How to Calculate your Salary as an Entrepreneur

So you have decided to leave the average 40 hour work week and pursue your dreams.  Your family, friends, and colleagues are all asking the same questions.  How will you pay your bills? How much do you expect to make? 
 
You can start out by taking a few simple steps to calculate how much you, Skillologist, can strategically pay yourself.
 
According to Entrepreneur.com, in order to calculate your annual salary, you should know your needs, operational costs, tax requirements, and general personal expenses. 

Essentially, there are two ways startup organizations usually pay themselves:

1. Pay your organizational team enough to get by:
   • Minimize overhead
   • Decrease amount of capital needed to make organization successful
   • Decrease net loss and increase net profit until organization is well-established
      
2. Pay yourself what you believe you are worth (more than the minimum):
   • Create a business plan for your organization as if it was operating at capacity financially
   • Be realistic about long-term financial operations
   • Decrease net loss and increase net profit until organization is well-established 

Going with strategy #1?

1. Consider all living expenses including all bills, food, and other living expenses
2. Live only with bare necessities, identifying true needs (i.e. Do you need a high end restaurant when pangs of hunger hit, or will McDonalds suffice?)
3. Put together a personal financial statement (personal balance sheet) listing all expenses, credit card balances, and loans, being sure to not leave anything out 

         a. Pay down as many debts as possible prior to starting your business:
                                            -Decreases required income each month
                                            -Increases personal net worth and credit score needed for borrowing capital for organizational funding

1. Adding all expenses together gives you your monthly, quarterly, semiannual, and annual required income
2. This income should suffice for 6 months to 1 year hopefully or until your business can support an increased personal income for you

Going with strategy #2?

1. This strategy is referred to as basic worth
2. Write down your market worth (your  current salary or hourly wage minus bonuses or overtime)
3. Calculate market worth (MW)+ percentage increase based on 3-4 times rate of inflation (I)

a.     MW x 12 x [1+(.01(I x 4)] = BW

1. For example: 

           a. If you’re currently making $15/hr, annual pay would be $31,200.
           b. $31,200/12 = $2,600 (monthly Income)
           c. $2,600 x 12 x [1+(.01(3.53 x 4)]

            =35,605.44

Keep in mind, this is just one recommended equation used to determine your desired annual salary, though through mentorship, research, and diligence, you can succeed in determining the building blocks needed to build your dream while sustaining yourself and fulfilling your own financial responsibilities.  Skillologist, when asked how much you will make or how you will pay your bills while pursuing the opportunity you have been dreaming of, be confident that there is indeed a clear answer to those questions.  Be sure to use discernment and caution in determining if Strategy #1, Strategy #2, or an alternative strategy works best for you, and be prepared to move forward confidently in the choice you have made.
 
You can break away from the 9 a.m. – 5 p.m. schedule and still pay yourself, Skillologist.  It’s all a matter of meticulous financial planning.  With the right skill set and mindset, Skillologist, you can be that much closer to conquering the steps needed to lay a strong financial foundation for your flourishing vision.