does not follow ownership, LLC is a way to go as it allows that kind of split, allthough you could accomplish the same thing by taking a “manger salary” for the work before the split in an S-corp and still save the FICA costs for both of you on the profit which an LLC does not accomplish.

For example, if your operation was owned 75/25 by a majority "investor partner and you the “manager partner” (you do not have to pay the same price for your shares, so the ammount of money does NOT have to match these percentages if paid in at different times):

100K income before you take a salary:

Manager partner takes salary of 40K as regular payroll leaving “profit” of 60 K

60K is split 75/25 leaving 45K for the “investor partner” and another 15K for the “manager partner”

Manager partner pays FICA on the 40K salary. Nobody pays FICA on the 60K in dividends.

This is a pretty good way to go since the manager partner is still incentivised to create profit while getting a predictable income for the labor.
 
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