Hand of a man in business suit, using a calculator
Photo by Oleg Magni from Pexels

People make mistakes in the way they deal with their money. Therefore, Dutch guilds developed a useful money management method. It not only made it possible for businesses to survive under difficult circumstances. It also determined the best salary for directors and owners of companies. This method is called “cut your coat according to your cloth.” In other words, this means adjusting consumption to earnings.

The method is based on the principle that the expenses necessary to survive should come first.

Companies will allocate their expenditures in this order:

  1. rent/mortgage
  2. electricity, gas, and water (for household use)
  3. maintenance/repairs of tools and machinery
  4. fuel for tools and machines if necessary
  5. new tools and machines if necessary
  6. raw materials salaries of production and sales
  7. staff salaries of employees in the sales and payroll
  8. administration salary of managers
  9. luxury spending.

The method is based on the principle that the expenses necessary to survive should come first

As long as it goes well with the company, the director and owner can fulfill any role they want. Thay can pay themselves as high a salary as they want. But as the company incurs losses, they should give priority to the salary of production and sales staff. Otherwise, the staff will resign, and the company will go bankrupt.

Prior to 1980, most directors and owners had a worker’s function, spending only a few hours a week in the office to do the business accounts. The rest of the administration could be performed by administrative staff. Production and sales were the essential parts of his business. So he worked there personally and paid his own salary based on the actual work he performed.

Smart savings make companies healthy