It seems like a no-brainer: Pay all your operating costs, and whatever’s left over is yours, right? Well, that’s true; you’ve earned it. On the other hand, you may want to set your salary a little lower than you planned if there are some elements of your business that are still lacking. Just because you’ve paid all your bills doesn’t mean that you’ve fulfilled all of your obligations to your business because the more revenue you can put back in the business will make it that much more successful and secure.
What Does Your Business Need?
Before you take your cut, ask yourself the following:
Of course, things like office maintenance may be able to wait, but if you’ve got a substantial amount of revenue coming in—it might be a good idea to prepare for the future.
Percentage or Fixed Income
The obvious method of paying yourself as a business owner is to simply take a percentage of profit; however, there is one effective way to pay yourself and put money back into your business, at the same time—pay yourself a fixed income. The idea is to set your salary at a comfortable amount, but then even when business picks up, you pay yourself the same and use the difference to grow your business. We see the same principle at work when a person gets a new, higher-paying job—they move to an affluent neighborhood and buy a bigger house. The same person wonders why they are still living paycheck to paycheck. It’s a tough exercise to maintain the same income (when it would be easy to pay yourself more), but putting the extra money back into your business could help to secure its future.
A Young Business
If you are just getting your business off the ground, then this is even more important. Anyone who starts their own company knows that you need a lot of capital in the beginning. Most likely, you’re already stressed to the max from the pressure of staying in business through those first, perilous couple of years, in addition to the pressure you may be feeling from investors. That’s why, if you’re already seeing more profit than you expected, you’ll do yourself a favor by recycling that into your business, to help it survive.
Think Twice Before You Buy the Benzo
…In other words, don’t count your chickens before they’re hatched. It is tempting, when you’re rollin’ in the Benjamin’s, to go out and buy the things you always said you would buy when you finally arrived, but it can’t hurt to hold out a little longer. The longer you can resist temptation, the more security your business will have.