Drive, charisma, ambition, determination, passion are some of the qualities that allow bookkeepers and business owners to beat the odds and launch themselves into business, find their first customers, surmount near-impossible hurdles and conquer new markets. You own a business to make profits and that’s its fundamental purpose. Some bookkeepers may be satisfied to supplement the family income and not be concerned about saving for retirement, but most will be looking to build a sustainable business.

What is the balance between reinvesting and building the business and a fair day’s pay? Many people had clear and stated objectives for their businesses; if there were any personal goals they were almost always subordinated to the business objectives, for example, to put some money aside for a retirement fund.  Most will find themselves trapped in a comforting narrative, which says “Later, when the business can afford it, I will put aside money towards super.”  Business owners are faced with a never-ending list of demands on cash flow and capital for investment; bookkeepers and many independent contractors are sadly lagging behind pay-as-you-earn employees who have their employers deducting 9.5 percent of their income under the Superannuation Guarantee. Bookkeepers too will inevitably point to the high cost or inability to taking money out of the business.

Many business owners think they can rely on the value of their business when they sell it to give adequate return on their efforts. The problem is that there is no guarantee your business will be worth anything, much less what you expect, when the time to hang up your business person boots arrives.

“You need money going out of the business and into an investment fund,” says Peter Buckley, proprietor of Pages Books. “Building both a retirement fund and a rainy day fund are essential.”

Adequate’ income

Apart from these funds, an adequate income for a business owner or self-employed professional, should be made up of several components – salary, dividends and retirement savings – which, ideally should provide a lifestyle for the family now and in retirement

A return on labour should be based on a fair salary, not just the business needs. Taking a small salary because “the business needs the cash” may hide inefficiencies or a lack of commitment to the practice or business. Perhaps the business is only profitable because you are not taking a full salary. The health of the business may need attention. This is often a painful reality check for a self-employed bookkeeper who is not able to tick these boxes.

Take an outside view: you are an investor in your business and as such need an adequate return on your capital. Unrewarded time in the business is an investment. The capital should give you a return beyond the salary that you draw, just as if it was an investment. You can receive 8 to 10 percent on your money by putting it into low risk investments such as property trusts, so a higher return commensurate with the risks, approaching 20-25 percent may be in order.

The bulk of an owner’s earnings will go in living expenses. If they are prudent, there ought to be some left over to invest in areas outside of the business, such as rental property or superannuation. Meanwhile the business has retained as much of its profits as is feasible. That way both the business and the owners are winners.