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How Much Should I Pay Myself?

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How Much Should I Pay Myself?

Postby Strong Eagle » Wed, 01 Jul 2015 10:21 pm

I received this question in a PM... Note: I almost never respond to questions sent privately... but this one was worthy of a reply.

I have set up a firm, I have a local director and i am currently applying for my EP. My challenge is that i am hearing different pieces of advice regarding the ratio between salary and paid up capital in the company's bank account. As it is a completely new start up i do not want to pay myself a high salary and i have been told the MoM do take into consideration that it is a start up.

In my last corporate role i was being paid over $14,000 per month so they know that i A) i have secured an EP before B) i am experienced and was (relatively) well paid.

In the new venture i was thinking of paying myself $6,500 and having 6 months of salary in the bank account i.e. around $40,000. I know that the higher the salary the better your chances but equally the MoM might think i am being overly optimistic if i pay myself $10,000, especially with my expected earning in the first year being around $100,000. I also cannot afford to put much more than $45,000 of paid up capital into the business at this stage.


Before I respond in more detail, I need to understand your current status. Do you have an EP now? If yes, is it your intention to leave your current company after confirming that you can get an EP in your newly formed company?

And if you don't have an EP, what is your current visa status?

And finally, what is the nature of the business?

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Re: How Much Should I Pay Myself?

Postby Goldy740 » Thu, 02 Jul 2015 9:06 am

i had an EP with my old company but left in May (had to go back to the UK for a month). Have been back In singapore since June and with my sister as the local director have created the company with ACRA. I am using a local firm to apply for my EP on my behalf, one aspect they don't seem to be able to give much clarity regarding the ratio of base salary and paid up capital in the company account.

I was thinking that if i have at least 6 months of salary in the account then MoM would see that i have given myself a realistic amount of time to get some momentum.

The business is an executive search firm focussing on B2C technology/ecommerce/gaming sectors in asia. I have over 10 yrs relevant experience and a BA (Hons) degree.

let me know if you have any other questions.
thanks

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Re: How Much Should I Pay Myself?

Postby Strong Eagle » Fri, 03 Jul 2015 12:47 am

Thank you for the background. There is no sure answer and you have some choices to make.

I'm not sure what the benefits of using a local firm are because they don't know anything about you or your business except what you tell them. They're not going to be able to do anything more than you can when it comes to filing. However, since you've got them engaged, you might as well tell them what they need to do since, by your own comments, they seem rather clueless.

You say that your sister is the local director. I assume then that she is a legal resident but not on EP? It seems that the authorities are not keen on EP's working for one company to be directors for another company, especially when they are small and startup because it's pretty obvious that it's not going to be an uninvolved outside director relationship. Once you get your EP, you should immediately become the managing director of your company.

First thing you have to decide is how you are going to file for your EP. If your local firm does this online, there is only a minimal amount of information that can be furnished, mostly relating to your proposed salary, annual company turnover, number of employees, etc. If you go this route, I suspect your EP will be summarily rejected because you can't really explain anything about you and your business, You're going to have to do all the work (below) in the appeal process anyway.

If you've read any of my posts, then you know I firmly believe that you must present sufficient "gravitas" to the authorities in order to be approved for an EP. I don't have any hard numbers and I am convinced that ACRA/MOM receives a significant number of essentially bogus applications for a company and an accompanying EP by those who see it as a way to get into the country. Never mind that they don't have the experience or the startup money (or they've lied about it). You have to be able to differentiate yourself from this kind of chaff in order to be successful.

So, salary isn't everything. After all, the scammer who is filling in his EP application with his stub of a pencil is probably putting in a salary of $6K to $9K a month because he thinks it looks "big" and will convince the bureaucrats that he is deserving of an EP, but an unsupported salary of any amount will stick out like a sore thumb.

