Helpful tips to figure out how much you get to keep.
You started a business to make money. Yet you struggle with one of the most fundamental questions that every business owner faces: How much do I pay myself?
Many entrepreneurs find themselves posing this question, and yet not quite knowing how to answer it. They seek the advice of their accountant, who will often give them an amount that leaves them less-than-satisfied (that’s ALL I can take out?). So they quickly ignore the advice, and take out the money that they NEED. But then guilt sets in, so they decide not to take out money the next month to “make up for the overdraw.” But inevitably they need SOME money, so they draw again. Thus the viscous cycle goes. And along the way, the business suffers because there is no consistency to the cash draws. You cannot plan for the cash flows of your business, when the most important payment – the payment to you – is in a constant state of flux! So it’s important to set a consistent, monthly draw to yourself.
Only the question remains…What is that amount??? So here’s the answer from your CFO: Take out the amount of money that you need to live comfortably. We all have a certain level of lifestyle that we dare not dip below. We like to live in a certain part of town, wear certain types of clothing, eat certain types of food, etc. These are the things that bring joy and happiness to our lives. And your business needs to be able to support that lifestyle. If it’s not, then you will start to resent your business, as all your hard work and sacrifice is seemingly bringing you backwards in life. This will generate negative energy within your business, and like a cancer it will spread and ultimately destroy it (and you).
So what if that amount is $10,000 per month, but your business is only generating $5,000? Then you have a gap to cover. Don’t fool yourself into believing that you will be satisfied with just taking the $5,000. You may at first…but in the long-run it will wear on you. So look instead for ways to cover the gap. Are there unused assets in your business that you can capitalize on to bring you additional cash? Are there investors that you can tap for some cash infusion? Or…if all else fails…can you get a part-time job to cover the cash gap while you build up your revenues?
At the end of the day, YOU have to be happy in all aspects of your life – including your business. If your business isn’t helping you to sustain that happiness, then it’s not serving your higher purpose. It will never succeed, and it will drag you down with it. And of course, if you need help making sure that your business and personal goals are aligned, then schedule some time to chat with us!