Does Your Business Pay You Enough?
Guest Post by Erin Armstrong
As the final part of our series on financial alignment in your business (read Part 1 here and Part 2 here), let’s talk about an elephant in the room for many business owners (even highly successful ones!): paying yourself.
Most people (me included!) had to bootstrap the first few years of their businesses to get them off the ground. And, often, that comes with not paying yourself at all, paying yourself a fraction of what you would be paid working for someone else or running your personal expenses through business accounts and feeling locked into a negative cash flow cycle. Becoming a business owner definitely isn’t for everyone. It takes a lot of grit simply to get it going — as evidenced when we look at owner pay those first few years.
But, if your business is more established, let me ask you this: Are you still stuck in an underpaid — and possibly financially overwhelmed and resentful — cycle? (If you’re still in the startup phase, stick around. This conversation is relevant to you, too.)
When I start working with clients, one of the first things I look at is how they pay themselves — if they do at all. What I've found is startling. Very few small business owners are able to transition from cash-strapped to well-compensated without a little help.
That's true even when they’ve created multi-six-figure businesses! Yes, their businesses are successful. They’re widely recognized and revered. They’re generating good sales. They may even have employees. But they haven’t yet prioritized themselves and their huge contributions. And that shows up starkly when we starting talking pay.
Why You Should Pay Yourself Well
No one contributes to your business as much as you do. Not only have you given it your time and creative energy, but you’re also the one with all the responsibility.
By giving yourself a regular, well-paid salary (or draw depending on your business setup), you’re acknowledging your contributions and importance. From a financial standpoint, this allows you to live life more steadily and with more ease. From an energetic standpoint, you’re claiming your worth. You’re saying: “Yes, my contributions are important. I’m great at what I do.” And you’re allowing the business to give back to you just as you’ve given so much to it.
Prioritizing Pay to Yourself
Once you move into paying yourself well, make sure you’re paying yourself on a regular schedule. With the exception of still being in a startup phase, cash flow patterns can be figured out enough so that you can regularly pay yourself monthly or biweekly. If you’re not sure about improving cash flow, talk with a financial pro. Every business has patterns. You might just need a little help finding and understanding them.
Don’t take leftovers from your business —you know, pulling out some cash here and there, paying yourself after paying all your vendors, paying yourself “what’s left.”
As Parkinson’s Law shows, whatever time you’ve allotted for something, the time it takes you to complete that task will expand to fit that exact time. Similarly, by giving yourself a set dollar amount and regular pay schedule, you’ll find that either more sales come in or you make choices that allow you to reach the pay goals you’ve put in place for yourself.
Paying yourself first and well allows you to show up better. With your needs taken care of, you can show up as your higher self for employees and clients more easily. With regular and great compensation, you’ll likely feel more passionate about your work and have more creative flow. Essentially these actions say:
- I AM the business owner.
- I’m successful.
- The business is successful.
- I am the leader here.
Erin Armstrong is a CFO, Business Coach, and Licensed Enrolled Agent, who’s on a mission to financially empower small business owners and female entrepreneurs. Erin’s unique approach focuses on the nuts & bolts of business finance, such as accounting practices, tax strategy, profitability, budgeting, & cash flow. Simultaneously, she helps her clients identify their financial fears and improve their money mindset so that they can move forward in a confident, proactive and empowered way. Erin has worked with hundreds of business owners across the country in dozens of industries. She has also led workshops in Los Angeles, New York, Chicago, and other major US cities. Erin lives in the Dallas-Fort Worth area, with her husband and daughter, and their dog, Hilda. To find out more, visit www.erinarmstrong.com.