Are You Paying Yourself Right?

⏱️ 7:27 🎤 Daniel Honan

AUDIO EPISODE

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0:00

Introduction to Owner Pay

Daniel Honan outlines the challenges painting business owners face regarding compensation and sets the stage for the episode's content.
3:24

The 15% Benchmarks

He introduces the 'beach test' and the 15% owner discretionary earnings benchmark for a healthy painting business.
5:02

Salary vs. Owner Earnings

Daniel clarifies that owner earnings are more than just salary, especially for S-Corp owners, and explains the tax efficiency of profit distributions.
6:33

Compensate for Roles Played

He details how owners should be compensated for the specific roles they perform within the business, providing fair benchmarks for each.
7:52

Real Numbers Example

Daniel presents a concrete example of how an owner wearing multiple hats in a $750,000 business should calculate their total discretionary earnings.
8:50

Owner Pay Evolution

He explains how an owner's compensation structure changes as the business scales and they delegate roles.
9:30

Chris's Case Study

Daniel shares a real-world example of a painting business owner, Chris, and how implementing these strategies transformed his compensation and business.
11:20

Three-Bucket Pay Model

He introduces a simple three-bucket model for owner pay: salary, distributions, and bonuses.
12:10

Owner Pay is Downstream

Daniel concludes by emphasizing that proper owner pay is a result of effective pricing, labor efficiency, and overhead control, setting up the next episode.

Speakers

Daniel Honan

Host — CPA

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Aim for at least 15% of revenue in owner discretionary earnings, even if passive.

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Distinguish between salary and profit distributions, especially as an S-Corp, for tax efficiency.

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Compensate yourself for every role you fill (sales, production, admin, leadership) at fair market rates.

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Understand that total discretionary earnings include salary, profit distributions, and owner perks.

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As your business scales, your pay as a percentage of revenue may decrease as you delegate roles.

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Utilize the three-bucket model: W2 salary for work, profit distributions (monthly/quarterly), and optional performance bonuses.

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Focus on improving gross margins, labor efficiency, and overhead control to ensure healthy owner pay.

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