Business Plan Pro Tip: Deferred Salaries
Lots of small business owners find that when times get tough, their salaries are the easiest things to cut. If you are an ongoing business that has deferred salaries in the past, it is important to keep these salaries on the books, for accounting and tax purposes. If you do not list them, you may not be able to legally collect them in later years, and your financials will look unrealistically positive. However, since you are in essence loaning this money to the business as a cash reserve until you collect your salary, you should treat it that way, as a liability (debt) the business owes you.
1. Include these debts as interest-free Other Current Liabilities
To keep these old deferred salaries from getting mixed in with other outstanding bills, list them in the row for “Other Current Liabilities (Interest Free)” in the Past Performance table. This makes them, essentially, interest-free loans from you to the business, which must be repaid. They won’t affect your cash outflows until you begin repayment.
2. Include repayment of these debts in the Cash Flow table
List the planned repayment of these back salaries in the “Other Liabilities Principal Repayment” row, in the expenditures section of the Cash Flow table. This will keep your plan financials accurate.
Tax Implications
Presumably, you have worked with your accountant to make sure you paid the correct amounts for Payroll taxes and other deductions relating to these salaries. A start-up business which is planning some period of deferred salaries should consult a good accountant about the proper way to handle this before starting. A few hundred dollars with an accountant could save you headaches and thousands of dollars at tax time.
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