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Twenty-Six Percent of Business Owners Don’t Take a Salary
You can actually get in trouble with the IRS if you don't pay yourself enough.
Good morning!
Here are today’s highlights:
Are you ready for a $50 hamburger?
Remote work is allowing Americans to travel more.
Glassdoor is letting job seekers filter for companies with higher ratings in work-life balance, culture, and diversity.
The co-founder of Kayak wants to fix online reviews.
COMPENSATION
Business owners can have a hard time figuring out their own pay: “Understanding how to pay yourself appropriately — even if it’s only a small amount that grows over time — is important for the long-term health of a business, according to professionals that advise small businesses. ‘It doesn’t reflect the true health of your business if you aren’t taking something,’ said Zahir Khoja, chief executive at Wave Financial, a provider of money management tools for small businesses. The mechanics are especially important given that 26 percent of small business owners don’t pay themselves a salary, according to a 2022 small business survey from Wave.”
“Many founders are afraid of choking their business by paying themselves too much, but setting the bar too low can be equally problematic, since they could easily become consumed with the stress of trying to make ends meet.”
Business owners may think the money could be better spent hiring marketing help, redoing the website or some other expense that can help the company expand. But don’t fall into this trap, he said.”
“Depending on your tax structure, you could get into trouble for not paying yourself enough, so be sure to understand the specific rules related to the entity you choose. With an S or C corporation, for example, the IRS requires the owner to draw a ‘reasonable salary’ and pay the required taxes that go along with those wages, said Christopher Colyer, a partner with Eisner Advisory Group LLC.”
“Pilot last year began doing an annual survey to track what entrepreneurs in similar industries and geographies and funding levels are paying themselves. Notably, half of U.S. founders pay themselves less than $100,000 annually, according to the 2022 Pilot study.” READ MORE
PRICING
Would you pay $50 for a New York City burger? “Take the legendary Black Label Burger at Minetta Tavern, which currently costs $38. That’s $2 more than it was a year ago and $1 more than the restaurant’s arctic char ‘à la Grenobloise.’ After tax and the standard 20 percent tip, you’re going to spend nearly $50 to eat that burger. Ignacio Mattos’s tidy burger at Corner Bar is $24 — not bad considering it’s served on a doily, but then you realize it’s another $13 for an order of fries. Mattos’s other famous burger, topped (appealingly) with Gorgonzola and a jam of caramelized radicchio at Altro Paradiso, is $28 before tip and tax ($36.57 after), but the patate fritte are included.”
“These are not outliers. All around town, the amount you will pay for a hamburger (with service and sales tax) has risen: $40.50 at the original Emily; it’s $32.66 for the ‘grass-fed and finished’ cheeseburger at Diner; $33.97 at the Dutch.’”
“In 2019, chef Jae Lee asked $18 for his ‘legendary burger’ at Nowon, two patties topped with American cheese and kimchi mayo. It remains his best-selling item, but now it’s $20 (real price: $26.12), or there’s a $25 dry-aged model, plus one topped with truffles for $30, with margins so small Lee considers it a loss leader.”
“‘I wish I could still charge $18,’ he says. ‘Costs were rising before the pandemic, and it really hasn’t stopped.’ And, he cautions, ‘it’s not just ingredients. It’s garbage pickup. ConEd has gone up. Our rent has gone up. We can’t hire cooks at $17 an hour anymore.’” READ MORE
HUMAN RESOURCES
Glassdoor is letting job seekers filter for companies with higher ratings in work-life balance, culture, and diversity: “The new search functions ‘aim to make it easier for people to uncover companies that align with their unique values and experiences and can help them make even more informed decisions about where to work,’ Glassdoor CEO Christian Sutherland-Wong said in a news release. A Glassdoor survey conducted last month found that 43 percent of U.S. employees experienced or saw discrimination in the workplace, while 30 percent said their employer’s values don’t align with their own.”
“The survey, which was completed by market research firm The Harris Poll, revealed that 36 percent of employees aged 18-44 consider D&I important when determining where to work.” READ MORE
TRAVEL
Remote work is paying off in a surprising way for airlines: “The ability to work remotely, full- or part-time, has allowed Americans to travel more and to combine personal and professional trips — a transformation that appears to be enduring, and one that carriers are planning around, executives say. ‘There’s been a permanent structural change in leisure demand because of the flexibility that hybrid work allows,’ United’s chief executive, Scott Kirby, said Wednesday on a call with reporters and analysts. ‘This is not pent-up demand. It’s the new normal.’”
“The benefits to the industry of travelers’ newfound flexibility extend beyond revenue. Passengers have started to spread out travel, reducing swings in demand between busy weekends and slower days midweek. Holiday travel is spreading out, too, the executives said.”
“Traditionally, Labor Day weekend marks the end of the busy summer season, with travel slow until it picks up for Thanksgiving and Christmas. But flexibility from remote work encouraged people to keep flying last month, United said.”
“The airline had as much revenue on some September days as during peak summer travel, helping to make September the third best month ever for United in revenue per seat per mile flown, a standard industry measure. And October is on track to outperform September.”
“At American, the rise of blended trips and travel by small and medium-size businesses has more than offset a slower rebound in travel by typically larger corporations.” READ MORE
RETAIL
High-tech cars are killing the auto-repair shop: “Over the past decade, cars have gotten more complex and computerized. Each vehicle is now studded with sensors, packed with hundreds or thousands of computer chips, and controlled by software. Auto industry insiders have waxed poetic about the safety benefits of the ‘software-defined vehicle’—which also enables revenue-boosting data collection and subscriptions that make it safer to be an auto executive too. Less talked about are the consequences of computerized cars at the auto shop. Fixing complex vehicles requires increasingly expert and expensive knowledge, and tools that are in limited supply.”
