Where Is All The Money Going Series: Chapter 6 - Business Owner Remuneration: How Much Is the Business Really Paying You?
- Future Accounting
- 12m
- 4 min read
Written by: Melissa Cunliffe (CA)
And is it enough for the work, risk and capital you put in?
Most business owners can answer "How much do you pay yourself?" quickly. But that answer does not necessarily tell us what the business is really providing to the family, or whether the owners are being properly rewarded for the hours they work, the risk they carry and the capital they have invested. Understanding business owner remuneration helps answer these important questions.
| Are you being paid for working in the business — and also rewarded for owning it? |
There Are Two Returns to Think About
1. Payment for the Work You Do
This is the value of your time, skills and effort. If you were not doing the job, what would the business need to pay someone else to do it?
2. Return on Ownership
This is the reward for owning the business, putting capital at risk, giving guarantees, carrying responsibility and building systems, relationships, goodwill and value.
A strong family business should ideally create both.
Why Business Owner Remuneration Is Often Blurred in
Family owners may pay themselves a wage, take drawings, receive dividends or trust distributions, use a company vehicle, have personal expenses paid through the business, receive superannuation or simply take money whenever cash is available. Over time, it becomes difficult to answer: what is the business actually paying us?
A Profitable Business Can Be Underpaying Its Owners
Imagine a business reports $300,000 of annual profit. The husband and wife who own it each work 55 hours per week. If replacing their roles would cost $220,000 per year, but they only pay themselves a combined $100,000, a substantial part of the reported profit may actually represent unpaid or underpaid labour.
Why This Matters for Retirement and Business Value
If the current profit depends on owners working 60 hours a week for less than a market salary, what happens when they stop? Someone may need to replace them, reducing profit and therefore potentially changing retirement plans, succession options and business value.
| The more the business can operate profitably while paying commercial rates for the work required, the more clearly we can see the true return on ownership. |
Owner Dependency Has a Financial Cost
If you cannot take four weeks off without everything slowing down, the business may still be heavily dependent on you personally. That affects scalability, risk, value, succession and lifestyle.
The Business May Be Paying You More Than You Think
An owner may say, 'I only take $100,000,' while the family also receives value through vehicles, phones, private expenses, insurance, superannuation, dividends, distributions, loan account movements, travel, property costs or other benefits. From a family cash-flow perspective, those items matter.
Know the Family's Number
One of the most valuable numbers a family business owner can understand is how much the family actually needs from the business each year. A real annual household requirement creates a useful benchmark against what the business can sustainably produce.
Sustainable Is the Important Word
A business may be able to provide $300,000 to the family this year. But can it do that every year? What if sales fall, a large customer leaves, interest rises, equipment needs replacing or an owner becomes ill? Permanent lifestyle commitments should not be based only on the best year the business has ever had.
Is the Owner Taking Too Little?
Taking too little can create problems too. If everything stays in the business indefinitely, the family's entire income, wealth, retirement and financial security may depend on the same asset. At some point, a successful business should ideally help the family build strength outside the business as well.
What Are You Actually Building?
After ten years, has business value increased? Has debt reduced? Has family net wealth increased? Has superannuation grown? Have investments been built? Has financial risk reduced? Has owner dependence reduced? Has retirement become more achievable?
| If yes, the business is doing more than paying the bills. It is creating Future Prosperity. |
Ask Yourself
Do you know how much total value your family receives from the business each year?
Do you know what a commercial salary would be for the role you perform?
Does the business make genuine profit after allowing for that salary?
Are you being rewarded for ownership as well as work?
What would happen to profit if someone had to replace you?
Are family expenses clearly separated from business costs?
Do you know how much your household genuinely needs each year?
Are owner withdrawals planned?
How much family wealth has been built outside the business?
Could you step away without materially damaging profitability?
| If you stopped working tomorrow, what return would the business still provide you simply because you own it? |
3P'S FUTURE PROSPERITY INSIGHT
PRESERVE
Understanding owner remuneration helps preserve the financial strength of the business. Too much cash leaving can weaken working capital; too little can over-concentrate family wealth in one asset.
PROTECT
Owner dependency, unclear family remuneration and concentration of wealth are all risks. Protection means building financial resilience and clarity around how value flows between the business and family.
PROSPER
The goal is a business that can pay commercial wages, generate genuine profit, build capital and wealth outside the business, operate with less owner dependence and eventually support succession, sale or retirement.
| How should the value our business creates be divided between rewarding our work, strengthening the business and building our family's long-term wealth? |
Book a confidential meeting with our team to explore how value is flowing from your business to your family, identify any gaps, and ensure your business is supporting both your current lifestyle and your long-term Future Prosperity.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
