SAN FRANCISCO — Before any business can decide how to pay its owner more, it has to know exactly what it’s making and spending today. For one longtime small-business owner, that meant starting over.
In Part 1 of this series, we looked at data from a recent SCORE webinar, “Paying Yourself as a Business Owner: Build a Sustainable Owner’s Salary,” presented by Jessica McKellar, co-founder and CEO of Pilot, a bookkeeping and accounting firm. We also explored the two traps she sees business owners fall into: subsidizing the business without acknowledging it, and running the numbers on vibes instead of math.
McKellar illustrated both traps through a client who had run a Bay Area restaurant for five years without ever paying herself, facing many of the small-business challenges dry cleaners also encounter. Today, we’ll look at what happened once McKellar’s team dug into the actual numbers.
Redoing the Books
Step one wasn’t a pricing decision or a staffing change. It was simply getting an accurate picture of the business.
“I looked at the books, and, with real respect for her, this woman is really good at the thing that she loves doing, which is the experience and the food of a restaurant. The books were just wrong,” McKellar says. “It was clear that not all of the bank and credit card activity had been appropriately imported.”
Once the books were rebuilt in QuickBooks, the picture sharpened fast, including exactly how much cash the owner had personally funneled into the business over the years — information she hadn’t previously grasped.
“She was surprised. She was like, ‘Wait a second, have I actually put that much of my savings into it?’” McKellar says. “She had.”
With a clean profit-and-loss statement in hand, the diagnosis became clear: the restaurant wasn’t just unable to support an owner’s salary. It was unprofitable, full stop.
Three Ways to Change the Math
McKellar says there are exactly three levers available to any business trying to become profitable, or more profitable: improve margins, increase revenue or drive down operating costs.
“You spend money on ingredients, you spend money on labor costs, whatever the costs are that are directly associated with serving that revenue,” McKellar says. “Maybe you make a hundred dollars and you got to spend $50 to make those hundred dollars. What if we could instead spend only $40 to make $100? Now there’s an extra $10 available to do something with, maybe to draw as a salary.”
Improving margins and increasing revenue both happen above the line, meaning before operating costs like rent, utilities and software subscriptions come into play. Cutting operating costs is the third lever, and often the hardest, since it usually means parting with a vendor or a position the business has come to rely on.
“It’s usually not that if we’re being real about it,” McKellar says. “It’s usually a hard conversation with yourself.”
Putting It Into Practice
For the restaurant owner, the fix was a mix of all three. McKellar’s team walked through the menu dish by dish, identifying which items carried healthy margins and which didn’t.
“We had to do some menu engineering,” McKellar says. “You’re either going to need to find a way to reformulate the meals so that they cost less for the current price that you’re charging, or you’re going to have to raise prices.” Any price changes, she adds, had to be weighed against what comparable restaurants nearby, including what customers would see listed on delivery apps, were already charging.
The same math applies to a dry cleaner’s price list. A routine shirt doesn’t carry the margin of a wedding gown or a leather coat, and the same choices follow: rework how a service gets delivered, raise the price or drop it.
Some dishes were discontinued. Some were reformulated. Some prices went up. The team also looked at whether the space itself could generate revenue beyond the core menu, through packaged goods sold at the register and delivery platforms.
Operating costs were the hardest lever to pull. The restaurant already ran with minimal staffing, and the lease was locked in at Bay Area rates the owner couldn’t easily walk away from.
“She had a bunch of baseline expenses just based on being in a good location in an expensive city that were just part of the reality,” McKellar says.
A drycleaning plant runs into the same wall. A lease signed years ago and a counter that needs a minimum number of hands to run don’t leave much slack to cut.
The combined changes improved the restaurant’s profitability, but not enough to hit the owner’s original goal of a consistent salary in 2026.
“The dollar gap to bridge there was too large,” McKellar says. “That’s our next round of collaboration. But this was a step in the right direction, and it wouldn’t be possible if we weren’t anchoring our actions in a strong numerical understanding of the business.”
Come back Tuesday for the conclusion of this series, where we’ll look at the three-question framework McKellar uses with every client and more. For Part 1 of this series, click HERE.
Have a question or comment? E-mail our editor Dave Davis at [email protected].
