Business Profit Maximizer #4 – How Much Should You Pay Yourself as a Business Owner – Dan Lok

(dramatic music) (triumphant horns) – Profit maximizer number four. Here’s key, very important. You must get owner compensation right to know what your true pre-tax profit is. This applies to most
small business owners. They have disillusion. You must get owner compensation right to know what your true pre-tax profit is. Cause you are not your business. Repeat after me, “I am not my business”. (crowd responds) You are an employee within your company. You’re a CEO. You could be a VP of Sales. But you’re an employee within your– Your company is a separate identity, yes? It’s different, it’s different. So most entrepreneurs
misunderstand the relationship between the salary and
the return what they own. Here’s what I mean. They think in terms of I don’t
know why, Ron you’ve seen this a lot, right? Most business owners somehow their salary is 36,000 dollars a year, right? Why is that? Give him a mic. Why is that? How often do you see that? Thirty-six grand a year. Somehow that’s the magic number. – For some reason it’s 36. It depends really if it’s
for tax purposes, it depends if you’re really actually paying
yourself or your business. There could be a lot of
different reasons why, but the main one is simply because a lot of people are just working so hard they’re not taking a look at what they’re doing with their company and they’re paying
themselves whatever is left. And you can’t survive with that. You can’t. – It’s a good question,
because they think 36 because they want to minimize the
amount of tax they pay, right? So for years they work,
I’ll just do 36 grand, but that’s a false assumption because as your company grows
this is what happens. You couldn’t find someone to do what you do for 36 grand a year. You couldn’t. For everything that you do? Yes? Nope, you would not be able
to find someone to do that. So you are paying yourself
below market wage, and it gives you the false assumption that your business is okay. It is not okay, cause you– If you think of how much you want to– Imagine this, actually I have a question. So you get paid a salary for what you do, you get a return on what you own. Expand on that, so as a salary
I’m paying myself as a CEO, right, but also as a
business, what’s my profit? What the return as a shareholder? Two different roles. – We see this a lot for private companies which a lot of you are going to be running and a lot of you are
doing, so as Dan is saying, you really want to pay
yourself as the CEO, but at the same time you’re
also getting profits. So let’s just do a very
simplistic example on the income statements on page three, they have some profits there, okay? Let’s just say they already
pay themselves a salary in the salary expense. You’re also entitled to
those profits as well because you hold your own shares of the company. You can take some more
profits out of if you want because of your earnings
there was some income there. You issue dividends. – Perfect, two different
roles, you getting it? Two different things. First think you gotta think
of, you gotta pay yourself a market rate wage, market rate wage. Because at some point if
you want to replace yourself and have someone coming in the business to run the business, you need
to pay them a fair salary. But if you keep paying
36 grand, 36 grand, 36– You’re not gonna find somebody. And it gives you the false
illusion that your business, I guess it’s okay, it’s not okay. (audience responds) How come some CEO pay
themselves a dollar a year? – It’s primarily for tax reasons. That’s the main incentive as
to why they’re doing that. Also depending on what’s going
on with their stock options. There’s other ways around that as well. And that’s why they do a
dollar as their salary. There’s other ways to get compensated, but probably more complicated– – But for what we do, to
give ourselves an accurate picture of what’s going on, do that. Does that make sense? So most entrepreneurs think
they’re overpaying themselves, but at least what I
believe, from my experience, 90% are underpaying themselves. They’re not paying themselves enough. They’re not paying themselves enough. They’re paying 36 grand. Not enough! So let me ask you, how much
would you want to pay yourself? Just yell the number. How much would you think is
fair compensation for yourself? (crowd responds) Six-hundred Gs? Yes. Six-hundred G? Good. Nothing wrong with that. In a year, or monthly, doesn’t matter. – [Audience Member]
Twenty-seven million a year. – Twenty-seven million a year, okay good. (laughter) Nothing wrong with that. No, seriously. For what you do, what’s a fair
compensation for yourself? – [Audience Member] A
million dollars a year. – A million dollars a year. (crowd responds) – You have 100 grand a year, but the profit more than that. But as an employee it’s
100 grand, you think. So to point maybe you can
bring someone to replace you maybe a COO and pay them the
100 grand so they can run. So then you get out, as a
shareholder you’re getting a dividend, you’re getting a profit, right? That’s what I’m saying, you gotta get your compensation right. So here’s a good question. If you got run by a bus today, it’s a very depressing question today. But it’s to make you what? Think, yes. And your family decided that
it would keep the business going in your absence,
what would they have to pay for someone to do your job? What would they have to pay
for someone to do your job? And it’s gonna be way more than 36 grand. Probably more than 50 grand, right? Maybe more than, maybe it’s 80 grand, maybe it’s a 100 grand,
maybe it’s 200 grand. Whatever numbers you have in your mind. But know that number, and
get the compensation right. A business is like a cow, the saying. Until you pay yourself a
market-based rate, wage and make a profit on top of that, you have a sick cow on your hands. Until you pay yourself a
market-based rate, wage and make profit on top of that, you have a sick cow on your hands. And for some of you I know
what I’m sharing tonight makes you a little
uncomfortable and uneasy, and that’s fucking awesome. Because then it means you
might do something about it. Not looking at your business thinking it’s healthier than you
think, when you actually have a sick cow on your hands. How many of you are going
through some of these numbers thinking about your business, now you’re going back and
you’re looking at your business realizing you need to
make a lot more profit? You need to make a lot
more profit than you think. A lot more than you think. So don’t focus so hard
on not paying taxes, focus instead on increasing your profits. That’s the main lesson. Many years ago I talked
to my mentor, Dan Peña and I asked Dan, “Dan,
I’m making more money I’m paying more taxes, I feel like shit. I’m writing some big checks,
man, to Revenue Canada.” And Dan looked at me and said, “You know, kid, if you’re
worried how much taxes you’re paying, you ain’t
making enough money.” If you’re worried how
much taxes you’re paying, you ain’t making enough money. Some truth to that. – [Announcer] Ten times your finances. Ten times your business. Ten times your marketing. Ten times your life. Hit the subscribe button now.

