Hands up if you are a small business owner who really doesn’t enjoy the accounting side of running your business? 🙋 Managing finances is a critical aspect of running a successful business, and two key elements of this are determining when and how much to actually pay yourself, and knowing when to reinvest in your business.

Firstly you need to understand Your Business’s Financial Health:

You need to be across your business’s cash flow. Understand your regular expenses, revenue streams, and financial obligations. This insight is crucial for making informed decisions about self-payment and reinvestment. Put together a basic budget in Google Sheets as a starting point (or even better Xero!). Pencil out time once a month to work on this budget.

Paying Yourself…

I’m sure you already know why it’s important to pay yourself in your business. One of the most crucial, yet often neglected, aspects of financial management is paying yourself. As a business owner, it’s important to recognise that you are an employee of your business.

Paying yourself validates the work you put into your business. It makes you feel far more motivated and enthusiastic about the work you are doing because you know at the end of the day you receive something in return for all that energy and time you are giving to your business (and clients!).

How Much Should You Pay Yourself?

• In the early stages of business start by considering a modest sum that helps to support your living expenses without straining the business. Even if you can only start with a few hundred a week, paying yourself something is better than nothing.
• As your business grows determine a reasonable salary that aligns with industry standards yet is sustainable for your business’s financial situation.
• Reassess this number frequently and increase it as you can.
• Make sure you also put aside money for tax each month too! If you are a sole trader consider a program like Hnry to help manage this for you.

Knowing When to Pay Yourself:

• Initially, focus on stabilising your business cash flow. Once you reach a consistent revenue stream and cover all operational costs comfortably, you can start paying yourself regularly.
• I would encourage you to do this as early as you possibly can in your business journey.

Balancing Reinvestment:

• Reinvesting profits back into the business is vital for growth. Balance this with your pay by allocating a portion of profits for reinvestment while ensuring you’re fairly compensated. You might like to select a percentage of revenue that goes back into reinvestment – perhaps this might be around 20% to begin with.

Regular Financial Reviews:

• Regularly review and adjust your payment and reinvestment strategies based on the business’s performance and growth.

Consulting Financial Experts:

• Consider seeking advice from financial advisors to tailor a strategy that suits your specific business needs and goals.

Paying yourself is not just a reward; it’s a fundamental part of financial management that validates your effort and contributes to the clear financial demarcation of your business.

Think of your pay as a fixed expense in your business. Just as you have to pay your monthly subscriptions to keep your business operating you should also have to pay yourself. I know there are often times in business when we do have to reinvest lots back into our business and it can be really normal to not pay yourself for the first few years. I totally get it because that is me right now! I can recognise I’m in a fortunate position to be able to do that but I do also have a date this year which I will start paying myself regardless of where I’m at and will start to move away from investing such a large portion of our revenue back into the business. Having this goal and target helps keep me on track and focused knowing it won’t be forever that I don’t draw a salary from the business.

Striking the right balance between paying yourself and reinvesting in your business is essential for sustainable growth and long-term success.