Here’s How to Know What To Pay Your Employees


Entrepreneurs spend a lot of time thinking about who’s going to invest in their companies, but much less focusing on what they need to invest in. To help protect their personal assets in the future, Helen Ngo, CFP and founder of Capital Benchmark Partners, recommends entrepreneurs do commit to two things up front: a good attorney and a good tax advisor.

“[I’ve met some] who will spend thousands on a laptop,” Ngo said. “But wouldn’t spend a couple hundred on a good lawyer.”

Or retirement, for that matter. We sought out Ngo’s advice after reading that many founders don’t put away anything for retirement and don’t take anything in salary. The numbers are fairly scattered about what founders are doing, but it got us wondering: how much should they be saving, paying themselves — and paying their employees? Of course, there’s no set percentage or number everyone should stick to, but according to Ngo, there are some key steps to financial literacy that all business owners should take in order to answer the aforementioned questions.

Prepare For Risk

Some founders can be surprisingly superstitious, arguing that planning for potential failures creates a self-fulfilling prophecy of failure. This is not true.

Ngo refers to it as planning for life: a sick parent who needs your care, sudden personal health issues, getting hit by a truck, as the old adage goes — there are a multitude of random obstacles that can arise, and you and your team should be financially prepared.

Initially, she recommends giving yourself a cash reserve to prepare for those unexpected risks. Begin by going over everything about your lifestyle that costs money. Consider how much you eat out, spend on clothing, spend on tech, and whatever else you spend money on regularly, and figure out how much you need to survive for three, six and nine months. Put that money away and don’t touch it. Do the same for your business: consider how much money would you need to operate during a slow period or with the sudden loss of a key client.

Plan for the Future

Once prepared for immediate peril, think about retirement. Ngo says a lot of people don’t realize what their options are, but entrepreneurs and small business owners can get what is basically a solo 401k, a simple IRA (Individual Retirement Account), and save a lot of money on tax write-offs. Plan for your retirement, and potentially the retirement of your employees, by including it in the business plan early on.

Think Budget First

Budgeting is finance 101, but Ngo says it can be surprising how few don’t do it. Go back to your lists where every business variable and fixed expense is laid out. Your personal and business accounts should be separate and distinct. Ngo recommends a business credit card as well as business checking and savings account. This is when you can start looking at how much to pay yourself and others, and having someone schooled in the technicalities can be a great benefit.   

Ngo says, depending on company and revenue, she sometimes recommends offering a benefits incentive over a huge salary. Everyone should have health insurance — and it’s eligible as a business tax write off. Ngo recommends doing the math and weighing which is more beneficial.

Evaluate, Then Re-Evaluate

When your budget is set, continuously evaluate whether it’s working for you. Ngo asks her clients, “Are you on track this year to make money? Are you meeting your goals?” If the answer is no, then it’s time to evaluate why.

Often, she finds that revenue isn’t the issue, but spending is. She has encountered business owners from all over the spectrum, from those who aren’t taking the monetary advantages of tax write offs or forget to file their taxes entirely, to those writing off so much that they may cross over the wrong side of a legal line.

Once everything is in order and the business is profitable, owners can start deciding what to do with profit. Once in profit, business owners can start looking at bonuses, raises or whether they want to reinvest that money back into the business by upgrading tech, getting better offices, or hiring more people.

Ultimately, if the services you’re paying for or the people you’re hiring aren’t showing a return on your investment, it’s time to consider another route. Remember, numbers don’t lie.

This article was brought to you by WeWork. WeWork provides refreshing workspace, powerful community, and meaningful business services to forward-thinking companies around the world. Learn more about how WeWork can help support your entrepreneurial endeavor in Atlanta today.