Say you decided to start your landscape business with a friend of yours, one issue you may find yourself dealing with early on is how do you actually pay each other? That is a great question that came up on the Gopher Lawn Care Business Forum. When a new business owner asked “I am a partner in a landscape business. We are 50/50 owners. We both work full time for our business. I was just wondering how should we pay ourselves? What should the percentage be that we split? Ideally, we would like to set an hourly wage and then add the percent that we make as owners.
We both put in the same amount. All equipment we purchase is split 50/50 so we both have spent the same amount of money. We did not have to get a loan for anything. I myself do all the book keeping and billing and my partner does all the design work so we both put in about the same amount of work plus we both work on the same jobs together. All last year we did not pay ourselves anything, we just bought more equipment. But now the time has come where we need to get paid.”
One lawn care business owner suggested “I’d base it on who paid the majority of the start-up costs, who the business is registered to (if 1 person), and base your pay on the investment that % you put into the company.”
A second business owner wrote “I have been there and done that. Wow what a mistake it was. After all was said and done, I ended up with all the financing in my name, because he was not honest disclosing his credit worthiness.
All profits, besides operating expenses where split 50/50. Why I did that is beyond me. I could have run it all myself with some more employees than we had, added a secretary, and still made way more money.
Best lesson’s are the ones that fail. That was just my situation, not saying your’s won’t work, I would just think it through from all angles, before you act.”
A third said “if you are paying yourself a salary and the two of you own the business, then why not reinvest the profits to grow the business? If you want to pay each other a % bonus at the end of the year from retained earnings, I would suggest at least 60% to 70% stay in the company.
In my case I put 90% of the capital in, my partner put in 10%. For last year we decided to capitalize income and simply pay off a few things and keep working capital for the spring which is a lot for us as we buy our sprays in 45 gallon drums. Two weeks after we start it doesn’t really matter but we save a lot buying such large amounts.
We agreed for this year, 60% of retained earnings would pay off debt, the company should be debt free this year, the remaining 40% would be paid to shareholders based on their percentage of ownership.
When you capitalize earnings then the value of your investment goes up, i.e. share value, when you pay it out we do it as a dividend and not income as the tax is a fraction. To do this, you have to either have a limited liability company or an incorporated company to do this legally.”