You’ve been putting in hours (and hours) of hard work to make your business successful.
Yet, you’ve funneled every dollar you make back into the company. You’re starting to see a return on that time investment, and you’re ready to ask that big question. How much should I get paid from the business?
Unfortunately, there’s no simple answer. You may have been used to getting paid from the business by the hour or receiving overtime if you worked more than a standard 40 hours. Of course, when it’s your own business that’s demanding those nights and weekends, no one’s checking the time clock and adding extra to your paycheck.
The clearest answer for how much you should get paid from the business? It depends.
Your business’s financial success is the big deciding factor. No matter how many hours you put in, you should only get paid from the business with the profits that your it makes. This means that once you’ve used all your revenue to pay your bills, you can pay yourself. You definitely don’t want to get into the situation of paying yourself with the money that you need to cover bills of business expenses. Meet your expenses first. Then check out your profits.
Of course, that’s not the end of the analysis.
Many business owners use their profits (or a portion of them) to update and expand their business. You may decide to use some of your profits to buy better equipment or update your website. You could go to extremes with this and never pay yourself, but that might lead to burnout. Also, if you’re not the only one relying on your income it could lead to family strife.
However much you’re able to pay yourself, use a budget and a cash flow forecast to help you plan and anticipate accordingly. Some weeks or months you’ll make more than others. So, you’ll have more available to pay yourself. Set some of that aside to help during those leaner periods.
Deciding how much to get paid from the business to reinvest and how much to take as a salary depends on your budget and goals for your business. Contact us to help you meet your financial goals.