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18 thoughts on “Business Profit Maximizer #4 – How Much Should You Pay Yourself as a Business Owner – Dan Lok

  1. Hey Dan, we can barely hear the other guy, although he has a microphone, do something please……what he says seems important. Thanks!

  2. God your blunt…I needed to hear this stuff years ago….pay yourself first the market value …Dan you should open up a online University ….think about it…

  3. I am not my business. I am a employee.

    Not 36k but 42k. That described me for sure. Find a market rate wage. THATS BIG.

    You know what I’m realizing is this is a mindset issue. As opposed to paying myself well. I’ll invest in marketing, employees etc… yet this is a rat race. No one will do what I do for 42k. This also applies to the HTC program for me. Closing deal for other, allows me to make good money and I don’t have think about having those same overheads. I know this is early on a Sunday but I’ve got a lot of clarity here. Thank you Dan.

    If you worry about taxes. You ain’t making enough.

  4. Focus on increasing profit. If you're worried about how much taxes you're paying you ain't making enough money. Thanks sifu!

  5. Can't we achieve both, saving taxes and knowing what the real profit is, by simply deducting the difference between what you're actually paying yourself and what the 'Market Wage Rate' is?

  6. Very very insightful question: In my absence, what would my family have to pay someone to do my job? Thinking about it, I realized my job isn't that easy (I just think it's easy because I am having fun). Person I need to hire needs to generate enough income for the business to pay for 8 salaries including their own and still have money left to reinvest and grow the company. Dan, maybe you should do a video (if you haven't already), on creating structure for your business so it can run and grow without you. And how to hire/train a replacement/successor/placeholder for you–you know, just in case. Super love your videos, Dan. Thank you!

  7. This video in general was great, but the guy with the microphone was a disaster. Couldn't hear a word he said because it was pointed away from him the whole time.

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