By Sal Alfano.
At the top of the list of things that matter most about a remodeling company is how much income it provides for the owners. In the March 2001 issue, we set the benchmark for owner salary at 10% of gross revenue. Those of you with annual sales of around $500,000 probably think that's a reasonable goal, but owners of companies pushing $5 million or more in revenue may be wondering if we seriously believe they should be hauling down a cool 500 grand.
The answer is yes, you can earn 10% of sales, but no, not necessarily in salary alone. Fortunately there are lots of other perfectly legal ways for company owners to compensate themselves. (There are plenty of illegal ones, too. Clean up your act, it's not worth the risk.)
Let's look at straight salary first. As owner, you should be paid for every job you perform, just as you would pay an employee. If you're the chief designer, salesman, and estimator, as well as production manager, bookkeeper, and carpenter, your salary should include proportional compensation for all of that work.
Already, you can see the problem. A benchmark is useless unless everyone accounts for compensation the same way. That may be too much to ask, but the remodelers of Les Cunningham's Business Networks groups come very close. They each provide a variety of financial data on a semi-annual comparison sheet that also spells out everything that should be included in owner's compensation. Here are the highlights.
Cash and Dividends. It's illegal to fail to report bonuses and under-the-table money as income.
Vehicle Use. If you use your company car only for business, then it's not a perk. But who doesn't drive the company truck during non-business hours? That has a dollar value -- one you'd sure be keeping track of if it was an employee driving that truck. Speaking of trucks, if you're tooling from site to site in a Lincoln Navigator when a Chevy S-10 will do, that's a form of personal compensation. Whatever you're driving, gas, oil, and repairs also count as personal compensation if you buy them on the company's nickel. Employees can't get away with this -- neither should owners.
Insurance. Rules vary, but regardless of how you report to Uncle Sam, health, life, and disability insurance premiums count as owner's compensation for the purpose of establishing a benchmark.
Cell Phone. No one in America uses a company cell phone strictly for business. If you allow employees some personal use, then you owe it to yourself, but don't pretend it's not part of your compensation (or theirs).
Home Office. Does your home office have a big-screen TV and DVD player you use for "training"? Do you pay separately for a personal Internet service account? Does the company-paid business phone line revert to personal use after hours? These are small expenses by themselves, but it all adds up.
Lease Income. If you own your office building and lease it back to your company, that counts as personal compensation.
Personal Remodeling. When that mis-ordered patio door makes its way into the new family room in your own home, that's a form of personal compensation. The same is true for personal items that find their way onto the company credit card.