If, When & How Much to Pay Yourself
Are you struggling with the question of how much you should be paying yourself as a business owner? Spoiler alert! It's complicated. But don't worry, by looking at your unique situation and goals, you can make an empowered decision that aligns with your values and priorities. In this blog, we'll explore some important factors to consider when determining your pay as a business owner.
If, when, and how much you should be paying yourself are all questions we biz owners wrestle with. To be frank, there is no “right” answer. BUT, by looking at your unique situation & goals, you can feel empowered to make the choice that’s right for you.
First question: is your business profitable?
If your business isn’t profitable (or you don’t know), there is no money to pay yourself. It’s as simple as that.
Next question: is this your full-time job? Do you need the income right now?
I started Biz Babe CPA while I still had a full-time job. I always knew I wanted to take Biz Babe full-time. While I worked towards that, I saved almost all my side-hustle income to build an "off-ramp". My side-hustle didn't yet exceed my full-time income, but was enough to pave the way.
This enabled me to make the jump when I did.
If you don’t NEED the income from your business yet, I would consider saving.
Set up a separate savings account to build up the funds needed to invest in your growing business (or replace income).
If this is your full-time job or you need the extra income, you’ll want to start with your profit.
A Few Things to Ask Yourself:
How much are you profiting on a consistent basis?
What is most important to you?
What are your business and personal financial goals?
What you pay yourself should align with your goals and values. If you need to support yourself but also want to build up business savings, this should be a compromise of sorts.
Of your monthly profit, how much do you need for your personal spending each month?
In what time frame do you want to make that big investment?
An Example:
Your monthly profit after expenses AND tax savings is $5,000.
Of that, you need $3,500 for your personal lifestyle.
You also want to make an investment of $10,000 in your business.
If you prioritize your personal bucket, you have $1,500 left to save (per month) towards that investment.
That means it will take you about 7 months to save $10,000.
Now, let’s switch the priority from the personal bucket to the investment for a minute...
You want to save $10,000 in 5 months.
That means you need to save 2,000/month from your profits.
In turn, you’ll have only $3,000/month left for your personal lifestyle spending.
As you can see, it's all about clarifying your priorities in a way that makes sense to you and your lifestyle. If providing for your family takes $3,500/month, great! How amazing that you can provide for your family with your small business.
If there is flexibility with your personal needs (expenses), also great! You can smash those business savings goals even faster.
Neither is right and neither is wrong. It’s all about what’s most important to you. So pay yourself with confidence like the Biz Babe you are.
If you need help with that first step of knowing your profit, let’s talk!