As an entrepreneur who is just starting out, one of the main problems that you will encounter in your venture is how to pay yourself.
Some will reason out that it’s time to enjoy the hustle after struggling in the past, so since this is free employment, then all profits should go into your own pocket.
Others will say there’s no need to pay yourself because it is for that same reason that you left salaried employment. Yet others will also say that you need to set aside a specific amount to appreciate yourself.
All of these opinions have a point, but not even one wins over the other in terms of welfare for both the entrepreneur and the Enterprise in question. As an entrepreneur, you need to know the following with regards to paying yourself:
- You need to appreciate your effort in the business.
- Your income will not be fixed and thus will vary so be ready for shocks.
- The business needs to grow by ploughing back profits into it.
- There are days you’ll make a loss and you’ll have to make some hard decisions.
You need to pay yourself in your own business but understand that at the start, especially if you are leaving salaried employment, it is highly likely that the money you’ll be getting as a salary from your business will be significantly lower. Don’t think about leaving the entrepreneurial path just because of that.
In order to decide on how to pay yourself, it’s important that you maintain a good record of your business finances, what’s coming in (Income) and what’s going out (Expenses). You don’t have to be proficient in accounting to do this simple task.
Once you are positive that your Income is higher than your expenses, then it’s time to decide what margin of the mark up (Profit) goes back into the business and how much of it is for your salary.
Once you decide to take a salary, separate it from the businesses finances totally. It comes in handy to have an account for your business and for your own finances. Opening bank accounts is easy nowadays and can be done via the phone.
My advice to entrepreneurs is that they should not pay themselves a salary when the business is making losses, rather they should survive on the savings they made when the business made profits and they paid themselves a salary.
You may wonder how this is possible in the instance whereby your business is just starting out. When starting out, take a part of the initial capital and store it away in a different account to guard you in such situations. Never invest the full capital in one instance, always do it in phases. This is something that we shall also delve into on another day.
So what’s the take away from this;
- Pay yourself, it’s recommended.
- Keep track of finances in a business.
- Set aside savings to cushion you on bad days. These savings could also be used to reinvest back into the business or start another one all together.
- Separate personal finances from business finances.
- Be ready to receive a salary lower than you expected at the beginning.
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