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Mike J. Agugliaro

Small Business Owners: Pay Yourself First

Thursday, November, 14th, 2013 at 8:30 am by Mike J. Agugliaro

It’s a conundrum almost every small business owner faces, especially when starting a new company. Do you put all the money you make back into growing your business, or do you make sure that you have a personal salary too?

Hopefully, you began your business with some cushion in your personal savings and some startup money. But the point of going into business for yourself is to make your own living, so it’s important to make sure you’re compensating yourself.

It gets easier as you grow your business. As you generate more leads and customers, you begin to make more money. Soon, you have enough to hire good employees and pay them too. But you should be paying yourself first.

Why do you need to pay yourself first? For one thing, if you were still working for another employer, you’d be bringing home a salary, maybe some commission if you were in sales. Plus, if you focus on paying all the bills, buying things you need for your business, and paying employees before you pay yourself, you may end up with not much left. And not paying yourself can actually be detrimental to your company’s success.

Giving yourself even a modest salary can have tax benefits for your business. Compensating yourself minimizes your overhead, especially during startup. It can also help you make ends meet at home if things get a little tight while you’re building your business, or offer you some protection if your company doesn’t ultimately make it.

In the early days, your salary may be mostly what’s left over after operating costs and bills, but when you start bringing in some consistent profit, figure out what percentage of those profits you can comfortably pay yourself. Keep it to a reasonable amount, so the IRS doesn’t flag it as suspicious. Consider what you would be paid if you worked for someone else in the same industry, or look up salary comparison sites to see what is average for someone in your position. Don’t be afraid, though, to give yourself raises to reflect your worth, especially as your business grows.

There are other things to consider when it comes to paying yourself, too. If you have a bad week or month and won’t have enough to pay your employees or bills after you pay yourself, then put off collecting your own salary. Also, make sure you’re building enough of a cushion for your business, in case of an emergency. An accountant or financial advisor can help you figure out the best way to divide income.

And if you need more help unlocking the mystery of building business, get in touch with us at ServiceKey right away. We can help you grow your business with more customers, more leads, and show you how to hire good employees, all to make more money.

Mike Agugliaro, “Business Ninja”
Founder of the $23 Million Dollar Service Blueprint and Service Warrior Business Mastermind

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