Paying yourself might be one of the hardest things to do when starting your business. Lots of entrepreneurs say they didn’t take a paycheck for the first year in business. Others spend everything they make and put themselves out of business. Either one may not be an option for you - or for most people on this planet! When you created your business plan, sales forecast and did your break-even analysis, you probably factored in how much you decided you needed to live on. For the first year or so, you may have to take the bare minimum of what you need to survive and reinvest any leftover money into the business. That’s ok. But no one starts a business hoping to take home bare minimum! Don’t be ashamed of giving yourself a well-endowed raise when the company becomes successful. You’ve earned it sister!
Start by deciding how much you need to make by creating a personal balance sheet. List all bills, savings plans, debts, etc. to determine how much you need to get by. Then decide how much you’d like to make, by when, and adjust your sales goals accordingly. When building your business plan, factor in how much you think you need to make in year one, how much you’d like to make in year two, and how much you’d love to make in year three. This gives you something to aim for and adjusts your numbers in terms of operational costs and sales goals. Don’t forget to factor in how much you will pay in income taxes. As we showed in the break-even analysis, lowering your overhead (fixed costs) was the biggest contributing factor in making profit faster. Your salary is part of your overhead, so keep that in mind when you are starting out. If you are a one-woman show, it’s very tempting to take everything you make and go buy a fabulous new bag, car, etc. RESTRAIN YOURSELF - this is very serious. Put yourself on a salary and stick to it. Save the rest of your money as retained earnings so you can grow your business and pay your taxes!