“Porsches converge from across the Midwest on the collision shop Brandon Mehizadeh manages in Minnetonka, Minnesota, like expensive homing pigeons. A Cayenne SUV that hit a deer in South Dakota early this summer and needed structural work is a typical example.”
“Workers at the first collision shop the car was taken to ‘had no idea what they were doing when it came to the technology,’ because they lacked access to Porsche's parts catalog, says Mehizadeh. So like many Porsches before it, the Cayenne was loaded onto a truck and driven hundreds of miles to Mehizadeh’s branch of LaMettry’s Collision in Minnetonka.”
“That company had paid for the expensive training and tools needed to be certified by the luxury German automaker to fix its cars.” READ MORE
With their sports teams winning, Philadelphia restaurants, bars, and shops report a surge in sales: “On 13th Street, Shibe Vintage Sports did a month’s worth of business in a weekend. Across Broad Street, joyous fans celebrated the Eagles’ victory at Good Dog Bar until 1:45 a.m. Monday. From Philadelphia to Norristown to Bucks County, restaurants, bars, and sports memorabilia stores are reporting that business has been up 20 percent or more in recent weeks. Owners say it’s thanks to the Phillies’ playoff run coinciding with the undefeated start of the Eagles season. ‘Having two teams doing phenomenally is a dream come true,’ said Christopher Mullins Jr., co-owner of McGillin’s Olde Ale House in Center City. ‘It’s refreshingly exhausting.”
“Good Dog, near 15th and Locust, did its best business in months on Saturday as the Phillies clinched the division, owner Dave Garry said. Sunday was busy, too, with fans drinking at the bar into early morning, something Garry said they don’t do when the Eagles lose.”
“‘When they’re winning, everybody is happier. They’re always looking for one last one on the way home,’ Garry said, noting that Good Dog’s business was up 30 percent last week over the week prior.”
“Restaurant owners are forward-thinking, too, tentatively beefing up staffing on days the Phillies might play and making early preparations for championship celebrations — all without jinxing their beloved teams.” READ MORE
STARTUPS
Paul English, co-founder of Kayak, wants to make online reviews useful: “‘Reviews are either fake or irrelevant — that has always bothered me,’ English said. ‘A lot of people writing reviews don’t have my sense of preferences, so why am I reading their reviews?’ It’s a longstanding problem. And one that the travel-tech expert hopes to solve with a new app he launched out of his venture studio on Thursday called Deets, short for ‘details.’ It’s a social app where friends can post reviews of local restaurants, coffee shops, and bars. The app features all the ‘deets’ someone might look for before trying a new restaurant, including photos, a menu, and prices.”
“Deets will launch in Boston and surrounding areas, including Cambridge, Somerville, Brookline, and Arlington. The goal is to expand into other metro areas, such as New York City, Miami, and Los Angeles.”
“During its first year, Deets will focus on restaurants and then museums, tourist attractions, and hotels. Down the road, English said it will offer reviews on everything from electronics to movies.”
“The goal is for Deets to know so much about people’s preferences that it could give someone who lives in Boston the best advice for places they might want to try when visiting a new city.”
“‘TikTok uses that to model content for you, and we’re going to be doing that for recommendations,’ he said, adding that ‘TikTok has nailed my tastes.’ (His feed regularly features bass players, dogs, and gardening.)” READ MORE
CANNABUSINESS
Marijuana will soon be sold at gas stations: “Green Thumb Industries, one of the largest U.S. cannabis producers, signed a deal with Circle K, the global convenience-store chain, to sell licensed marijuana at its Florida gasoline retailers. The partnership will begin next year with 10 of the company’s 600 locations in the state, Green Thumb said. The deal is rare, given that legal marijuana has so far been sold only in stand-alone dispensaries in the U.S. and within pharmacies in countries such as Uruguay and Germany.”
“By selling marijuana, which is still illegal at the federal level, at gas stations where consumers buy staples like snacks and cigarettes, the partnership may help push the drug further into the mainstream.”
“The Green Thumb outposts will be known as ‘RISE Express’ stores and have a separate entrance from the gas station. Because Florida is one of several states where cannabis can be legally sold only for medical use, purchases are restricted to Floridians who have medical marijuana cards. Currently, that’s around 700,000 people.” READ MORE
THE 21 HATS PODCAST
We Will Not Have Civil Wars: This week, Shawn Busse, Paul Downs, and Liz Picarazzi talk about why it’s so easy for tension to break out inside a business. Liz sees tension brewing between her people in the office and her people in the field. Shawn often sees friction at businesses between sales and those who have to deliver what sales sells. Paul says there’s always the potential for problems when a project gets handed from one set of workers to another, and he’s created a very deliberate process to address it. We have, he says, “really tamped down the civil wars and started solving the problems, as opposed to letting them fester.”
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren
Twenty-Six Percent of Business Owners Don’t Take a Salary
I'm sure many of these entrepreneurs who don't pay themselves a salary think that they will recoup their blood, sweat and tears financially when the sell their business. But the best sources indicate that over 80% of businesses that are for sale NEVER SELL. The main reason? There's no salary for the owner and/or no profit (because it's all re-invested into the business.) In other words, there's no incentive for a buyer because nobody wants to buy a business that doesn't make any money for the buyer lol!
An excellent resource for business owners to avoid this no-salary trap is laid out in Mike Michalowicz's book "Profit First". In my opinion, it's a MUST READ for every business owner and entrepreneur.