You need to provide a seamless, realistic financial picture of which your salary is but one part. Consider: With $40,000 in the bank and a proposed salary of $6,500 you are saying that you have the intention of being profitable or folding the tent in six months. Given the nature of your business, I’d say that’s a realistic estimate. However, you haven’t included any expenses for your company which will draw down your initial nest egg as well. You are going to have _some_ expenses during your startup time.

You can see where I am going with this. You need to submit a short business plan with pro forma financials. At a minimum:

a) Your experience and track record that shows you understand the market and the business
b) Your marketing and sales strategy, expected number of sales per month for the first 12 months, then 2 to 3 more years, and the amount you will make with every sale.
c) Your pro forma financials based upon your marketing and sales strategies which show your breakeven point, and the points where you can begin to raise your salary commensurate with revenues earned, or to begin to pay yourself directors fees.

If you submit the above along with a manual application, then you can put a number like $6,500 in the EP app, then provide additional information in the addendum like:

1) Initial salary will be $5,000 per month to conserve capital
2) To be raised to $6,500 upon reaching a target of one placement per month
3) To be raised to $8,000 per month upon meeting target revenues of $XX,XXX per month
4) Thereafter to be paid $8,000 per month plus directors fees in proportion to revenue and earnings, consistent with building retained earnings for future expansion.

Remember that what you are writing in terms of a business plan is not to attract cash or investors, it is to get an EP. Focus on your previous successful sales record and if you can provide number of clients engaged and amounts earned, so much the better.

Finally… you were making $14K, now you’re about to make $8K less per month, a significant hit. As part of your personal profile you might want to reassure the processor of your application that you can still handle all your necessary domestic expenses on the new salary… if you are currently renting a place at $8K per month, it will be a stretch to see how you can make that work.

A couple of afterthoughts: I’ve looked through a lot of posts in the LOC thread where people did create a business plan to justify their freelance activities. In most cases, people put in a number that they knew they would not be earning immediately, and there was no issue with MOM. This lends credence to my position that it’s not so much about the salary as the whole package.

Second, before the Entrepass became so scammed over and onerous, MOM passed all applications to Spring to review financials and business plans. MOM has emailed me to say that cases such as yours are always considered on a case by case basis, as they are aware that the new(er) Entrepass requirements effectively kill in sort of professional starting a business by that route.

I don’t know if MOM passes your type of application to Spring but be sure you have consistent and realistic projections… yes, they are bureaucrats and need to check all the boxes… and there’s quite a few bright folks around as well.

Now you can tell your local company what to do.

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Re: How Much Should I Pay Myself?

Postby RedRidingHood » Sat, 04 Jul 2015 10:44 am

Do update us on the outcome of your EP application.

Note that as an executive search firm you are required to apply for a license. I believe you need to put up a bond amount too. That will add to your cost.


Sent from my iPhone using Tapatalk

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Re: How Much Should I Pay Myself?

Postby sundaymorningstaple » Sat, 04 Jul 2015 12:02 pm

I assume he was previously with another search firm here in Singapore so he should already be familiar with the licensing requirement and bond. It used to be a 20K bond, not sure if it still is or has gone up. (I got out of the business around 10 years ago.)

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Re: How Much Should I Pay Myself?

Postby Goldy740 » Mon, 06 Jul 2015 3:44 pm

yes it's still 20K bond which you get back. i will let you know how i go

thanks

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Re: How Much Should I Pay Myself?

Postby Goldy740 » Wed, 08 Jul 2015 2:15 pm

So EP was rejected -

"Your company's turnover does not seem to generate enough revenue to pay your employees' salaries and business expenses. If you wish to employ any foreigner, please give us your company's major active business contracts or sales receipts."

The agency i used to apply for my EP as i say seems pretty clueless and i should really have been advised, as StrongEagle has on numerous occasions, that we should have provided some extra information showing that their our prospective clients who will work with my company.

In recruitment we refer to these as statements of work which essentially puts you on their talent acquisition preferred supplier list. I think i can 5 pretty quickly,all from $1bn plus well know US technology firms. Will this suffice? Do i need to go into more detail with regards to revenue projections, costs etc...?

many thanks
Alex

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Re: How Much Should I Pay Myself?

