Why You Should Pay Yourself a Business Owner Salary NowThis post may contain affiliate links. Please read our Disclosure for more information.
Are you a business owner who are not yet paying yourself a salary, or you don’t know how to?
If you’re a startup, it may be difficult when you have other business needs to worry about, like paying your staff, suppliers, rent and overheads.
However, if your business has been established for a while, and you’re still not receiving a wage for your hard work, then it’s time to reassess your situation and your business goals.
Why Pay Yourself a Business Owner Salary?
Paying yourself can be advantageous when it comes to tax benefits. It reduces the profits of the company, and subsequently your income tax. Plus, as your own employer, you need to eat a piece of the cake of your success.
The longer you leave paying yourself, the more demotivated you will be, as you won’t get to benefit from all the hard work you are putting in.
Many people are afraid to pay themselves, especially if it is still the early days of business, or if their profits are skim. They’d want to save their money to pay other people first. Anything left over they tell themselves the right thing to do is to “invest” it back into their business.
Yes, that’s all good practice. But what those people fail to understand is that, as the business owner, you are the driving force. Without you, there is no business. There wouldn’t be “other people” to pay in the first place if it wasn’t for you. So shouldn’t you be the first person to get paid and “invested in”?
When I first started my businesses, I never paid myself. All profits went straight back to the business and I only took out what I needed to survive.
That was all well and good, but it never felt like I was getting rewarded for my hard work. In fact, because I only took out what I needed when I needed it, it made me feel guilty every time I had to “dip into the business”. Like I was taking money that wasn’t mine. Like my need for food will stagnate the growth of the business.
Obviously that changed quickly. By budgeting a salary for myself into the business, it meant that I could SEE my reward regularly. I was getting paid, just like my employees and suppliers were. I was able to look forward to that reward every week, and it motivated me to work harder to increase that reward!
It also allowed me to keep a better record of what I am taking out of the business, It was the same amount every week, and budgeting for my own personal expenses was a lot easier to track.
How Much Should I Pay Myself?
Whether your profits are high or low, you should have a fixed salary in which you pay yourself regularly.
But how much?
Well, that all depends on 3 factors – how much your business can afford, how much you need to survive, and how much you deserve (in that order). When it comes to paying yourself, you should neither be too modest nor too frivolous.
1. What your business can afford?
Unfortunately, the reality is that if your business is not making any money, then neither are you. If you are a new startup that are still trying to cover basic business expenses with each job, then paying yourself is a luxury that will have to wait.
But if you are already generating profits, then there is no reason why you can’t get started – you just need to make sure the amount is one that the business can afford. If paying yourself $10,000 a month means your business will be chased down by debt collectors and suppliers waving their invoices, you should probably lower the amount!
Put together some financial statements and calculate your business income and expenses. See how much you can spare. Even if it’s just a small amount, it’s a start!
2. How much do you need to survive?
Like any other person, you have your own needs and responsibilities. Personal expenses don’t go away when you start a business. Make sure you know how much you need to budget for your daily living. Rent, food, bills, and other necessities should be catered for in your wage.
Ensuring your basic needs are covered, will bring a lot less stress for you when managing your business. You’d know that at the very least, your regular wage is enough for you to survive on. It will also give you a basis to assess your business’ growth.
3. How much do you deserve?
If it weren’t for you, the business wouldn’t be where it is today. If your business is doing well, it only makes sense to pay yourself and according to your worth.
But just because your business is generating a million dollars in profit a year, it doesn’t mean that million dollars should be your salary. And likewise, you shouldn’t be working 90 hours a week, and only paying yourself in peanuts either.
Work out how many hours you spend on your business, and times that by a reasonable rate per hour for that work.
If the figure is higher than factor 1 above, and lower than factor 2, then you’ll probably have to settle with a lower salary until your business picks up. But if it’s lower than factor 1, and higher than factor 2, then it’s time you start paying yourself what you’re worth and rewarding yourself for the hard work!
How Do I Pay Myself?
Once you have worked out the optimal amount to pay yourself, it’s time to actually do it!
How you pay yourself is up to you, whether it’s weekly, fortnightly or monthly. Just make sure whatever pay period you choose, it’s consistent. If you have a usual day where you process payroll for your staff, then make this the same for yourself.
Consistency ensures that your own personal budgeting and spendings are easy to track. It also allows you to have some regularity in your finances and daily living. And as an entrepreneur, a bit of normalcy is much needed!
Do make sure you account for your own wages correctly, and follow the taxation protocols according to your country (yes unfortunately even as business owners, we still get our income taxed by the government). Ensuring your follow the rules and proper bookkeeping procedures will allow you to enjoy the fruits of your labour without any added stress!
Work Smarter, Not Harder, By….
Paying yourself! There’s nothing more fulfilling than being able to reap what you sow.
As long as you conduct your due diligence and pay only what your business can afford, you will find yourself working harder, and your business growing stronger under your rewarded leadership.