What it Costs to Replace You as CEO

Recently, I was discussing business finances with some of the Studio Owners in the Certificate of Dance Entrepreneurship program. We landed on the topic of what to pay ourselves as business owners, and ways to bring our pay and benefits in alignment with our role and value in the company. It was a good discussion because it helped us create a starting point for those that don’t yet pay themselves and a roadmap for those that aren’t yet where they want or need to be.

I posed one question to the group that seemed to make a big impact: What would you need to pay to get someone to do your role? In other words, if you wanted to be just the business owner and hire a CEO to run the business, what sort of compensation and benefits would you need to attract a talented candidate with competitive pay? This question helps us to think of our businesses as a separate entity from ourselves, and to think more critically about all the things that we do.

When we separate ourselves from what we do, we have a new perspective on things. Your business is now in the business of supporting you and the other employees vs. you working tirelessly with no end in sight. When we see the business as an entity with a means to an end, it makes it easier and less emotional to cut programs that are not profitable, to go lean where we are inclined to spend money we don’t have, and it unravels the idea that our business is our identity. If there is a failure in the business, it doesn’t mean that we are a failure.

What would you need to pay to hire a CEO and either retire or work on other interests? What items would be on that position description, and what items that you are currently doing would need to come off that list? How many parts of your business are reliant on you? How much value and unpaid work do you put into the business? Start writing your list, I imagine it will be a lengthy list, full of tasks and projects.

Consider what it would look like to be the owner and not the CEO. Perhaps you’re interested in pursuing other careers, starting a family, or caring for a loved one, and you’d rather not be involved in the day to day operations and decision making. You might be looking at business valuation and considering the “sweat equity” that got your business to where its at. You could be just starting to figure out how much to increase your pay and benefits to not just pay your bills, but to have freedom and more options.

So, what do you pay yourself? Start by researching the starting pay and the pay range of a CEO of a comparable company (comparable in size, revenue, number of employees). The mere mention of CEO invokes thoughts of a well-paid executive with a team of people to run the business. CEOs are compensated for their talent, experience, ability to inspire and ability to find the right people for their team. Given these attributes, how would you change the position description, compensation and benefits of your role as CEO and also as the owner of the business? This can be a long process, yet it is a worthwhile one - recognize your value and what you bring to your company as a leader. The other aspect that must be considered is your operational budget: the projected revenue and expenses each year. You have to look at your budget to see if there are logical places to draw your salary from. For example, if you have a healthy profit margin, you could reduce your profit and increase your salary expense. You might find other areas to change, perhaps reducing expenses or increasing prices or enrollment to create the salary instead. I also want to remind you that baby steps are still progress. If you go from not paying yourself to paying yourself $100 weekly that is progress. If you’re making $40K and are moving towards $75K, then make incremental changes to get there over time, its easier to imagine and implement when you make small increases vs. a $35K jump in salary. Whatever you do, always keep sight of the role you are in - you’re the visionary and chief executive officer of a fabulous company - your dance studio.