Postby Strong Eagle » Wed, 08 Jul 2015 9:12 pm

Goldy740 wrote:So EP was rejected -

"Your company's turnover does not seem to generate enough revenue to pay your employees' salaries and business expenses. If you wish to employ any foreigner, please give us your company's major active business contracts or sales receipts."


So... the muppets you hired filed for EP online, and then after putting on their stupid hats, either put zero or some ridiculously low amount in your company's annual turnover because a) they were afraid of "lying" on your application by placing a pro forma future turnover amount in the box that supported you salary, and b) too stupid to realize that the online EP doesn't allow for the provision of additional information necessary to support a request.

EP online is for bog standard requests and even companies that regularly use the system know that they need to file manually for anything out of the ordinary. If you look at the LOC threads in Careers you'll see that even when they filed manually, most included a salary of what they _expected_ to make, not current salary. I bet your muppets missed this point. And clearly, they were too dumb to even recognize that MOM could multiply whatever monthly salary they put into the box times 12 and see that revenues wouldn't cover it. Bzzzzt! You're off the show!

If you've paid them anything, I'd demand my money back... and once again, I will assert... they cannot do any more with MOM than you yourself can do. The muppets have bent you over on this one, now you've got to appeal, and I sure as hell wouldn't let your last chance be gummed up by the maroons you hired representing you to MOM. They will be unable to answer the simplest questions about your business in the appeal process.

Maybe they can give you contact numbers or names but they sure won't have any special relationship with MOM that will grease the rails for you. Ask them what they can do that you can't do... you'll get nothing but a bunch of mumbling from your muppets.

In recruitment we refer to these as statements of work which essentially puts you on their talent acquisition preferred supplier list. I think i can 5 pretty quickly,all from $1bn plus well know US technology firms. Will this suffice? Do i need to go into more detail with regards to revenue projections, costs etc...?

many thanks
Alex


You don't need a statement of work, you need a business plan. You need to prove up that your not the average Cro Magnon that MOM sees trying to scam them. Look at this link... http://www.herberts.org/miscdocs/Sample ... ntents.pdf This is the table of contents for the biz plan I created. The essential features are:

a) We document the experience and background of the partners that will be running the company.
b) We document the company, its structure and its owners for a clear picture of who is involved.
c) We document the services we will offer.
d) We document that we understand the market and know how to differentiate ourselves from others.
e) We provide client lists, contracts, and services to be provided to show that we are not starting from ground zero. Use your client lists as backup material.
f) We provide realistic assessment of income, expense, and financial risk, as well as pro forma financials for 3 years to show MOM how the company intends to grow, how the proposed salaries are to be supported, and what the potential failure points are.

You need around ten pages, max, plus cover page. If you do this, you will have something to discuss with MOM... you have something to counter their every objection. You can provide all the answers.

If you don't do this, one of two things will happen.

a) Your appeal will be summarily rejected because the person looking it over won't connect the dots and won't see a list of big technology names as meaning anything... anyone can do that.
b) If you are fortunate enough to get an appeal interview you are going to be seriously challenged to prove up that your proposal is viable and worthy of consideration.

That's my $0.02.

Edited to add: At least they've left the door open for you to appeal with the statement,"If you wish to employ any foreigner, please give us your company's major active business contracts or sales receipts."

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Re: How Much Should I Pay Myself?

Postby Goldy740 » Thu, 09 Jul 2015 6:51 pm

So you don't think signed statements of work i.e. business contracts from well known companies will do the trick? That's specifically what they are asking for and not for an indepth business plan.

thanks again strong eagle, i really appreciate the support/advice

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Re: How Much Should I Pay Myself?

