What owners pay (or dont pay) themselves

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irisevelynn

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Hello everybody,
I recently ran across this article
http://www.entrepreneur.com/article/223332
In short it says that business owners should pay themselves a competitive market wage in order to better assess the value of the company and improve the distribution of their time.
From what I've seen in the few weeks that I've been on this forum, most of you (often along with a spouse) wear all of the hats in the business, and are happy to do so. Of course there is great intrinsic satisfaction in owning your own business that you can't put a price on. And of course, many of you have decades of experiance and dedication that is also priceless. But the article made me wonder, for you B&B owner/operators, do you pay yourself what your worth? (ie. what you would have to pay an outsider to do all the things that you do) Why or why not? And what would happen to your company of that changed?
(Of course I'm not asking for numbers, just an examination of the question)
 
PAY? What is that? If you have a small B & B..there is no pay except for getting to live in a house you could not normally afford and being able to take some deductions of your taxes. If you make enough to pay yourself...YES of course you must do so.
 
Of course not (do we pay ourselves what we are worth) we are small business owners. We put in 110%.
"what you would have to pay an outsider to do all the things that you do) Why or why not? And what would happen to your company of that changed?"
We couldn't pay an outsider for what we do, not even one of us. That is why we do everything!
 
Of course not (do we pay ourselves what we are worth) we are small business owners. We put in 110%.
"what you would have to pay an outsider to do all the things that you do) Why or why not? And what would happen to your company of that changed?"
We couldn't pay an outsider for what we do, not even one of us. That is why we do everything!.
Joey Bloggs said:
We couldn't pay an outsider for what we do, not even one of us. That is why we do everything!
And that's why you're tired!
picture-187.jpg

 
To some extent the answer to this question depends on the legal organization of your business.
For example if you are an S-corp, the IRS expects you to pay yourself reasonable wages or salary, subject to payroll taxes, before taking a dividend (which is not subject to payroll taxes).
For sole-proprietorships, it doesn't really matter -- your pay is whatever is left over after all other expenses have been paid (and it will be subject to self-employment taxes).
 
"PAY" is not always in $$ in hand. My "Pay" is to live in a house that pays its own expenses, to be an economic factor in my City even though I am small, to be able to support activities in my City, and introduce many people to the wonders and beauty of my State - all things I would not be able to do if I was not an innkeeper. I would be able to survive on my other income but not in this house and I would not be in a position to do any of the other things mentioned. My pay also includes the guest who told my husband he had post-polio syndrome and us being able to pass that info on to another guest years later - and yes, in both cases it was correct and neither had ever heard of it. AND my "pay" comes directly to me and not a government although the City, State, and Feds all take a piece of the action.
My City taxes on my gross revenue - if one wants services, they must be paid for so that is OK. The guests pay the sales tax the State collects and I also pay income tax to my State. I pay real estate taxes and personal property taxes to the County - some of that comes back to my City and again falls into the services category. The Feds take everything they can get and try to figure out ways to take more - and they are too big to argue with. So my B & B pays the tax bill also.
 
Well, it is a great question. I think HF is correct in saying that the structure is the key. Money made in a corporation working to show a profit is quite different from money made in a SP trying to minimize liabilities. I think it is part of the discussion that innkeepers have when they begin to look at transitioning from the latter to the former.
 
Well, it is a great question. I think HF is correct in saying that the structure is the key. Money made in a corporation working to show a profit is quite different from money made in a SP trying to minimize liabilities. I think it is part of the discussion that innkeepers have when they begin to look at transitioning from the latter to the former..
The author of this article makes the point that there is no real difference between a for-profit business and a non-profit organization -- they both need to make money. He or she describes three areas of motivation that are just ordered differently between these two types of organizations:
- make money or profit
- serve society or meet the needs of customers/clients
- provide for the organization's employees
The For-Profit company puts making money or profit first; the NonProfit puts serving society first. Based on this, I would argue that there is a third type of business organization, what we here tend to call the "Lifestyle Business," which puts the satisfaction of the organization's workers first.
The article cited by the opening post is clearly aimed at for-profit businesses trying to demonstrate ROI for investors -- the company's books will be mis-leading if you are not paying yourself an appropriate wage (even if you yourself are the sole investor).
 
