Under paying myself

1 Aug, '12

I’ve started reading quite an interesting book by Greg Crabtree called Simple Numbers, Straight Talk, Big Profits and the very first chapter in that book he talks about entrepreneurs habitually under paying themselves in the false belief that it leads to healthier perception of profits, but he proves that thought is a simple and very dangerous fallacy as it misrepresents a company’s true profitability as the entrepreneur invariably starts using the business as a piggy bank and draws the remainder of his requirements as drawings therefore hiding the actual (normally) bad state of the company.

Shocked? You bet I am!

I’m the first to admit that I need to better understand the balance sheet and know what to look for between the numbers. Having partially gone through an accounting course a few years ago at one of the leading banking training institutions in Bahrain, I still need the numbers to be demystified so that I instantly know the health of the business. I’ve started to take good steps in that regard by hiring a professional accountant on a part time basis to create the reports I need, put in the budget and cash flow sheets based on which I can now make intelligent decisions not just to continue to have a healthy company, but chart a proper and pragmatic growth path.

Having a “proper” pay is – I realise now – a very important factor. So I started looking around for resources to help me equate my position to those like-sized companies to know what a good and comparable salary should be. Needless to say, statistics are not our countries’ strong points, where these issues are deeply buried and one of the taboos it looks like, but I came across a timely article that can give me some guidance:

CEOs in the UAE on average earn Dh1.386 million ($377,664) per annum or Dh115,500 ($31,470) a month – less than their Saudi and Qatari peers with Arabic CEOs commanding 10 per cent premium.

CEO’s from Saudi Arabia top the money list with an average annual salary of Dh1.55 million ($422,280) a year or Dh129,150 ($35,190) a month.

The Gulf Business survey ranked the GCC CEO’s as follows; Saudi Arabia, Qatar, UAE, Kuwait, Oman and Bahrain and is based on CEOs who are responsible for sales of more than $50 million. [source]

While my company is a long way away from turning over $50 million, at least I know now where to look for the information I require, and that is recruitment agencies by looking for someone to replace me and see how much I need to pay that person!

I’ll let you know how I get along.

Do you have any insight on how much I should be getting paid? Can you offer some resources to help me understand this issue better?

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Comments (7)

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  1. Mark says:

    Mahmood

    try http://www.payscale.com

    While not perfect it may give you an idea.

  2. Wayne says:

    How much would you pay another person to do your job? If you write a job description and advertised it locally what would you have to offer to attract a person with your depth of experience, your achievements and your drive?

    In company valuations, shareholder remunerations ate generally treated as ‘add backs’ so that how they take the remuneration can be done as salary,cars,flights whatever. It is the quantum that is important.

    Generally it is eye popping on how much average people expect.

    Also consider that as business owner you are on all 24×7. How much does someone else get paid for that?

    • mahmood says:

      Very good advice and close to my own estimation of what needs to be done to evaluate this position Wayne, thank you.

  3. Shachar says:

    I had to close my own business about a year ago. And, yes, I under paid myself as well.

    On the one hand, had I not underpaid myself, I wouldn’t have been able to operate at all. As it is, my company was in business for about 8 years, and have been profitable at times (it was a consulting business, so the variance in income is big).

    Yes, avoiding under paying yourself prevents you from getting to where I got, where the business sucks up a lot of your personal funds before you close it down. Then again, if you do not, you would not have been able to run your business at all.

    I’m all for understanding your business’ true financial status, but I’m not sure I’m buying your advice, at least not wholly.

    Shachar

    • J.M. Heinrichs says:

      You do not necessarily have to pay yourself in cash, but you do have to account for the costs of the CEO, namely you, when ‘doing the books’. If your business only makes money when you are unpaid, you are operating a hobby. If your business goes into the red when accounting for your ‘pay’, then you should consider a less expensive hobby. You should also consider that one of the qualities of a good CEO is knowing when to cut the losses and shut the business down. Your business should not become your preferred charity.

      Cheers

      • Shachar says:

        If only things were that simple.

        In the business I was running, most of the time the business was keeping me paid, just not on the same levels as being employed.

        Also, it takes time to build a reputation and learn the tricks to the point where you can increase your business’ income. Just because your business is in the red for a certain period does not mean that you should close it down.

        Over the 8 years of operating, there were, routinely, periods of a couple of dead months (usually around August). These were, usually, compensated by the following months.

        You cannot have your close down trigger set too low, or you might as well not start.

        Shachar

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