Most people believe that once they step into the world of entrepreneurship, salaries become a thing of the past. On the contrary, an entrepreneur earning constant income is a sign of sustainable growth and success in business.
At what point does an entrepreneur put himself or herself on a salary?The business’ break-even point is the key to answering this question.
“The break-even point is the production level where total revenues equals total expenses.”
There has to be discipline on the part of the entrepreneur to not touch their business’ earnings till the business can cover its costs of production.
The next stage is to identify the indirect costs associated with production such as transportation, utilities, etc. Once you calculate this, you realize that this takes a huge burden off you because some of your personal costs will be covered under transportation and utilities (scroll down to see more on “Bills & Transportation”). These then become part of the costs & expenses that contribute to production of your goods or service. When your business’ income can cover these costs and expense, then you may begin to consider a salary.
How do you determine your salary?
First you divide your needs into the sub categories in order of priority; Healthcare, Feeding, Rent, Transportation, Bills, Pension, Grooming & Leisure.
Healthcare & Pension
There are so many options for healthcare and pension in Nigeria these days AVON, AXA MANSARD, STANBIC PENSIONS to name a few. The HMOs offer a variety of packages at very affordable premiums to cover a range of healthcare services at multiple hospitals all over Nigeria. You may decide to cover the one-off fee from your personal funds and the company will make monthly remittance to you as part of your salary earnings.
Pensions can be remunerated monthly at your own discretion and can be as high or as low as you decide to set it.
If rent is one of your expenses or you are considering living on your own, then divide your annual rent and service charge costs(if any) by 12 months and see how much it will cost you monthly. There are a number of property websites in Nigeria now one that really caught our attention was www.fibre.com for those individuals who do not mind shared accommodation. Platforms like this create options for monthly rent payments. However if you currently have accommodation and your business is your only source of income and said business cannot bear such a cost it is advisable to table that cost until you scale.
Bills & Transportation
It is also important to calculate how much transportation and bills cost you monthly and include in your salary breakdown. Bills include phone & data costs, DSTV,gym etc. However if your business requires frequent use of your phone and constant internet, then these should be covered in your business’ costs & expenses.
Grooming & Leisure
In this area, you can calculate how much you spend on grooming yourself in a month. For example, hair appointments, wax appointments, nail appointments.
As for leisure, this involves how much you plan to spend a week eating out, or any other fun activities. There is a reason why these are the last sub categories; they are not necessarily priorities even though the saying “all work and no play makes Jack a dull boy” is relevant. These are the luxuries you can afford to scrimp on for the first few months till you can steadily cover your other more important expenses.
Below is a salary breakdown for a female entrepreneur in her mid 20s. She recently invested in an HMO policy with premium of NGN42,000 for the year and is making a monthly remittance to her company. She has also decided to start depositing NGN100,000 annually into her pension account with plans to review upwards. She was fortunate to find a beautiful studio in Lekki via www.fibre.com. Her leisure budget is currently too high but she feels she deserves it especially since she hadn’t taken money out of the company for 8 months.
The breakdown should look something like this;
Its important to state that the sub categories listed are based on our research and client demands and can be tailored to include domestic staff salaries and other expenses. This is just a blueprint to get you on your way. To find out more about MASAL Consultants “Budget & Savings” services please visit our website here. You can also sign up for a free consultation.
Please leave comments, ask questions, share your opinions.