Well, it is a great question. I think HF is correct in saying that the structure is the key. Money made in a corporation working to show a profit is quite different from money made in a SP trying to minimize liabilities. I think it is part of the discussion that innkeepers have when they begin to look at transitioning from the latter to the former..
The author of this article makes the point that there is no real difference between a for-profit business and a non-profit organization -- they both need to make money. He or she describes three areas of motivation that are just ordered differently between these two types of organizations:
- make money or profit
- serve society or meet the needs of customers/clients
- provide for the organization's employees
The For-Profit company puts making money or profit first; the NonProfit puts serving society first. Based on this, I would argue that there is a third type of business organization, what we here tend to call the "Lifestyle Business," which puts the satisfaction of the organization's workers first.
The article cited by the opening post is clearly aimed at for-profit businesses trying to demonstrate ROI for investors -- the company's books will be mis-leading if you are not paying yourself an appropriate wage (even if you yourself are the sole investor).
.
I agree with your notion of a third style of business. I do wonder if in the final analyses, each type must negotiate the challenges of the three legged stool? To keep balanced, the three legs must grow together, with the primary motivator changing as needed.
 
"PAY" is not always in $$ in hand. My "Pay" is to live in a house that pays its own expenses, to be an economic factor in my City even though I am small, to be able to support activities in my City, and introduce many people to the wonders and beauty of my State - all things I would not be able to do if I was not an innkeeper. I would be able to survive on my other income but not in this house and I would not be in a position to do any of the other things mentioned. My pay also includes the guest who told my husband he had post-polio syndrome and us being able to pass that info on to another guest years later - and yes, in both cases it was correct and neither had ever heard of it. AND my "pay" comes directly to me and not a government although the City, State, and Feds all take a piece of the action.
My City taxes on my gross revenue - if one wants services, they must be paid for so that is OK. The guests pay the sales tax the State collects and I also pay income tax to my State. I pay real estate taxes and personal property taxes to the County - some of that comes back to my City and again falls into the services category. The Feds take everything they can get and try to figure out ways to take more - and they are too big to argue with. So my B & B pays the tax bill also..
Thank you for pointing out some of the none $ benifits of runing an inn. I think people tend to focus on the negative aspects when talking to us Aspire-ies, probably to help keep us grounded. But I like hearing the personal experiances that make it worthwhile, like being involved in your city and learning about your husbands health issue, and being able to pass that information. (What an amazing story by the way!)
You said that you would be able so survive on your other income, but would you be able to survive without another income? I guess what I'm wondering is if somebody can have all of benifits of owning a "lifestlye business" (as Harborfields put it) and still have an income that isn't immediately absorbed back into the business.
 
Of course not (do we pay ourselves what we are worth) we are small business owners. We put in 110%.
"what you would have to pay an outsider to do all the things that you do) Why or why not? And what would happen to your company of that changed?"
We couldn't pay an outsider for what we do, not even one of us. That is why we do everything!.
So if something were to happen to you, and you were unable to work at much as you do now, your inn wouldn't be able to function and you would close?
 
"PAY" is not always in $$ in hand. My "Pay" is to live in a house that pays its own expenses, to be an economic factor in my City even though I am small, to be able to support activities in my City, and introduce many people to the wonders and beauty of my State - all things I would not be able to do if I was not an innkeeper. I would be able to survive on my other income but not in this house and I would not be in a position to do any of the other things mentioned. My pay also includes the guest who told my husband he had post-polio syndrome and us being able to pass that info on to another guest years later - and yes, in both cases it was correct and neither had ever heard of it. AND my "pay" comes directly to me and not a government although the City, State, and Feds all take a piece of the action.
My City taxes on my gross revenue - if one wants services, they must be paid for so that is OK. The guests pay the sales tax the State collects and I also pay income tax to my State. I pay real estate taxes and personal property taxes to the County - some of that comes back to my City and again falls into the services category. The Feds take everything they can get and try to figure out ways to take more - and they are too big to argue with. So my B & B pays the tax bill also..
Thank you for pointing out some of the none $ benifits of runing an inn. I think people tend to focus on the negative aspects when talking to us Aspire-ies, probably to help keep us grounded. But I like hearing the personal experiances that make it worthwhile, like being involved in your city and learning about your husbands health issue, and being able to pass that information. (What an amazing story by the way!)
You said that you would be able so survive on your other income, but would you be able to survive without another income? I guess what I'm wondering is if somebody can have all of benifits of owning a "lifestlye business" (as Harborfields put it) and still have an income that isn't immediately absorbed back into the business.
.
The short answer for us is YES, we can exist on our B+B income alone, if we had to. But, we have owned this business for 26 years, have no mortgage on the property and an established "returning" guest list. The fact that we also have other sources of income merely allows us to work without killing ourselves with work. We can make it through the really busy months and take it easy a bit during the slow months without worrying about paying the bills.
Just starting out is a whole other ball game, especially if you have never run a B+B before. There is a learning curve that takes a few years to work your way up. Much depends on your debt, your energy, your business savvy, your location and your partner (going it alone is REALLY tough).
 
