If you read that headline and you are NOT a small business owner or an entrepreneur, you probably just said “Huh?” Because not receiving a salary for your hard work seems illogical and crazy, right? But that’s exactly what so many small business owners do, and they think they’re making a smart move for their company.
If you are one of those small company owners, particularly for a creative business like interior design, some of you may be saying: “Pay myself? Really?! I can barely pay my bills!”
But let me turn the questions around to you and ask: “Who is your most valuable employee?” YOU are your most important and most valuable employee, and you need to treat yourself just as you would any other staff member who’s important to the success of the company. And I feel pretty confident they wouldn’t work for free? So why are you? And really, if you never make any money in your job, what’s the point of doing business at all?
This is what separates the people who are operating their companies as a hobby versus of as a real business. Not paying yourself a real salary and just assuming that you will use whatever profits are left at the end of the year is a very dangerous game of smoke-and-mirrors. Because if you are just making enough to pay your bills, or fooling yourself that the $10,000 left over at the end of the year is a job well done, then you don’t have a good grasp on your financials and you don’t have a clearly defined path to profitability. Basically, you don’t have a sustainable business model.
If that’s the way you’ve been operating, then you’re just one income issue away from disaster. Not good. And if you are one of those many people that think “one day” I will have the money to pay myself, you’re wrong about that too. That magical moment of “now I have enough” will never come. If you don’t value yourself and your business enough to pay yourself today, you will find all sorts of other reasons (excuses) that you need the money you are earning for growth or employees, or expansion or other. So trust me…Today is the day to pay yourself.
Still not convinced? Here are my top reasons that you absolutely have to pay yourself, and how:
1. This must be a business, not a hobby! This is worth saying again. If you’re subsidizing your business by not paying yourself, then your company isn’t in good financial health. Too many small business owners think they should be the last to get any money when they’re starting or growing a business. But that isn’t true! You have a better chance of starting on the path to a real and profitable business if you have a salary included in your overhead from the very first day of business and you make a plan to cash flow your operations including your salary.
2. You can’t ever hire if you aren’t paying the ONE employee you have now! That would be you. Think about everything that you do for your company – all of your responsibilities and tasks. Wouldn’t you pay someone else to do all that work? Exactly. But it’s going to be tough to add someone to your overhead and come up with the money to pay them, if you’ve been just “volunteering” for your company all this time to complete those same tasks. You have to be able to afford employees as your company grows, and you can only do that if you have a budget line for salaries. If you haven’t been paying you, I doubt you have money earmarked and ready to pay others.
3. You have to pay yourself in order to keep the passion for your business alive. I’ve already asked this, but if you aren’t making anything out of this business, then what’s the point of doing business at all? No, really, what’s the point? Running a small business is hard. I know from experience that if you haven’t already, you will soon find yourself managing people and tasks and you will have very little time to do the thing you started this business for to begin with. And if you are working for free doing these tasks you don’t love it’s even worse. You’re going to burn yourself out and you’re going to be angry and resentful about your business and lack of funds. That isn’t exactly a great mood to be in if you want to attract more clients and more business. And it’s just no fun. Your dream was to do what you love AND get paid well for it. And if you aren’t paying yourself for that work today, (I’ll say it again) you never will.
4. It’s a great incentive. If you do want to attract more clients (and I know you do!), then what better way to motivate yourself to work harder than you already do than to give yourself a paid incentive to bring in more money. If you’re really being disciplined about your finances, then you know exactly how much money you need to make each month to meet your overhead. And you should then know how much more you need to make in order to give yourself a raise. And realizing all the things you can do with that money from taking your family on a vacation to saving for your kids college funds, can be a real reason to work even harder and put some more of that money in your own pocket. A great incentive, indeed!
Okay, so now HOW do you pay yourself? I’m not saying you should start out with a $100,000 salary (unless you really are doing that well financially), but even just paying yourself a few hundred dollars a week can help. And of course you can give yourself a raise as your revenues increase. So I suggest mapping out what it would take in revenues to cover your business overhead AND pay you what you want and deserve and reverse engineer that into your sales goals.
The way to make more money is to bring in more business, and/or to raise your fees. Most of you are NOT charging what you’re worth, which is a whole other conversation, but that’s probably your biggest challenge to paying yourself. So you need to get a strong handle on your finances so you know exactly what your overhead expenses are, what your revenues are, and what you need to be making every month to not only stay in business but earn a profit. And you need to be absolutely sure that you’re charging enough for your services to hit these numbers.
I know it’s tempting to not pay yourself when you are afraid you can’t pay your bills or your employees. But if you ever stop paying yourself, it will be almost impossible to start it back again. So I suggest instead of cutting your salary as a payroll savings, spend your time and energy increasing your revenues and launching diverse revenue streams that will help you afford yourself and your business. Again, it’s really the ONLY reason to stay in business.
I know getting serious about business and making money can be tough, especially for creatives, but it’s critical to getting your company into great financial shape and operating it like a real business should so it can afford you your dream life. So get out that checkbook and write a check to yourself TODAY! And leave me a comment below and let me know if this is one of the things you struggle with in your business and if you’re willing to make the leap towards valuing yourself as the key part of your business right now. You can do it!
PS – If you want my help in getting your financial house in order, and learning to charge what you’re worth, check out my online business courses in Tobi U! There are specific modules on those very topics, as well as ideas for attracting your ideal client, putting together a winning marketing strategy, and MORE!
And a few weeks ago we asked you to enter to win a FREE semester of Tobi U – and the winner was Angela Palmer! Congrats, Angela! I know Tobi U is going to rock your world and your business!