Question:
Dear Advice Guy,
If things are tight, should I pay myself first and payroll and bills next or should I sacrifice myself?
– David Lepe, Owner, Lucy’s Café West, El Paso, TX
Answer:
Depending on your business structure and its related tax implications, it is a good practice for owners involved in day-to-day operations of the restaurant to pay themselves a reasonable salary, although many do not. Doing so ensures that you have a sound business model (for example—if you had to step away and replace yourself with a salaried manager, would the operation be viable?), is at least a start to fairly compensating you for your time, and is proper for accounting and tax purposes.
Nearly every small restaurateur I know has, at some point, skipped his or her own paycheck—during a delayed opening, after a rough time like this weekend’s blizzard in the Mid Atlantic part of the US, or after a particularly large expense like a repair, for example. Often—as you note—this self-sacrifice is intended to keep the ship afloat so you can meet commitments to employees, vendors and other creditors.
While of course, it is not a best practice, doing so here and there makes painful sense for most operators. That said, if it is routine rather than a rare occasion, there is a problem: either you need to make some cost-control or revenue-generating changes to your operation, need to assess whether your salary makes sense, or assess your business as a whole.
More on owners’ salaries here and here. As always, check with your attorney and accountant.