Tag: pay yourself

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“I don’t pay myself; I just take a little bit here and there when I need it.” I hear this phrase all the time from entrepreneurs. Even from owners of businesses with employees. They just don’t take a check. But they do get paid. Here are some of the top objections to setting paydays, and some reasons you should really do it in your own business and for yourself.

 

Payday: image of someone counting money

 

 

 

1. Setting paydays: It’s all my money anyway

 

Maybe. Depending on the structure of your business that money belongs to your LLC or corporation. If you are a sole proprietor the argument can be made that yes, it’s all yours.  But you are earning it in your business and keeping business and personal finances separate is important. Now, I know some business owners that still use their personal accounts for business transactions. They accept credit card payments to their personal accounts. That creates kind of a mess for business expenses. There are fees for accepting cards, and these are co-mingled with personal money. And oftentimes, business expenses are missed when they are mixed in with the personal.

 

Separating your finances is one of the easiest things you can do that protects the integrity of your business record keeping. All of your payments earned in your business go into the business account.

Your expenses stay clean and you can still get your money from the work you do in your business.

 

 

 

2. setting paydays: I don’t need take the extra step to write myself a check.

 

Taking the extra step to pay yourself protects your business and personal cashflow. Here’s what I often see happen. The electric bill is due, and “just this once” you are going to use the business debit for your personal expense.  Or you just write a business check to the orthodontist because it is just “easier” than taking a check and depositing it in your personal account.  In both of these very common occurrences you are potentially messing with your cash flow.

 

If you dip into your account throughout the month for expenses you are increasing the chance for a cash flow issue.  There are always things that can happen to your income. You can have a chargeback. Or you can have a client pay late. Or you can have a down sales month. Many times, unexpected challenges affect our business financially for a time.  If you set two days a month that you would take time to write that paycheck (for what you really need to support your personal expenses) you allow the cash in your business to build up throughout the month. For example, instead of 8 draws on your cash for personal bills, you would have two.

 

 

 

3. setting paydays: I don’t take that much anyway.

 

The tax liabilities on small business owners can be huge where the taxes aren’t withheld when money is taken from the accounts. More than once when the books are actually reviewed did the entrepreneur have to do a double-take to see what was actually taken. Owner’s draws, those little withdrawals from the account for personal use, add up and they are taxable as self-employment income.  In the U.S. you have to pay Social Security and Medicare taxes on your personal income. It is very easy to take a little bit each week, and not pay taxes on it. Because it doesn’t feel like very much.

 

 

 

 

AUTHOR’S NOTE:

In reality, you can set up a process to withhold and deposit your taxes every time you take a paycheck. Having an online payment portal to the IRS is easy in the states.  You can make a transfer when you pay yourself.  Over the course of a year, it is very easy to take $20k or more from the business and not feel it. $20k a year is only $1667 a month, which is a little over $400.00 a week.  Pay your car payment and insurance, grab a little bit for groceries, and buy a birthday gift for your mom and you can easily hit that a month. You will then owe taxes on that $20k.

 

Take the time to set yourself up to protect the integrity of your business records, protect your cash flow, and protect your personal income by setting up paydays for yourself. Taking a check every other week is a great way to also predict your income for your personal expenses and allow you to have some income security.

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My short answer: separately. I get this question a lot. Because your personal and business finances are different. But you should have a management system for each. And the systems do not have to be complicated. They need to be separate, but not complicated. Here are a few simple steps for managing the personal finances when you have a business.

 

Step 1:   How much do you need? Know your numbers.

 

Personal: First tally up your “four walls” because these expenses get paid first, always. Food, utilities, housing, and transportation. This is the minimum number you need to eat, cook, sleep in a real bed, and get to work so you continue to make money.  Know this number. Next, add together your minimum debt payments.  You will have two numbers, the “four walls” number and the “total I need to pay everything” number.

 

Repeat for your business.  

 

Business: Four walls of business, your Breakthrough Number. The Four Walls are rent/utilities and internet/ phone (access to buyers), Critical Operating Expenses, Minimum inventory and product spend, and payroll (and payroll expenses).  These four walls will secure your business and allow you to keep the doors open and making money. Next,  figure in any debt payments and other business areas (marketing, projects, team). You will have your Breakthrough Number (minimum amount) and total “All In” number.

