As a business owner, you have probably heard of the concept of paying yourself. Unfortunately, it’s a concept that many business owners don’t practice. A common reason being that business owners feel compelled to put everything back into their business, and they don’t track how much money they actually take out of the business.
When looking at paying yourself, it often depends on what stage your business is at. The reality is that you are going to need money to live off of. This money may be coming out of savings, however at some point you are going to need to be able to take some money out of the business.
Here are some things to consider;
Work out how much it is going to cost you to live
You need a personal budget, and make sure that you are going to have enough money to cover your basic living expenses. Create a budget for the different stages of your business. Your first budget, taking out only what you can afford, the second budget would be for when your business is sustainable and you can take more out of the business. The third budget is when you can enjoy the lifestyle you desire as a successful entrepreneur.
Keep track of how much you pay yourself
It is strongly recommend that you keep track of the amount of money you take out of the business and how much you should be taking as a market related wage. This difference is your investment into your business. You are an investor in your business, and all good investors expect a return on their investment. Over time, as your business grows and becomes more profitable, you will be able to take more money out of your business than a market related wage. You will feel even better knowing that you are being rewarded for your earlier efforts when you didn’t take as much from the business.
As you build your business, it will go through various stages; startup, expansion, maturity and sometimes, even a decline. Depending on the stage of your business, you can determine how much you can and should pay yourself. By having both a personal and business budget, you will be able to make better informed decisions, diversify your risk, and have a backup plan.