The Owner’s Pay Playbook Part 1: Where to start on the journey to comfortable owner pay
There’s a constant struggle almost all business owners have struggled with, and if you haven't come talk to me because I want to hear your story.
The Problem: PAYING YOURSELF
What should you earn if you run a business? What’s your role? What is that worth? How do you actually pay yourself? What if you're not making enough? What if you run some business expenses that off-set your person in the business (because we know you don't use it for anything personal!). What’s the total you’re getting? Can you get a car? Is all of the net income up for grabs? What If I’m an LLC? What if I have an S-corp or a C-corp? How do I reduce taxes???
Have you asked yourself or someone else any of these ^^^ questions?
You are in the right spot.
Follow me for a 4-part blog series on how to get paid as a business owner. In this series, you’ll learn:
Where to start on the journey to comfortable owner pay
How much to pay yourself given your business model
How to keep your business going in touch times AND get paid
All the boring mechanics of how to make this work, the systems, the tracking, the taxes
Part 1: Where to start on the journey to comfortable owner pay.
Most often, when I start working with business owners who are underpaid compared to market value, but still might be overpaid based on what the business can afford. I would also add (anecdotally) that 100% are unsure if the how and what they’re paid is the right amount. If this describes you, you are in the right place.
The Framework I use to get owners to the right place is this:
In your personal life, you have needs, wants, and dreams.
Needs: water, food, shelter, clothing, utilities, etc.
Wants: vacations, nicer clothes, eating out, etc.…
Dreams: buy a homestead, private island, the car you've always wanted in cash
For your business life, you have needs, wants, and dreams - but they look a little different
Needs: Revenues that cover your costs and provide extra (profit margin)
Wants: More profit, more time
Dreams: $10B in revenue, $1M, working 4 hours a week and supporting your family, you name it.
Here’s the kicker- Those business NEEDS must cover your PERSONAL NEEDS AND WANTS, not just your personal needs. You will never love your business if you’re just getting by. You may not get there today or in 3 months, but if you are not strategically looking at your needs and wants in your personal life you will only work for your business.
Let me say this again:
Your Business MUST cover your personal needs and wants. It must pay you enough to have a cushion, afford a latte when you want, provide for retirement, and cover what you need to live day to day.
Far too many business owners just try to get by covering their needs. And hey I’ve been one of them and it wasn’t the best. If you’re not aiming for a business or building a business model that sustains your personal needs and wants (of however many business owners are in the business) you are setting yourself and your business up for failure.
Before we do anything with your business or even look at your business. First, let’s look at your personal finances and monthly expenses. Where most business owners get tripped up, is that there are some personal things the business is paying for and some things they are paying for personally. This makes it challenging to understand how much you actually need.
But where do you start?
Start by knowing your numbers
Start by making a game plan
Start by adding margin
Start by saving a little
Know your numbers!
I’m a bit biased, but this is common sense if you run a business or are over 18 and living. The second you take your eyes off of the number ball is the second you will do something silly.
If you don’t have a personal budget, make one -
Hint: use a tool like You Need a Budget or Every Dollar if that makes it easier!
If you don’t have a business budget, make one - we can help with that!
Stick to your budget
Look at your revenue and expenses every week for a while, then you can go down to monthly.
Really understands the cash inflows and outflows of your business and your personal life.
One thing I track for both business and personal is the days of the month every expense hit and then I keep it updated as much as I can. This helps me plan for future expenses, truly understanding what personal and business cash I have,
but the real gold: Actually, knowing how much you need to live and how much your business is producing.
A budget and tracking are going to help you get to the real numbers of those personal needs and wants and your business needs and wants.
Make a game plan
After you know the reality, then make a plan. This is where you can map to your DREAMS for both the business and personal. What do you really want? And how do you get there?
This is so much more than a forecast in a spreadsheet, this operational strategy of where is your life going and where is the business going? How will you make that happen?
Add some margin
Now that you have a budget and a strategy, start increasing your margins.
Many owners are working on such slim margins there isn’t enough room for future business growth, personal wants, or just enough to weather a cash storm.
Start by looking at your business expenses and cutting anything unnecessary, this is going to increase your net income, or net profit.
Next look at your COGS or Cost of Sales - where can you make delivering products or services less expenses so your gross margin increases?
Finally, look at your pricing. Pricing increases are a great way to get that extra margin when all the other areas have been reviewed first. One of our clients was finally able to pay herself after 2 years after implementing pricing increases and none of her customers left! What a success story.
Save like you’re going to have an emergency
The one thing that is true in all businesses- there will be something unexpected that costs and they will be more than you think. You will have an emergency, a cash crunch, a canceled client you thought would never leave. It will happen, so be ready.
If you don’t have a personal or business emergency fund this is your wake-up call to get started.
And start by building habits not aiming for a particular number. Save $100/week personally and for your business if you can. If you’re making more than $500K in revenue, save $500/ week or more. Or a % of every sale. And set it aside for a rainy day.
This is part 1 of my 4-part series: The Owner Pay Playbook.
This is meant to be the beginning of a smooth and healthy business, but not comprehensive. If you’re feeling stuck in getting to that right number, reach out and we can review your business and understand your personal budget and how to get you where you want to go.
Stay tuned for Part 2 of the 4-part series, if you want to get access before the next monthly newsletter click here and we’ll include you in the special edition for this particular series: Add me to the list!