Postby Goldy740 » Thu, 09 Jul 2015 6:57 pm

Also my company is going to be a one man show for at least the first 12 - 18 months so not sure it would be as applicable or even supportive of my application to go into the minutiae of partners, company structure, owners etc... it may work against me as they will see that it is a very small scale business which they won't get much tax revenue from. Whereas if i give them exactly what they have asked for in the rejection with signed contracts from well known companies then they can see that i have addressed there exact concerns

you know better than me but i am just trying to second guess MoM

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Re: How Much Should I Pay Myself?

Postby Strong Eagle » Thu, 09 Jul 2015 11:17 pm

I reckon it's your decision to make. Please do let us know the outcome as that's the only way we have of gaining insight into MOM.

Edit: After giving it some thought, I come back to MOM's response: "If you wish to employ any foreigner, please give us your company's major active business contracts or sales receipts."

Do you have active major business contracts, ie, revenue generators? Or sales receipts? I think neither. If you cannot produce sales receipts, then they want to see the contracts you have that are going to produce the income when invoiced.

Being on a preferred supplier list isn't a contract... you cannot demonstrate revenue. You can't demonstrate that you will generate revenue simply by being on a preferred suppliers list.

MOM probably does not know you are a startup since your muppets filed for EP online. Without you being able to submit demonstrable proof of income (which is really what they have asked for), you're going to be shot down again.

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Re: How Much Should I Pay Myself?

Postby Goldy740 » Thu, 23 Jul 2015 1:31 pm

So as the company has been incorporated, legally and able to go out there and pitch for work even if i don't have an EP, is that correct? Obviously my sister, who is the current director (EP holder) would have to sign the paperwork, is that correct?

Also, you mention EP online is for standard applications. For someone in my situation how can i apply and be able to show the documentation (i.e. business plan etc...)?

thanks

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Re: How Much Should I Pay Myself?

Postby Goldy740 » Thu, 23 Jul 2015 1:42 pm

i think i have to use an agency as my sister cannot apply as her EP is linked to her current employer. I might end up having to wait until i get my dependent pass as i am getting married in november

this is a f'ing nightmare!!

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Re: How Much Should I Pay Myself?

Postby Strong Eagle » Thu, 23 Jul 2015 10:28 pm

Your sister can't act as director because she would be working a second job in MoM's eyes. You will need a third party willing to rent you a nominee director until your own EP is approved.

What do you think I dependents pass is going to change? If working for your company, as director or otherwise is your intent, you'd still need someone to file for a LOC. You need that director to handle all of the paperwork. No different than what you have now except filing for a different kind of work pass.

I don't normally recommend any of the companies that offer a company, a director, and an EP for a package price (because it's pricey and I don't know if they honestly weed out those that have no chance) but in your case I might make an exception. They will build your dossier, they will submit it manually. It's everything you _can_ do yourself... but... I've not seen that happening with you.

If you want to file manually:

Submit the completed application and supporting documents over the counter at any SingPost branch.
Pay the $70 fee for each application. You can pay by cash, NETS or CashCard. Keep the payment advice slip given to you as proof of your submission.
Check the application status online 3 weeks after submission.
It takes around 5 weeks to process the application. It may take longer if additional information is required.


You have a company in existence but you don't have the legal right to work for it. I suppose you could prospect for business just as people prospect for jobs without a work permit but what are you going to do if you land a fish? You cannot recruit candidates, you cannot collect a fee. You really need to be work authorized.

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Re: How Much Should I Pay Myself?

Postby Goldy740 » Tue, 22 Sep 2015 10:42 am

A quick update, just back from 5 weeks in the UK so it's been a while. I am getting ready to appeal for EP rejection. We have double the amount of capital and we have some client's signatures, all i can really get at this stage. I have written a two page summary which covers financials, industry focus (why they're growth sectors etc...), sales pitch on myself and revenue targets. The big question, do you really think the deciding factor could be whether i have a local director on board rather than my sister who is EP and working for another company? Would be sensible to mention in the appeal letter that i will be talking over directorship if i am granted an EP? Happy to share the letter, it's only two pages, didn't want to copy and paste into the thread though


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