"PAY" is not always in $$ in hand. My "Pay" is to live in a house that pays its own expenses, to be an economic factor in my City even though I am small, to be able to support activities in my City, and introduce many people to the wonders and beauty of my State - all things I would not be able to do if I was not an innkeeper. I would be able to survive on my other income but not in this house and I would not be in a position to do any of the other things mentioned. My pay also includes the guest who told my husband he had post-polio syndrome and us being able to pass that info on to another guest years later - and yes, in both cases it was correct and neither had ever heard of it. AND my "pay" comes directly to me and not a government although the City, State, and Feds all take a piece of the action.
My City taxes on my gross revenue - if one wants services, they must be paid for so that is OK. The guests pay the sales tax the State collects and I also pay income tax to my State. I pay real estate taxes and personal property taxes to the County - some of that comes back to my City and again falls into the services category. The Feds take everything they can get and try to figure out ways to take more - and they are too big to argue with. So my B & B pays the tax bill also..
Thank you for pointing out some of the none $ benifits of runing an inn. I think people tend to focus on the negative aspects when talking to us Aspire-ies, probably to help keep us grounded. But I like hearing the personal experiances that make it worthwhile, like being involved in your city and learning about your husbands health issue, and being able to pass that information. (What an amazing story by the way!)
You said that you would be able so survive on your other income, but would you be able to survive without another income? I guess what I'm wondering is if somebody can have all of benifits of owning a "lifestlye business" (as Harborfields put it) and still have an income that isn't immediately absorbed back into the business.
.
We don't have outside jobs. If one of us was unable to do the job and we had to hire people full time it would be very difficult to make ends meet.
You really need an outside source of income or an extremely successful business model.
We have retirement income coming in right now. It's less than $1000/month but it keeps us in Twinkies. So yes, we live on less than $12k/ year.
The business provides us with a home, some utilities and some food. The rest comes out of that retirement money.
But, neither of us has to 'get a job'. Which was our goal.
 
"PAY" is not always in $$ in hand. My "Pay" is to live in a house that pays its own expenses, to be an economic factor in my City even though I am small, to be able to support activities in my City, and introduce many people to the wonders and beauty of my State - all things I would not be able to do if I was not an innkeeper. I would be able to survive on my other income but not in this house and I would not be in a position to do any of the other things mentioned. My pay also includes the guest who told my husband he had post-polio syndrome and us being able to pass that info on to another guest years later - and yes, in both cases it was correct and neither had ever heard of it. AND my "pay" comes directly to me and not a government although the City, State, and Feds all take a piece of the action.
My City taxes on my gross revenue - if one wants services, they must be paid for so that is OK. The guests pay the sales tax the State collects and I also pay income tax to my State. I pay real estate taxes and personal property taxes to the County - some of that comes back to my City and again falls into the services category. The Feds take everything they can get and try to figure out ways to take more - and they are too big to argue with. So my B & B pays the tax bill also..
Thank you for pointing out some of the none $ benifits of runing an inn. I think people tend to focus on the negative aspects when talking to us Aspire-ies, probably to help keep us grounded. But I like hearing the personal experiances that make it worthwhile, like being involved in your city and learning about your husbands health issue, and being able to pass that information. (What an amazing story by the way!)
You said that you would be able so survive on your other income, but would you be able to survive without another income? I guess what I'm wondering is if somebody can have all of benifits of owning a "lifestlye business" (as Harborfields put it) and still have an income that isn't immediately absorbed back into the business.
.
We lived on my retirement income and health benefits from my employer. Our 'lifestyle" B & B would never have been able to sustain us in the way we are accustomed. B & B income pretty much just went right back into the business.
 
