It’s Pay Day!

Let's Talk About Pay Day

I remembered when I started my first full-time job as a school psychologist, I made sure to get that salary calendar and then I added the Pay Days to my Outlook calendar. It took a few minutes, but I viewed it as time well spent because pay day was a day I didn't want to miss. 

I know that I am not alone with that. You know you tracked your pay days when you were working your full-time job in someone else's company. Then when something happened on pay day and you didn't get that check or direct deposit, you know you were emailing and calling to get to the bottom of the issue. 

Working in a full-time job and even in a part-time job, I remember that feeling of Pay Day! It was the positive feeling of finally getting that reward for all of my hard work for all those many hours. 

Be honest, if you’re still in your full-time job, you know you look forward to that day. If you’re a full-time entrepreneur, getting that steady paycheck was one of the many things that stopped you from starting that entrepreneur journey earlier in life. 'Coz, when you are starting out, the money that you make in your small business usually goes to all of the expenses that you have right?

On top of that, you still need to pay: 

Rent or mortgage

Car note

Meals

Groceries

Student loans

Credit card bills

Childcare

And I’m sure you can add more to that list!

It’s tough to know when you can pay yourself as an entrepreneur. There are options available to you if you are a sole proprietor, a partnership, Limited Liability Company (LLC), Not-For-Profit, S-Corporation, or C Corporation. But I will be focusing on the two options that are available for sole proprietor, partnership, and LLC since many of us fall under those categories.

2 Way Business Owners Can Pay Themselves

As  I mentioned, there are 2 ways that I want to share that we can use as micro business owners to pay ourselves. The option that you choose would be connected to how you have your business structured as well as how your business operates. This means that you need to consider what you wrote in your operating agreement when you start planning how you will be paying yourself. 

Regardless of which option you choose, just know that you will still need to pay taxes. So be sure to consult with your tax advisor.

1. Salary

With a salary, you can determine how much money you pay yourself each month. The benefit of paying yourself a monthly salary is that you will know how much money you will be getting each month.

Many of us like the sound of this salary option because its what we used to get when we worked our full-time 9 to 5 or 8 to 4 jobs, right? With the salary method, personal income taxes are deducted automatically and there’s less administrative work for you to do. 

The disadvantage of the salary method is that you need to figure out what is a reasonable compensation for you based on your business. Look back at the results of your market research to see what the average rates are for your industry. Also, be sure to check your revenue flow and your revenue forecast to help you with determining your salary from your company. 

 2. Owner’s Draw

This is the other option that you can use to pay yourself as a small business owner, especially a non-funded start-up company. The benefit of this option is that you are paying yourself based on how much money that your company makes each month. Basically, you are paying yourself based on how your business is doing. It gives you flexibility.

The downfall is that the amount of money you make each month might fluctuate so you might not know exactly how much money you make and then how much you would get as a your salary until that month comes. The other disadvantage of the draw method is that you need to track the money that you are taking out to give yourself so that you can calculate your taxes.

Besides these options, there are some people who believe that you shouldn’t pay yourself until you are making a profit and still others who believe that you should save up 6 months of money for all of your expenses before you even start a business.

But if you choose either one of those options, you might feel like you will NEVER start your business. This is why if you choose the salary or owner’s draw options, scaling would be necessary for you to do in your business. Remember that scaling involves growing your revenue in the most cost-efficient way. 

I am going to share with you what I did in my company to determine how to pay myself using the owner's method when I was just starting. I did two main things:

a. I made a list of ALL of my personal expenses

b. I determined how much my time was worth

Doing these two things helped me out with knowing what was the target amount of money I needed to make each month to meet my needs. Plus, I realized that I could gradually increase my salary as my business grew. 

You need to be disciplined as a business owner when it comes to paying yourself. By this I mean that you cannot look at your business finances and think that they are your own personal finances to use however and whenever you want. That mindset would be a recipe for disaster for you and your business. 

Also, think about this, one day you might want to add team members and employees. If you keep dipping into your business finances like they are your personal finances, how would you pay your employees?

I can tell you this. Don’t expect that they will want to remain working with someone who can’t pay them for their value and worth!

Summary

So, I shared with you two ways that business owners, especially those in non-funded businesses can pay themselves. Whichever method you choose for paying yourself, have integrity and discipline to stick to it.

If you are ready to get help on evaluating your business and determining how to pay yourself, submit your coaching application and see if you qualify for a customized coaching program to meet your specific needs.

Thank you for taking the time to read my article.

Regards,

Dr. Priscilla "Dr. P" Kucer

Solutions+Actions=Results! (SoAR!)