When you're building a business, paying yourself might not be the first thing that comes to mind. However, if you know what to focus on and which payment methods to use, you can set yourself up for success as your business grows too. It’s never a good idea to think of your business as a never-ending source of money that will fund your lifestyle. Rather, you need to put money back into your business in order to see it systematically grow. You need to make sure you have enough money to pay for all of your business costs, including your own salary. So here are five reasons why you, as a business owner, need to get paid.
1. You don't own the money from your business.
This is probably the most important thing a new business owner needs to know right away. You don't own the money you put into your business. Most of it has to be used to cover the costs of running the business. You need to pay for supplies, salaries, rent, taxes, and suppliers with this cash. Even if you make a profit, you need to put some of it back into your business to help it grow and save for future scenarios. This doesn't mean you can't keep some of the money you make, but it's important to remember that most of the money made actually belongs to the business.
2. It costs money to grow
When you started your business, you had big plans to be the market leader, but to get there, you needed to put money into it. If you spend all the money after paying your bills, you won't be able to build your business into the empire you've always imagined. Don't forget that you need to save money for your small business in order to fund future projects and strategies.
3. Irregular payments create issues
By paying yourself a salary, you have a steady source of income for your own needs. Then you can create a budget and make plans to reach your own goals. If you borrow money at random, you'll have to worry every month about whether or not you can pay your bills. By giving yourself a salary as part of the business's budget, you will be more motivated to help the business reach its goals. Also bear in mind that if you receive payments that aren't on a regular schedule, the tax man may notice you and wonder what these irregular and sometimes large payments are for.
4. Taxes must be paid
Whether you get a salary or dividends, you will have to pay taxes on the money you draw from the business. These amounts can vary based on the type of business you have registered. We need to remember that dividends are not tax-free, and you will have to pay taxes on both the company's profit and the dividends.
5. You don't get paid for your work
By not putting your salary in the budget for your business, you are basically saying that you work for the business for free. This may be true at first if you use your own money to start the business, but as the business grows, you need to make sure you are getting paid for your time and skills. You wouldn't work for free for an employer for years, so why would you do it for your own business?
How much should you be paid?
With these five points in mind, it's clear that taking a salary from your business can cause less trouble in the long run. When paying yourself, you can either pay yourself a salary that is typical for your position in the business, or you could get a share of the profits. You need to set a limit on the percentage of the profits so that you don't hurt the cash flow of your business. When you first start, you should think about your personal life and the costs you have and make sure that your salary from the business will at least cover these.
The bottom line
No one should be expected to work for free, least of all the person driving the business. By ensuring you have a sustainable salary to fund your living expenses and savings, you will ensure your own goals are aligned with the business. This will inevitably set both you and your business up for long-term success.