When Your Pay Is Usually The Last Thing That Gets Paid
As a small business owner, you wear a lot of hats. You’re the CEO, the CFO, the janitor, and everything in between. It can be tough to keep track of everything, let alone make time for a regular paycheck.
So how do you determine how much to pay yourself?
This is a great question that all small business owners face at one point or another.
The answer, however, is not always so clear.
DETERMINING HOW MUCH TO PAY YOURSELF
As a business owner, it’s important to make sure you’re taking care of yourself financially.
On the one hand, you need to make enough money to cover your personal expenses and keep your business afloat.
On the other hand, you don’t want to overpay yourself and put your business at risk.
So how do you strike the right balance?
There are several different methods you use to factor how much to pay yourself as a small business owner.
- Take a look at your personal budget and see how much you need to cover your basic living expenses. Then, look at your business expenses and see how much is left over after all the bills are paid. Take a percentage of that leaving enough to cover taxes, business re-investments and a little extra.
2. Calculate your “true” hourly wage.This takes into account all the other tasks you have to do as a business owner, like managing, marketing, bookkeeping, and research. Once you know your true hourly wage, you can decide how many hours you can reasonably work and pay yourself a salary.
3. Set aside a percentage of your revenue for yourself. This could be 5%,10% or 20%, whichever. Just make sure to factor in what your monthly overhead is before deciding on your percentage. Also make sure to leave room for profit variation, as every month’s income will vary!
4. Another way to pay yourself is through dividends. Dividends are payments that are made to shareholders based on the profitability of the company.
5. You can also pay yourself through bonuses. Bonuses are typically awarded for meeting specific goals or milestones, and they can be a great way to reward yourself for a job well done.
Bottom line is, there really isn’t one definitive answer to determining how much to pay yourself.
You have to take into account several factors when making this decision, such as company’s expenses, overhead costs, profits and living expenses.
It’s important to be realistic about the amount of money you should be paying yourself based on the amount the business actually generates.
By taking care of yourself financially, you can ensure that you can sustain the amount of time and effort you invest into the business so you can continue to enjoy running it without feeling that you’re “working for free”.
Not sure how to determine your amount? Need help? Reach out to me today! I will guide you on the proper way to figure out what will be beneficial to you as well as your company.