 

Step 2: When do I need it? Know when things are due.

 

Personal: To make things smoother in your personal finances, schedule your paydays. Say NO to co-mingling! Do not pay your car insurance form your business account (unless you are a delivery service). Take the time to pay yourself on regular days and then you can begin to count on that regular income. I advise my clients to pay themselves every other week. This way, they can arrange their personal expenses the way they likely would if they were employed somewhere.

 

Business: On the business front you can do two things; Pay business bills as they come due, not early and know which bills can be halved. In business cash is king and protecting the cashflow is critical. Since you are now only paying yourself on regular paydays, the next thing is to preserve cash by paying expenses when they are due. Some of my clients pay bills weekly. Some twice a month. They key is to get into a rhythm and know when you need and how much you need available for expenses.

 

Step 3: Begin to plan your spending.

 

Personal: Once you have regular paychecks scheduled, you can create a personal spending plan (or budget) for what need to be paid and when. You can plan your personal spending for everything. My only rule for my clients is write it down. Your plan. It may change, but you will have the baseline to refer to.

Business: For your business if you don’t know what you are going to spend in a given month or know how much you need to plan for projects and growth, you will stunt your business. Again, my only rule is that your plan must be written. If you are new to this, it may take a moment to set up. How much did you pay for ads last month? How much are you going to pay this month? That’s really all you need to do to have a general spending plan that you can refer to when you work your business the next month.

 

Following these few steps will get you on a good path to managing both the personal and business finances every month. If you’d like more tips and strategies for taking and keeping control of your money stuff, join my Facebook Group, “Stacking the DECK for financial success.”

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If you have been paying yourself this year regularly, the next question is, “Are you ready to give yourself a raise?”

This week is the last week of June and marks the end of the first half of the year. Be honest, have you really been writing yourself a check every time I send an Entre Pay Day newsletter? If so, congrats! You have written 12 paychecks so far! If you haven’t yet started to make your paydays a thing, put them on the calendar and start this week. Even a $10.00 to $25.00 paycheck feels great and is a tangible reward for all of your entrepreneurial hard work.

 

If you aren’t thinking about a raise yet right now, that’s fine, but let’s define what the conditions are for you to go ahead and boost your own paycheck. You need something a little more concrete than, “someday” or, “next year” or the elusive “when we make more.” The six-month mark is a great time to plan our next salary move.

 

First, what calculation did you use to determine your current check amount?

 

Think back to when you first wrote yourself a check this year. Did you figure your personal four walls (food, utilities, rent or mortgage and transportation) as your first goal? Or did you take a percentage of your “goal” salary, say 40% of your desired $1,000.00 per week? Note how you came up with your current paycheck amount.

 

Next, try a bump up a bit to a percentage that feels good and is sustainable.

 

Go ahead, let’s play with the numbers. What does 5% look like? How about 10%? If you write yourself a  $500.00 net check every other week, what if you bump it up to $550? Remember to have a purpose for the money. So, take a moment and think about what you would be able to do with an additional $100.00 per month in this scenario? Hire a cleaner part time? Get a massage? How about that food order service you wanted to try? Or to pay a bigger chunk of the personal expenses if you still do the side hustle thing?

 

Don’t forget the bump in taxes.

 

Your business should be paying your taxes as well. In our example above of a $500.00 net check, the gross check that you write adds in the 25-30% that you deposit for self- employment taxes. If we add 25% to this example, the gross paycheck every other week is $625.00, with $125.00 for taxes and $500.00 for the next paycheck. Do a quick, back of the envelope calculation, and refigure the taxes and your new gross paycheck amount.

 

If You Don’t Start Now, Calendar your raise.

Maybe you aren’t quite ready to make this bump. But when will you be? Set a date on the calendar. Perhaps it is August 1st. Or maybe 4th Qtr. Whatever you decide, try not to let it go into next year. You want to relook your own compensation a few times a year as you are growing your business. Remember that as soon as you start writing that bigger check it is time to celebrate!

 

If you are struggling to pay yourself, or you are unsure if this is the right time for a raise, you may need to get more clear on your numbers and design a strong money strategy that encompasses the six pillars of business finance. The doors to Profit 101: The Creative’s Guide to Managing the Money are still open for our July 1st start. Visit https://entremoneycoach.com/profit-101 to get into the simple money management program creatives love.