Let’s find out…
As a business owner, you’ve most likely have heard of the concept of paying yourself.
Unfortunately, based on our own experience and after talking with other business owners, it’s a concept that many just don’t practice.
There are two common reasons why this might be the case:
- Many business owners feel have been taught to bootstrap and put everything back into their business;
- They don’t track how much money they actually take out of the business (which could be a result of not separating personal and business finances)
In one small business online forum we came across we saw the following advice being shared:
“Initially your company is going to need absolutely as much cash as possible. You probably can’t afford to pay yourself a “normal” salary from your company until it has some real traction and sales. So try to earn your personal income from somewhere else initially, turn your business into a small cash printer, and pay yourself from it once you have something real built.”
Whilst we agree that a new business will need some time to get off the ground and to generate consistent monthly revenue, we also feel that when starting out many entrepreneurs have a tendency to undervalue and under-price their services.
So we suggest you seriously consider a pay yourself first approach.
Why paying yourself first is important
If you want to build a sustainable business, then you will need to ensure that you have a strong ongoing cash flow.
Furthermore, as the owner of your business, you need to be adequately compensated for all the time, money, energy and effort you put into growing your business.
Regardless of whether you’re bootstrapping your startup or have secured another form of funding for your small business, it’s critical that you are receiving some kind of monthly salary so that you can continue to focus on building your vision and impact.
“After a while it doesn’t matter how much you love your work or your business, if you are not paying yourself a good salary and paying yourself first you will be left feeling resentful and unhappy.” ~ Donna McCallum, Paying Yourself First (Entrepreneur.com)
Now whilst paying yourself first isn’t always easy, there’s additional benefits to doing it. Here’s what Paul Higgins, founder of Build Live Give, says about paying yourself first:
“Putting money away first thing after receiving your income seems counterintuitive. You likely have very pressing financial issues that can be dealt with right away in your business.
The fact of the matter is there are so many variables in business and in the economy that you can’t control. You can’t control inflation, how well or poorly the markets are doing, or consumer purchasing power. You can’t control the random obstacles in life like having your best employee out sick for a month.
Paying yourself first isn’t about making sure to get your cut but, in fact, to ensure that when your business is having a downswing that you can still manage to run it.
Having that extra cushion is also about being prepared, not just for the rough times in your business but also for any opportunity to take your business to the next level.”
In this episode, we discuss how to pay yourself as a small business owner.
Key Takeaways From This Episode:
- Why it’s important to pay yourself a regular salary (and what we learnt the painful way)
- Learn a system for ensuring that you always pay yourself first in your business
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A-Ha! Quotes from This Episode:
Resources Mentioned in This Episode:
- Mike Michalowicz’s Profit First book
- Podcast Giveaway: Win 1 of 3 Prizes in The Epic Entrepreneur Growth Bundle Giveaway ($5,000 worth of tools and resources!)
- Simple Creative Marketing
- Read our free guide to developing financial intimacy with your spouse and take control of your finances as a couple (click image below).
Click here to view the full transcript
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