Should my business partner and I survive on low salaries?

Dear Aunty B,

My business partner and I have always disagreed about how much salary we pay ourselves. She wants to take more out of the business that I do while I believe we should focus on taking as little as possible and build the business. I come from a small business family where my dad did that and he is now comfortably retired in the Whitsundays.

I tell her that one day she will get what she deserves and she tells me that that day might never come. We have had a good year but you never know what’s around the corner. She has now come back to me and asked if we can look at her taking out more than me. I don’t think that’s fair. This is becoming a bit of a sore point that it beginning to cloud what has been a good partnership!

David,
Brisbane

Dear David,

Are you nuts? It sounds to me like you are not paying yourself market rates. In that case your partner is absolutely right and you, my friend, are tight. Shocked you? Thought I was going to support you? Then you thought wrong and here is why.

What if there is no special day? What if at the end of your hard journey, there is nothing? What if you work hard, do all the right things and patiently wait for your reward – and there is nothing at the end? In which case you look back and think, well I got a good salary out of it, created lots of jobs, took on those fat bastards from those large corporate, changed my industry for the better – and I kept my health (which is why keep going to the gym.)

Also my friend, if you pay yourself market rates, you will build yourself a bigger business to put that money in your pocket. What’s more, if you fall under a bus, the money is there to replace you. And your salaries are recorded at market rate when you want to sell the business – all part of running a professional show.

So if your partner is the marketing manager of your business then she should be paid a commensurate salary to what is offered in the marketplace. If you are the CEO you should be paid a CEO rate.

The only time you should receive less is if you are salary sacrificing in exchange for equity but this usually only applies to the first few years of business.
Things have changed since your dad ran the business. He was probably born just after the war and still gets your mum to mend the holes in his socks. (What? You too?).

Good luck!
Your Aunty B

To read more Aunty B advice, click here.

Email your questions, problems and issues to auntyb@smartcompany.com.au right now!

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