"PAY" is not always in $$ in hand. My "Pay" is to live in a house that pays its own expenses, to be an economic factor in my City even though I am small, to be able to support activities in my City, and introduce many people to the wonders and beauty of my State - all things I would not be able to do if I was not an innkeeper. I would be able to survive on my other income but not in this house and I would not be in a position to do any of the other things mentioned. My pay also includes the guest who told my husband he had post-polio syndrome and us being able to pass that info on to another guest years later - and yes, in both cases it was correct and neither had ever heard of it. AND my "pay" comes directly to me and not a government although the City, State, and Feds all take a piece of the action.
My City taxes on my gross revenue - if one wants services, they must be paid for so that is OK. The guests pay the sales tax the State collects and I also pay income tax to my State. I pay real estate taxes and personal property taxes to the County - some of that comes back to my City and again falls into the services category. The Feds take everything they can get and try to figure out ways to take more - and they are too big to argue with. So my B & B pays the tax bill also..
Thank you for pointing out some of the none $ benifits of runing an inn. I think people tend to focus on the negative aspects when talking to us Aspire-ies, probably to help keep us grounded. But I like hearing the personal experiances that make it worthwhile, like being involved in your city and learning about your husbands health issue, and being able to pass that information. (What an amazing story by the way!)
You said that you would be able so survive on your other income, but would you be able to survive without another income? I guess what I'm wondering is if somebody can have all of benifits of owning a "lifestlye business" (as Harborfields put it) and still have an income that isn't immediately absorbed back into the business.
.
You said that you would be able so survive on your other income, but would you be able to survive without another income? I guess what I'm wondering is if somebody can have all of benifits of owning a "lifestlye business" (as Harborfields put it) and still have an income that isn't immediately absorbed back into the business.
It would be difficult without my "other income" paltry as it is. Although my "needs" are small, it would be difficult to pay the gas bill in the winter - when business is almost non-existent. I am in a very small city (in my State pop of over 2000 is a city) that I have made a tourist destination - no brag, a fact. All I ever expected of the B & B was to pay the expenses of the house. Of course, that was when I was wearing "The Glasses". I was fortunate enough to start out with no mortgage. Then I needed to add a bathroom. Struggled through that financial debacle and found I needed a roof. When DH dies, I will spend a month clearing out some areas he has taken over that are detrimental to trying to sell and then put this on the market. I love what I do, but my knees are giving out so it is time.
I believe someone else will be able to make this even better and may be able to turn this into an almost "living wage" business. And the reason I say that is that I have paid for the upgrades the house needed. I have paid for the furniture needed. I have good linens, appliances, everything an innkeeper needs to operate. They will not have that expense to face. And because I want the next innkeeper to succeed, thus retaining a much needed B & B in my City, I am not planning to try to recoup what I have spent.
One other piece if info is needed to understand my operation. When I opened, I made the conscious decision that I was going to "run with the big boys". There are many B & Bs in my State that are thriving businesses but are not "known". I went to Conferences, workshops, stopped in at Tourism, stopped at the CVBS & Welcome Centers, made myself available to Tourism, went to Tourism Day at the Capitol and supplied rolls for the Reception after as a way to get into that Reception FREE. When Tourism was going to a Conference in Utah to promote WV as the site of the next year's Conference, I did creative financing (took brochures of small entities to finance my gas) and we pitched a tent at a campground - but we were there representing B & Bs in the State. When Tourism had an event in NYC, I partnered with another B & B who had a friend in NYC again did creative financing, and my B & B was there. So you have to decide where you want to be in the industry. Being one of the crowd was not something I ever was satisfied with. One reason I am on this Forum - you do not find "sheep" here.
That is also an aspect of the financials of this B & B - you can run with the big boys on a shoestring, but it still takes the shoestring to do it.
 
"PAY" is not always in $$ in hand. My "Pay" is to live in a house that pays its own expenses, to be an economic factor in my City even though I am small, to be able to support activities in my City, and introduce many people to the wonders and beauty of my State - all things I would not be able to do if I was not an innkeeper. I would be able to survive on my other income but not in this house and I would not be in a position to do any of the other things mentioned. My pay also includes the guest who told my husband he had post-polio syndrome and us being able to pass that info on to another guest years later - and yes, in both cases it was correct and neither had ever heard of it. AND my "pay" comes directly to me and not a government although the City, State, and Feds all take a piece of the action.
My City taxes on my gross revenue - if one wants services, they must be paid for so that is OK. The guests pay the sales tax the State collects and I also pay income tax to my State. I pay real estate taxes and personal property taxes to the County - some of that comes back to my City and again falls into the services category. The Feds take everything they can get and try to figure out ways to take more - and they are too big to argue with. So my B & B pays the tax bill also..
Thank you for pointing out some of the none $ benifits of runing an inn. I think people tend to focus on the negative aspects when talking to us Aspire-ies, probably to help keep us grounded. But I like hearing the personal experiances that make it worthwhile, like being involved in your city and learning about your husbands health issue, and being able to pass that information. (What an amazing story by the way!)
You said that you would be able so survive on your other income, but would you be able to survive without another income? I guess what I'm wondering is if somebody can have all of benifits of owning a "lifestlye business" (as Harborfields put it) and still have an income that isn't immediately absorbed back into the business.
.
irisevelynn said:
I guess what I'm wondering is if somebody can have all of benifits of owning a "lifestlye business" (as Harborfields put it) and still have an income that isn't immediately absorbed back into the business.
Almost by definition, a "lifestyle business" doe not really generate much if any "profit" back to the owner, rather any and all revenue above expenses goes to the support of the people who work in the business (whether they are the owner or not).
Applied to your question about if the innkeeper(s) were to get hurt and no longer be able to work in the business, sure, we could try to hire another innkeeper to do the work (run the inn), but there wouldn't be any income left over to also support us (nor would there be a place for us to live). The other alternative, of course, is to sell the business (or close the business and sell the underlying assets). Or try to collect on disability insurance (if lucky enough to have been able to afford that).
 
