Freedom, flexibility, creative control, personal growth, control your destiny, follow your dreams and passions; this is the reality of being a small business owner, and what compels so many people towards pursuing such an endeavor. It may all sound glamorous, and it can be, though it’s important to understand the pitfalls of being a small business owner as well. As with all things in life, there are pros and cons, and embracing entrepreneurship can be a murky and uncertain career path.
One of the biggest concerns with being a small business owner is how to pay yourself. There are a number of factors to consider, beginning with what type of business you are running and how it is legally set up. If you are a sole proprietorship with no stakeholders and no employees, it is reasonable to assume you will retain all of the profits. It gets trickier, of course, if you are a corporation with stakeholders and employees to think about, as they need to be attended to first. You could pay yourself before them, but that will not look good and is likely to lower the morale of your team. As well, keep in mind that you are only paying yourself from the profits you make and not your revenue. It may be easy at first to confuse the two, but revenue is what you bring in before taxes, business expenses, employee salaries, etc. Everything that’s left over is what you get to keep for yourself.
So once you have a clear grasp on the expenses you will be facing before you can pay yourself, how much and how often should you rake in a salary? Again, if you are a sole proprietor or only have a few employees, you could pay yourself whenever you would like, but this may well end up confusing you and your employees by adding unnecessary complications. Instead, maintain a consistent pay schedule for yourself, either once per month, once per week, twice per month, whatever you choose. This alleviates any possible confusion in the future. When you are trying to decide how much you should pay yourself, ask around and find out how much other small business owners in your area are paying themselves.
Seek advice from others.
Another thing you could do is Google your job title (or close to it) to get a sense of how much those in your area are making. You may obviously have room to adjust this figure depending on your profits, but bear in mind that it’s always a good idea to just pay yourself what you need to live. At least in the beginning. If you have a little left over, it works to your advantage tax-wise to invest that money back into your business.
You will see your profits continue to grow and when you are making even more, that is the time to pay yourself a little extra. It’s always safest to see how revenues and profits trend over the course of at least a year before paying yourself over and above what you need to survive.
Many things in life are uncertain, and even the careers that seem most stable right now may not be in five years. By making the choice to pursue your passions and commit to being a small business owner, you have full control over everything that happens, both good and bad. You may work in a corporate office for ten years and have the rug pulled out from under you when you are laid off with little to no warning. But if you are a small business owner, you will always know precisely how well you are doing financially, and when it might be time to put your eggs in other baskets if necessary.
You have full transparency, and when things are going well, you reap all the rewards.
You may stumble if you try, but isn’t it worth knowing if taking that leap will, in fact, make you soar higher than you ever imagined?