Paying yourself as an owner- sssssshhhhh- why bother?
Because you’re worth it! And you owe it to your business to be good to yourself.
So many of us self-employed folks put paying ourselves last on the priority list. If you aren’t paying yourself it’s most likely because:
There’s just way too many other things to do in your business
You have no idea how to pay yourself and don’t have time to figure out an owner pay schedule
You don’t think there’s enough money to pay you (for this one- check out last week’s video blog for some inspiration)
Here’s the thing, owner pay is a very important aspect of creating a sustainable and financially stable business. Even if it’s only a tiny bit, owner pay teaches your business how to care for you and gets you in the habit of putting yourself in the equation.
Okay, fine *grumble grumble* I’ll pay myself. Now what?
The first step in paying yourself is to actually figure out your owner pay. And, no, it isn’t as easy as picking a number out of thin air. What you pay yourself should be intentional.
Want an easy way to figure out your owner pay? Check out this free interactive calculator that helps you determine your owner pay!
Here are the steps to creating an owner pay schedule that is intentional AND meets your financial needs:
Figure Out How Much You Have
The first step in developing an owner pay schedule is to figure out how much money you have to pay yourself. Here’s a shocker- not all the revenue (a fancy way of saying income) that comes into your business is at your disposal.
Gross income is all the money that comes pouring in for your super rad services. Net income is all the money that is left after your expenses (like paying for other people’s super rad services).
When you’re making an owner pay schedule your payment is based on the net income of your business. SO- it’s super extra important that you understand what that number is.
If you use a digital accounting program running a Profit & Loss statement will show you your net income. If you don’t have a tracking system yet, then it is time for good ‘ol fashion pen, paper, bank statements and a calculator.
In either case, get really clear on your net income and what’s available to you as an owner.
Put Money Aside for Taxes
BEFORE you do anything else or start skipping off into the sunset with your net pay number, you need to put aside a percentage of your income for taxes.
Every month put money aside for taxes. Do this every month. EVERY month.
Unfortunately, there is no one-size fits all number for how much you should save for taxes. Everyone’s taxes are different and other factors, outside of your net income will impact your taxes (like personal deductions, dependents, and if you are filing jointly with someone).
Here are some tips to figuring out how much you should save for taxes:
Ask your CPA what percentage of your income you should save
Look at your previous year tax return and use the quarterly slips as a savings guide
Save 30% of your net income monthly
tax calculator (be sure to put in your projected ANNUAL net income) then divide the number it gives you by 12Use this
Calculate Your Debt Pay Off Goals
So you’ve figured out your net income and now you’re ready to pay yourself! Not so fast.
Do you have business debt? Credit card debt? Business loans to pay back? Decide how much you are going to put towards your business debt each month.
Here’s the thing about your business- even if you are a sole proprietor, it’s important to think of your business as separate than yourself. That’s why you have separate bank accounts, savings, and credit cards. That means your business needs to be able to take care of its own debt.
You want to set your business up to thrive. You want to set your business up to be sustainable. You want your business to be there for the long haul. Starting paying your business debt now.
Calculate Your Business Savings Goals
Where do you see your business 1 year from now? How about 3 years from now? What investments do you need to make in your business to get there?
Sometimes, goals cost money.
It could be a little money (like investing in a $20 thing) or it could be a lot (like a $2,000 thing). In either case, consider how you are going to save for these goals within your business.
How much do you need to save to invest in the thing? How about saving for a vacation? Sick days? How much do you want in your emergency business fund?
Break these things down and save monthly.
Figure Out How Much You Need
Alas! We are at paying yourself!
At this point, you should have an idea of what’s available to you personally from your business. This number is your net income, minus tax savings, debt payoff, and business savings. This is your owner access number.
Now, determine if this is enough to meet your personal needs. If you don’t already have a personal budget, now is the time to make one. You should be clear on exactly what you need to draw out of your business weekly or monthly.
What happens if what I need my business to pay me is less than my owner access number?
This is a very real thing that can happen and it means that it is adjustment time! Here are the places to start:
Adjust your business expenses- are there places you can cut back to increase your net income?
Adjust your debt pay off goals- maybe you have to pay a little less so you can keep your personal dollars out of debt
Adjust your savings goals- do you need to save less over a longer period of time? Are there less expensive alternatives to what you are saving for?
Adjust your personal budget- where can you cut back your spending so your business supports you right now?
Did you notice something was missing? DO NOT adjust your tax savings. The IRS isn’t going to give you a pass on this one and you shouldn’t give yourself a pass on it either.
And there you go! If you follow these steps you should come up with an owner pay schedule that actually works. Don’t forget to try out my interactive owner pay calculator– plug in your numbers and voila you have an owner pay and savings schedule.