Business owners can often times be their own toughest boss – we pay ourselves the least and demand the most. Well buck up, it’s time to give yourself a personal annual review, take stock of all that you have accomplished since day-one or year 1 of your business and give yourself a well-deserved raise. Business owners choose to go into business for themselves for many self-rewarding reasons but can get stuck in a rut of financial fear when it comes to compensating the key asset – the principal of the company.
If you are not getting paid, you are not taking care of the key asset. So now, how do you justify your own income right now? Here’s how:
If you have gotten through year 2 or 5 of your business, you have a means to start assessing your progress – look back at your profit and loss statements and start to build a projection for this year – based on the trends, how much will your revenue increase this year? How much do you want it to increase? What expenditures will you need to make to grow? What are your current costs of doing business? An outsourced CFO or your accountant can help you build your projections with you to take the tedium away but it’s time to get really in tune with how to get yourself compensated.
Next, take a look at your household budget – what costs do you need to pay to live? Rent? Mortgage? How much do you spend on food (for realz – eating out, coffees, groceries)? Do you have a big trip in the works? Chart out your living expenses – make sure you budget for at least the minimal amount of comfort and happiness you need – if you need to make an annual or bi-annual excursion out of town for your mental health well being, do not short yourself on what it’s going to take.
Know where you want to go: aside from covering the bare minimums to live well, what is the income of your dreams? When will you feel you have “made it” financially so you know what you are working towards? Some business owners will be happy with the essentials and the future taken care of and some business owners see the sky as the limit. All answers are okay but make sure to be true to yourself about what you really want financially.
Now look at your personal earnings for last year – did they cover your share of life expenses? Will they cover this year’s life expenses? How far away are you from that “reach” number for your income and wealth? Are you going into personal or business debt to keep afloat at home or in your business? Do you see tangible returns on investment in your near future?
Next look back at the goals you set out in your business. Dust off your business plan or log back in and check in with what you hoped to do with your business – have you reached your goals? Have the targets changed as a result of what you have learned about operations? Update and change your business plan to match where you are today and make sure you are building in the ultimate goal – to make yourself money.
One of the best books for creating the business budget that meets your financial dreams is Profits First. No matter how small or large your small business income needs to be, your business must be profitable or it’s just a hobby. Profits First gets down to the specifics you need to follow to position your business so that you can afford your own raises as your business’s performance improves. Consider seeking out a “Profits First Professional” accountant or other financial assistant who can set up your books and records to follow this financial business model to your own personal success!
At Clayson, Schneider & Miller we help clients who are seeking to establish, grow or restart a business, we can work with you to build a business plan or restructure and existing business to put you on the path you are searching for in business.