September 07, 2021
Your business might be a passion project, something you’ve always wanted to build, or maybe you just “fell into it.” For whatever reason you started your business, though, it’s not really a business until it’s making money...and paying you.
What happens after the revenue comes in? How do you make sure you can pay all your business bills and yourself? We’re glad you asked, because in this blog, we’re talking about what you need to consider when it’s time to pay yourself from your business.
There are a few things you should ask yourself when you’re thinking about paying yourself from your business.
First up: Is your business a partnership? More specifically, are you the only one who runs it, or are there other people involved? A partnership changes the way you’ll make an income. If your business is a partnership, look into the partnership agreement to see what the split is.
For example, if you and one other person split the business 50/50, you’ll also split the revenue 50/50. Makes sense, right? Sometimes partnership agreements explicitly state how any profit is going to be split. If that’s the case for you, then you’ll want to make sure you follow it.
If you’re not in a partnership, you can think about the revenue as a whole. Figure out how much you need to make each month and then work backwards. Does your business make enough to support that number? Do you have more expenses that cut into your income potential?
So how can you actually pay yourself? Your first option is to write yourself a check. (If you do, include something in the memo that will make it distinguishable for your accountant.) Or, you can transfer money from a business account to a personal account.
Either way, remember to record when and how much you are paying yourself. This will come in handy at the end of the year. Trust us.
Are you making enough money to consider taxes? Gotcha, that’s a trick question! If you have an LLC, we sure hope you are. We know taxes aren’t always a fun topic — okay, they’re never a fun topic — but you’ll want to start saving so that you’re not hit with a huge bill at the end of the quarter.
A good rule of thumb is to take 30-35% and put it in a savings account for your quarterly tax payment. We also recommend that you just take this out automatically, or move it over to a new account before you pay yourself. That way you don’t overpay yourself and then have to kiss that money goodbye — or risk not having enough money — come tax time.
Oh, and speaking of taxes, do not take your advice from David Rose here.
Your pay is not a tax write-off! You can’t pay yourself as a deduction. The only time you can is if you have an expense that you had to pay from a personal account and now need to reimburse yourself from the business. Your regular paychecks, however, don’t count. Nice try, though.
You’ve probably heard people say they only spend 30% on marketing or a certain percentage on this or that. Honestly? We call bull.
That all depends on whether you’re risk averse or risk tolerant. For our founder, Christina Scalera, she started off a bit more risk-tolerant with The Contract Shop® revenue.. Books like Profit First, although very helpful and can work for a lot of people, can also be a bit restrictive. Sometimes you need some flexibility, especially because revenue changes as the seasons change.
It doesn’t mean that how you start off is how you have to remain, though. While many of us are more risk-tolerant when we start our businesses, most of us hit a point where we feel more risk-averse (and vice versa).
Considering how to budget for expenses? A good rule of thumb is figuring out how much you need to live off and how much you need to set aside for taxes. After that, you know what you have to play with. Ultimately, you gotta do what makes you feel comfortable. We’re just sharing what’s worked for us.
Figuring out when and how much to pay yourself is a balancing act. It’s all going to depend on how much money is coming into your business and how much money is going out of your business. This will look differently at different times, and that’s okay.
What’s best for another business owner isn’t what will necessarily be best for you. You just gotta figure out how to make your money work for you! If you want to work on paying yourself while growing a successful business, we really think it all starts with mindset. One of our best-selling workbooks, The 3 Must-Have Business Success Mindsets could be a great place to start!
In this workbook, our founder walks you through the three success mindsets you should embrace to keep momentum, focus, and drive — even during the tough times in business. She also shares tricks to help you prioritize projects and focus on the RIGHT things, as well as journaling exercises to help you discover and build abundance in your mindset.
Let’s make that money!