As a successful entrepreneur and business owner, you wear many hats: idea generator, decision-maker, and oftentimes, bookkeeper. With so many responsibilities, it's easy to overlook one critical aspect of business finance – paying yourself. Paying yourself a regular wage, as opposed to sporadically withdrawing funds, can have a significant impact on streamlining your business finances and give you a clear picture of how your business is performing.
Understanding the importance of paying yourself a regular, consistent wage starts with acknowledging the dual roles you play: the business owner and the employee. You're working tirelessly to grow your business, so you should be paid a wage just like any other employee.
Paying yourself a regular wage has many benefits, including:
It helps establish financial discipline. Regularly paying yourself a wage encourages good habits of cash flow management and budgeting. It enables SMEs to predict their expenses better and adjust their budgets accordingly, which leads to a better understanding of how their business is really performing.
It more clearly shows the business's financial health. Random withdrawals can make it challenging to gauge the profitability of your business. By setting a steady wage, you can more accurately assess your net profit and track your business’s performance.
It forces you to pay attention to the peaks and troughs in your revenue so you make sure you have sufficient cash resources to cover your wages bill when your business goes through the quiet times.
It also means you can see if your business is making enough money to make the whole thing viable and worth your time, and, let’s be honest, that’s the end game in any business.
Paying yourself an irregular wage can make it tricky to estimate your tax obligations and lead to an unexpected tax bill at the end of the year; paying yourself a regular salary reduces this risk. You can always pay yourself a bonus if your business finances allow for this.
If you decide to employ someone to take over your hands-on responsibilities, you can see whether your business can afford this extra wage cost.
Often the reason business owners don’t pay themselves a regular wage is because they don’t know how much to pay themselves. There's no one-size-fits-all answer. It depends on a few factors, such as your business's profitability, industry standards, and your living expenses. A common strategy is to start with a modest salary and adjust it as your business evolves. You can also seek advice from a professional bookkeeper or accountant to help you decide what would.
Remember, as an entrepreneur, you're your business's most valuable asset. Paying yourself a consistent salary is not merely an administrative decision but a critical strategic move that can significantly impact your business's sustainability and growth. It serves as a reminder that your hard work has value and deserves fair compensation.
To wrap up, treat yourself not just as a business owner but as an employee too. Be disciplined and pay yourself a regular wage, as this will help you to manage your business finances with more clarity and confidence, and if necessary, consider enlisting the help of a professional bookkeeper to help guide you.
Ready to streamline your finances and take control of your business? Contact our expert bookkeepers today to get started.