"PAY" is not always in $$ in hand. My "Pay" is to live in a house that pays its own expenses, to be an economic factor in my City even though I am small, to be able to support activities in my City, and introduce many people to the wonders and beauty of my State - all things I would not be able to do if I was not an innkeeper. I would be able to survive on my other income but not in this house and I would not be in a position to do any of the other things mentioned. My pay also includes the guest who told my husband he had post-polio syndrome and us being able to pass that info on to another guest years later - and yes, in both cases it was correct and neither had ever heard of it. AND my "pay" comes directly to me and not a government although the City, State, and Feds all take a piece of the action.
My City taxes on my gross revenue - if one wants services, they must be paid for so that is OK. The guests pay the sales tax the State collects and I also pay income tax to my State. I pay real estate taxes and personal property taxes to the County - some of that comes back to my City and again falls into the services category. The Feds take everything they can get and try to figure out ways to take more - and they are too big to argue with. So my B & B pays the tax bill also..
Thank you for pointing out some of the none $ benifits of runing an inn. I think people tend to focus on the negative aspects when talking to us Aspire-ies, probably to help keep us grounded. But I like hearing the personal experiances that make it worthwhile, like being involved in your city and learning about your husbands health issue, and being able to pass that information. (What an amazing story by the way!)
You said that you would be able so survive on your other income, but would you be able to survive without another income? I guess what I'm wondering is if somebody can have all of benifits of owning a "lifestlye business" (as Harborfields put it) and still have an income that isn't immediately absorbed back into the business.
.
irisevelynn said:
I guess what I'm wondering is if somebody can have all of benifits of owning a "lifestlye business" (as Harborfields put it) and still have an income that isn't immediately absorbed back into the business.
Almost by definition, a "lifestyle business" doe not really generate much if any "profit" back to the owner, rather any and all revenue above expenses goes to the support of the people who work in the business (whether they are the owner or not).
Applied to your question about if the innkeeper(s) were to get hurt and no longer be able to work in the business, sure, we could try to hire another innkeeper to do the work (run the inn), but there wouldn't be any income left over to also support us (nor would there be a place for us to live). The other alternative, of course, is to sell the business (or close the business and sell the underlying assets). Or try to collect on disability insurance (if lucky enough to have been able to afford that).
.
Harborfields said:
irisevelynn said:
I guess what I'm wondering is if somebody can have all of benifits of owning a "lifestlye business" (as Harborfields put it) and still have an income that isn't immediately absorbed back into the business.
Almost by definition, a "lifestyle business" doe not really generate much if any "profit" back to the owner, rather any and all revenue above expenses goes to the support of the people who work in the business (whether they are the owner or not).
Applied to your question about if the innkeeper(s) were to get hurt and no longer be able to work in the business, sure, we could try to hire another innkeeper to do the work (run the inn), but there wouldn't be any income left over to also support us (nor would there be a place for us to live). The other alternative, of course, is to sell the business (or close the business and sell the underlying assets). Or try to collect on disability insurance (if lucky enough to have been able to afford that).
Replying to the question here, within HF's answer...if we were unable to work could we hire someone to run the inn, yes of course. You can hire someone to do anything and everything. The true benefit of owning your own inn and running it is the ability to deduct things where you live.
If I had to hire a:
marketing person
maintenance person
cook/hostess
housekeeper
groundskeeper
office manager
laundry
webmaster
etc
The answer is yes, you can hire out as much as you want. If we did that we would make zero money, in fact go in the red. it all depends on how much you owe, that is the variable. Of course maintaining, renovating and remodeling costs are another animal all together!
If you own the B&B (home and business outright) then the strategy is different. If you have a large mortgage, if you have medical insurance costs, etc things are different. Property tax, business, tax, etc.
Each innkeeper on this forum has a different variable, none of which are privy to the public.
 
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