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As a small business owner, one of the major decisions you will need to take on your business is to decide the nature of the reward system you will prefer. Should I draw a salary from the business or should I run my expenses with the profits generated from the company? This can constitute a major setback to the business if not properly considered; it can also become an intractable challenge to the business owner.
Salary Slip Format
For the purpose of this discourse, salary is considered as the deductions made from the company account to pay the running workforce on a monthly basis. On the other hand, a dividend is considered as the deductible part of the profits after tax usually disbursed to an organization’s stakeholders. The major point of conflict for a small business owner here is that he/she can easily be considered by both an employee and also a stakeholder in the business and can make financial decisions that can either make or mar the business.
So, what are the facts to be considered to aid his decisions about his reward system? Some of the supportive tips described below will definitely help:
As a salary earner in the business, you will have a specific personal income. This can help you to plan your financial budget appropriately. Conversely, you can decide to pay yourself so much that you begin to hurt the business. As a salary earner, you can pay into the central pension funds. This is because pension funds are only deductible from salaries. Conversely, you will not be able to be a part of the central pension plan if you receive dividends only.
Different countries have limits on earnings for small businesses and this may necessitate the need for payment of salaries and bonuses to keep your income within the limit. There are more taxes and banks’ deductions from salaries while dividends have fewer taxes and charges. Indeed, salaries are 100% taxable.
Free Sample Salary Slip Format in Excel
Here are previews and download links for these professionally designed Salary slip Templates that can be very helpful for you to make your own official Salary slip in a proper way.
Using Salary Slip Templates
With salary, you are faced with managing a cumbersome payroll that may need constant modifications and calculations, unlike the yearly dividends that are clearly separated from the running capital. Whereas, on dividends, you can be sure that there will not be monthly deductions from the banks.
There are a few activities you will not be able to participate in or enjoy for being a non-taxpayer in certain countries. However, it is more important to determine what the business owner should earn by considering the nature and the financial depth of the business vis-à-vis the financial needs and obligations of the owner.
You can discuss the following questions with a business/financial professional to reach an informed decision.
- What is the financial status of the business owner?
- What are his sources and the levels of his income?
- What is the financial status of the company?
- What are the cash flow and the running cost of the company?
- What is the possible or projected income of the company over a specified period of time?
- What is the stability of the company within the industry it operates?
Proper evaluations of all these will help place a balance between the owner’s needs and the business needs and ensure the best option discovered.