Whether you are a small business owner or thinking of starting a small or home based business you must create a mechanism to pay yourself first. Doing this now will eliminate many headaches and countless future financial problems.
Entrepreneurs and small business people begin their businesses full of excitement and lofty goals. One of those goals is to make money and yet often they fail to create a mechanism to reward themselves for their efforts. In the beginning most small business owners will serve multiple roles in their business. They will be the sales and marketing, accounts payable and receivable, human resources and public relations departments. If you had an employee do the work you would pay her, so why would you do the work and not pay yourself?
Of course the revenues your company will generate in the beginning may not be sufficient to pay the full salary you would pay others, much less yourself. But putting a plan in place to facilitate payment for services within your company is just good business sense. Paying yourself needs to be first. Too often entrepreneurs and small business owners wake up three years into a venture, only to find themselves paying hundreds of thousands of dollars to others in payroll and living off credit cards in their personal lives. Don’t make this mistake. Pay yourself first.
Begin by paying yourself at least 10% of the total revenues your company makes. If your company (or in this case you) perform a service and receive a check for $240, you should write yourself a check for $24 before you pay anything else. If you don’t do this now, you never will later.
You’ll notice that you are not entitled to the full $240 for services rendered. This is another common mistake. Don’t forget overhead, cost of goods sold, taxes, and other expenses incurred in rendering the service that resulted in the payment. Build into your pricing an additional 10% for your staff (that is you in the beginning). As your company grows you will naturally include employee costs in your pricing model. Get in the habit of paying yourself first and you will always have the financial reward you seek for your efforts.