If you start a business, it stands to reason you’ll make a salary from it, even if you’re your own boss. Yes, you’ll need to put some of your profit back into the company, but you should also consider yourself a salaried employee.
If you’re unsure about the best way to pay yourself, you’re in the right place. We’ll explore the concept of paying yourself first (and why it’s important) in the following article.
You Deserve a Salary
Business owners have to think about marketing, staff wages, rent, utilities, and more. Maybe you have a business loan you’re trying to pay back and need to look into a loan payoff calculator as well. With all that happening, it can be hard to focus on your own salary, which at times may seem less important than some of these other business necessities.
You deserve a salary, though, and it makes sense to give yourself one. If you have a cushion of savings you’re living on while trying to get your business off the ground, it will probably run out at some point, especially if you encounter unexpected expenses.
You can counteract this possibility by paying yourself a salary, even if it’s not very much. If you pay yourself, you’re likely to work harder because an increase in business revenue means an increase in your income. You can also put money away for personal use and future business efforts if you ever want to expand or start another company.
Creating Your Salary
When you imagine your company, come up with an appropriate amount to pay yourself. You can stick to the same schedule you use to pay your other employees. That might be every week, every two weeks, or every month in some instances.
If you look for financing, include your salary as part of the overall business plan. An investor will expect to see that.
Think about your role within the company, and then pay yourself as you would if you were hiring someone else to do the same work that you do. Your salary should be merit-based, taking into account your qualifications. It should also take into consideration how much you need to live.
When to Skip Paying Yourself
Though you should give yourself a salary, there are a few times when you might not pay yourself, at least for one cycle. For instance, if you have a big accounts receivable amount you’re waiting on, you can put off paying yourself until it comes in.
You may also forego your paycheck if you only have enough to pay your employees during a single pay period, but not yourself as well. This scenario is possible if your business is in the early stages or is going through a downturn.
If you have some significant up-front expenses, you might also delay your paycheck until the money from your sales has covered all of them.
Paying Yourself Makes Good Business Sense
As a company owner or operator, it might feel a little strange to think of yourself as your own boss. However, just because you’re in charge, doesn’t mean you shouldn’t reward your initiative. You probably put in plenty of hours, and you should see something in return for that.
Mention your salary in your business plan, then get in the habit of paying yourself once your company is operational. Take into account the living costs in your area, your qualifications, and how many hours you put in per week.
You can use the money you put away for living expenses, to bolster your portfolio in anticipation of your eventual retirement, or to put toward another business venture in the future. You might skip one payment if you can’t pay both your employees and yourself. You can also delay your paycheck if you need to cover up-front expenses or you’re waiting on the payment from a major account.