Tag: payday

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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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Recurring revenue creates business stability through renewable products and services.

 

Do you know why memberships, subscription boxes, and automatic renewals are so popular? Because people love to be a part of something and to receive new things regularly.

 

And where there is predictable RR the business owner can relax a little bit because a certain amount of money will be flowing in each month without their having to make any more sales.  This is also the reason payment plans are so popular for entrepreneurs as well. Yes, there is a risk someone won’t meet their obligation, but most of the time people do. As a result, recurring revenue streams can be a great way to grow your business and have “guaranteed” income each month and I recommend having at least one offer to many of my clients.  

 

 

How to Set Up Your Recurring Revenue:

 

1. Create an offer that people want every month.

Many people join memberships and subscriptions because the offer has something new each cycle. I belong to a few memberships where each month has new trainings that I love.  There may be a members-only masterclass, new members-only bonus, some accountability, or other “new” perk that keeps the subscription fresh.

If you don’t already have something that would support a regular renewal, create one. Start with the outcome. What is the client going to receive with this offer? Sales support? A Product box? A new course or masterclass? Why would they choose to work with you each month, what are you giving them?

 

2. For subscriptions, use membership software to minimize your tasks.

 

There are a lot of different kinds of membership software available that will automatically “renew” your members each month and keep your client’s payment information secure.  I don’t recommend manually invoicing or running cards for small payments in a membership. It is labor-intensive and there is a risk of making a mistake, double charging, invoices not being sent, etc.

Invest in a membership portal or software to automate the billing tasks.  I have personally used a single purchase of Memberpress for my WordPress website linked to PayPal for my monthly recurring membership for non-traditional law students. I know that there are other platforms and software products available for you to explore.

 

 

 

A note on payment plans.

You can still have recurring revenue with payment plans for your products and services.  You can decide how many payments you want to receive for each offer. I don’t recommend stretching the payments too far out past the end of your program or service. And I always recommend adding to the monthly payment enough to cover your additional fees and to reduce the risk of someone not paying.

For example, I have an offer that is $697.00. I have a plan for two payments at $365, or $730, and three payments at $250.00, or $750.  The little bit extra in each payment offsets both the increased interchange fees and the risks that someone won’t make all of the payments. Payment plans can be a great way to have a regular income for a few months on a single sale.

 

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When the Breakthrough Number (B-Number) process was developing, I used it for the easy visualization of protecting the inside of your business four walls. It was first created to support a client who knew of the Dave Ramsey “7 Baby Steps” approach to personal finance. Each of the walls I identified for business helped her make decisions on how to spend money and to put processes in place for money management. Over time I continued to use the approach over and over and finally gave the process a name…

The Breakthrough Number

I know what should happen when people figure out their unique number. They should be more in control of their income. They will know their minimum monthly amount of money the business must bring in, reducing stress and uncertainty. Finally, they will see the wisdom of including their own salary in the business spending plan (budget).

What I didn’t foresee happening were these additional, unexpected benefits that came with working through the calculation process.

 

  1. More accurate wholesale costs.

I’ve worked with several business owners who forgot something, some small or easily forgotten expense that affected their profit margin. Running through each of the walls carefully uncovered things like the cost of blank labels and ink for handmade products. That cost was easily overlooked because it was under $25.00/ month, but it needs to be included because it affects the real cost to the business and needs to be recovered.

 

2. Finding hidden money and a chance to become leaner.

The first time this happened I was actually in an airport helping a friend run through the breakthrough number process. We were discussing her critical operating expenses and remembered that she had a service she paid for every month that she was no longer using! This service was about $100.00/ year. More than once I have seen clients eliminate or change services and expenses when they take a hard look at deciding what is critical.

 

3. More confidence in making strategic business decisions.

This benefit was sort of foreseeable in that I knew people could use the process to calculate different scenarios such as hiring new people or adding a service because they would be able to forecast the new expense’s impact on the money. But the way my client uses it to make decisions is quite surprising! She literally just uses her known monthly B-number amount to help her make decisions. Her breakthrough number is about $5k a month and included her personal paycheck. Anytime she wants to do anything different she looks at how much she made over her number that month and how much she has in the bank. She can then say, “Oh, this is okay, I made an extra $2k and I can still pay myself for 3 months.” That was her quick ‘back of the envelope’ calculation for hiring her part-time VA and a business coach. Amazing!

 

If you are still without your unique number you can get it today, right now for free.

Just visit http://entremoneycoach.com to grab your free worksheets. You will have your number in under 30 minutes! Happy Entrepreneuring!  

 

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Many entrepreneurs low ball their prices for products and services in the beginning. I did.  For my own story, I had a coach that told me what I already knew, I was undercharging. Imposter syndrome is a real thing, and many of us tend to undervalue ourselves and the impact we make in the beginning of our entrepreneurial journey. This seems to be very common with service providers. Coaches, consultants, and freelancers typically start lower than they should, and are sometimes very slow to raise prices. Margins in service businesses are typically higher than many product-based businesses. Because there isn’t a “wholesale” cost, so to speak, many of us struggle to price our services. And if we don’t have a responding increase to the cost of doing business, we tend to struggle to “justify” a price increase to ourselves.

 

There are a lot of articles and methods for pricing yourself in the marketplace, and also ways to raise your prices.  What I want to offer is a way to raise your prices when you are resisting the increase by identifying the increase with a name. We’ll simply call it the “profit line.” This can help with some of the hesitancy to increase prices, your “base price” remains the same but you add on an increase which you categorize and have a real purpose for the money.

 

This system works because many of us struggle with money mindset, and the thought that raising our prices might mean we are greedy. “I don’t need that much” is the cry of the resistance. But you aren’t in business only to solve your needs. You are also in business to create profit and to reach your financial goals. If you don’t have yours defined yet, let’s get some profit goals and the why behind them written.  

 

You can decide what you want to add as a percentage or a number. For example, you charge $200.00 for a service. You add $20.00 as a 10% pure profit line, and the new price is $220.00 for your service. Your prices are raised, a bit, and moving forward every time you sell that service, you siphon off $20.00 to put into an account for profit. Give that account a name, a purpose. You don’t have to stop at 10%. You can add 50% profit and make your service $300.00. Your decision.

 

If you are resisting raising your service prices, give this method a try. Go ahead and figure out how much profit you will have in an account in a month if you add this line. Plan your next business move. What is this specific profit amount going to be for? Remember that any money without a name will run off and spend itself. Go ahead and raise your process. Just do it. Add a profit line this week. Happy Entrepreneuring!

 

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If you’ve been following me for any time, you know that I am all about protecting your business, now, wherever it is in its evolution. One of the best ways to protect your business is to have an emergency fund. Also known as a management reserve, this fund is a stash of cash equivalent to at least three times your monthly expenses, including your paycheck.  The importance of having extra cash for emergencies cannot be overstated. I have worked with entrepreneurs who spend everything they make each month in profit. They enlarge marketing budgets and add services to their businesses but have no cash to protect their existing milestone.

Three times your breakthrough (B-Number) is my recommendation for a first emergency fund goal (you can easily calculate your numbers with the free worksheets at www.entremoneycoach.com.) The reason I believe three months is a minimum number is that if the sun explodes, you still have a full quarter to right the ship. You will have expenses and a paycheck for the three months it takes to pivot, to launch, to take corrective action in your business. 

At first that number may seem a bit high, and honestly you may be thinking, “I’m barely surviving right now, you want me to save HOW MUCH?” But it is possible to save towards your goal and hit it in a few simple steps.  

  1. Get Set Up for Success. Make sure you have a separate bank account so that your emergency fund money doesn’t get comingled and accidentally spent. Keep it liquid but keep it separate, even in a different bank. Have a fee free checking account, with checks, for access and have a defined list of what constitutes an emergency.
  2. Put a little in each month. Make your emergency a line item in your budget. If you write down your savings goal, and you write in a goal for saving a certain amount, you are more likely to do it. Save a little each month, and you will be amazed how fast it grows.
  3. Make larger deposits as you make more money. Alternatively, or additionally, save a portion of your profits over your B-Number in a good month. Let’s say that you have a very successful month in sales, commit to stashing some portion of that profit in the fund.
  4. Celebrate your progress. You are actively taking steps to protect your business should you need a little money to cover you.

Treat your emergency fund as a priority and it will be funded faster than you expect. And once it is funded, you are done! You will then be in a better position to grow and take on new growth and risks, and more confident knowing you can cover what you need to every month. Happy Entrepreneuring!

The 2016 American Express OPEN Small Business Monitor reported that  only 51%  of entrepreneurs pay themselves a salary. By 2019,  the statistic flipped,and 51% of entrepreneurs did NOT pay themselves a salary. In fact, 26% of business owners skipped pay for 2-6 months, and another 25% went OVER six months without a paycheck. What in the world?

Truth be told, many entrepreneurs pay themselves as an afterthought. I spoke with a restaurant owner just yesterday who admitted, “I could probably take a check, but I’m afraid if we slow down the business would struggle.” That’s a fairly common sentiment. Cash flow concerns have caused lost sleep and anxiety in  63% of entrepreneurs in a recent survey.

It is my personal experience that foregoing a paycheck caused even more anxiety because our personal income became unstable. I hear the wishful thinking that entrepreneurs can pay themselves, “someday.” Well, let’s start the habit now. You may not be able to pay yourself your dream salary, yet, but you need to get into the habit of budgeting for yourself.

1. Make sure you know your business “4 walls.” I like to envision your business as having 4 sides, like a house or a box, and your priority must be the expenses on the inside of that box. Expenses that cover your access to buyers, critical operating expenses and minimum inventory spend and a paycheck for yourself should be your priorities over anything else you may owe. The anxiety of worrying whether you have made “enough” this month will be alleviated by having this number. You can get the free worksheets on my website www.entremoneycoach.com.

2. Pick a number. Pick a number to pay yourself. Many entrepreneurs get stuck here. There are a few different ways to calculate your salary. One is to total up the personal expenses you need to cover your personal “four walls;” food, utilities, rent or mortgage, and transportation. When your electric and water is paid, you will be able to show up and serve with less stress.

Another method is to decide your ideal check, and take a percentage of it, say 40%. For example, if your ideal check is $1,000.00/ week, your 40% is $400/ week. Then add your taxes on top of that. So, you may take base pay of $500 week with a 20% tax rate. Every two weeks you write a $1000.00 check, deposit it and pay $200 to your self-employment taxes. Every dollar over that amount remains in operating account. As the business grows you can incrementally increase your salary.

3. Put your paydays on a calendar. And commit to paying yourself, even if it’s only $10.00. Do it. Celebrate your business, and yourself, with a tangible reward for two weeks of hard work. This pay must be in a paycheck. You are not going to live out of the till anymore. The money you earn between paydays stays in the operating account. Many entrepreneurs go through “petty cash” or take money directly from the business to pay personal expenses. This co-mingling is a nightmare for taxes and your personal finances.

The picture of the struggling entrepreneur working hard, starving even, until they make it big is the Cinderella story we love to read. But most small businesses grow slowly and incrementally. Those “overnight successes” we read about were likely in business for years before the “big break.” So, let’s pay ourselves, something, every other week in 2020. If you need a reminder, sign up for the Entre Pay Day newsletter at Entre Money Coach