What salary should you pay yourself?
You have your own business to make a living and do something you like. But, how much should you charge for your work? If you pay yourself too much you put your business at risk but if your salary isn’t enough, it will be difficult for you to survive. How do you find the right balance?
1- Pay yourself based on profits
If you’ve had your own business for a short time, don’t make the common mistake of confusing income and profits. Don’t assume you’ll be able to charge a large part of what you invoice because, unfortunately, that won’t be the case.
Before thinking about your salary, you must take into account that you have to pay taxes, payroll, fixed expenses and general expenses. With a good invoicing program you can have real control of your income, expenses and profits.
When you have the numbers in hand, you can decide what salary to pay yourself. There are no fixed rules on this topic, but here are some useful tips to make this decision.
2- Pay yourself enough to live
It doesn’t make sense to be too stingy with the money your business generates if this causes you financial problems. Money problems are a great source of stress and it’s evident that if you’re more stressed you’ll make worse decisions in your work.
So it’s best to pay yourself enough money to live comfortably without having to worry.
It makes a lot of sense to use part of your profits to reinvest. The more money you can dedicate to your business, the more possibilities it has to grow.
3- Invest in growing
Still, the money that leaves your company is money you can’t use to invest in its growth. Furthermore, the money that leaves is subject to new taxes, which gives even more value to the money you reinvest.
If you believe your company can grow, it makes a lot of sense to use part of your profits to reinvest. The more money you can dedicate to your business, the more possibilities it has to grow and this in the long run should also affect your salary.
4- Pay yourself regularly
Don’t put your hand in your business’s cash box when you need money. Set up automatic and regular payments for yourself and the rest of your team.
This way you’ll get used to earning a certain amount of money and your business’s cash flow won’t suffer as much. This is also better for your team members. Paying them regularly will allow them to better organize their personal finances.
5- Pay yourself something reasonable
You can talk to other entrepreneurs or self-employed people like you, and ask them more or less what they pay themselves. It can serve as a reference and is also a good way to share experiences with other people who are in a similar situation to yours.
6- When it’s better not to pay yourself
There are some cases where it’s not advisable at all to pay yourself a salary:
If your business is going through a bad situation.
If your team members haven’t been paid. It’s ethically reprehensible and will very seriously affect their morale and motivation.
When you owe a lot of money. Your creditors won’t be very happy if you pay yourself a salary while their invoices remain pending payment.
And surely there will be some more.
Conclusion
The salary you can pay yourself depends on the success of your business. If your business achieves more profits, your salary will be able to grow accordingly.
Not paying yourself too much makes a lot of sense considering everything we’ve discussed in this guide. But if your business is successful, you should reward yourself properly for a job well done.
