Your First Priority When Budgeting Your Business
Let’s dive into something every business owner grapples with: paying yourself. You’ve poured your heart and soul into your business, but when it comes to compensation, it’s easy to feel stuck. How much should you take? When should you take it? The balancing act between paying yourself and ensuring your business has enough to thrive can be daunting. But here’s the golden rule: Pay yourself first.
Why Pay Yourself First?
I know what you’re thinking: “But I’ve got rent, payroll, and a list of expenses longer than my to-do list.” While that’s true, you can’t take care of your business or your team if you’re running on fumes. By paying yourself first, you ensure your own well-being and, in turn, your ability to lead and grow your business effectively. After all, a burnt-out owner is no good to anyone.
How Much Should You Pay Yourself?
This isn’t about going on a spending spree. You need to strike a balance. If your business brings in $10,000 a month, taking $9,000 for yourself isn’t sustainable. Instead, consider paying yourself a modest amount and managing your business with the remaining funds. Here’s a quick guide on how to approach it:
- Assess Your Revenue: Determine your monthly income to understand what’s available for personal compensation.
- Set a Reasonable Salary: Decide on a fixed amount that you can pay yourself. For example, if you make $10,000 a month, paying yourself $2,000 is a starting point.
- Budget for Business Needs: Use the remaining funds ($8,000 in this case) to cover business expenses, ensuring you have enough to keep operations running smoothly.
Implementing a system like Profit First can help you with this balance. By allocating a reasonable salary to yourself first, you’ll have a clearer picture of what’s left to keep your business running smoothly. And yes, it can be done! We’ve seen countless clients do it successfully, and the peace of mind they gain is worth every penny.
Chapter 8 of The 3.3 Rule book written by our CEO John Briggs provides a deeper dive into knowing exactly what you need to be paying yourself for the success of your business, while avoiding burnout. For free resources and access to the book please visit: https: https://33rule.com/
(Graph provided by The 3.3 Rule book by John Briggs, gross margin is your total revenue minus your costs of goods sold)
The Psychology of Budgeting
Here’s a fun little psychological trick: Think of your business’s bank account like a plate of food. Studies show that people who eat from smaller plates consume less but still feel satisfied. The same goes for money. If you start with $10,000 in your business account, your mind will find ways to spend it all. But if you pay yourself first and start with $8,000, you’ll find a way to make it work, and at the end of the month, your needs are met, and your business is still standing strong.
How to Pay Yourself
The mechanics of paying yourself depend on your business structure. If you’re an S-Corp and actively working in the business, you’re required to take a salary through a W-2. Beyond that, you can take distributions or owner draws, which are simple transfers from your business account to your personal account. Just make sure everything is categorized correctly in your books. If you’re unsure, consult with your bookkeeper or accountant!
Your important to your business
Paying yourself isn’t just about the money; it’s about valuing your hard work and setting yourself up for long-term success. By ensuring you’re compensated, you’ll avoid burnout, gain confidence, and keep your business thriving. If you’re unsure about the specifics, like how much to pay yourself, don’t hesitate to reach out to a member of our team. We help business owners like you every day, and we’d be thrilled to help you find that perfect balance.
Remember, paying yourself first isn’t just a tip— making yourself a priority in your budget is the key to long-term success.
Read the next chapter in our Business Budgeting series:
