As we end July and prepare the kids for the return to school, we are also inching toward the cooler days and the bustling Q4. These are two big transitions to make right at the same time, so have you stopped to take a moment to acknowledge your own contributions to your business? Are you ensuring you’re fairly compensated for your efforts, or are you delaying it until tax time, thinking you’ll just see what you have to work with?
It’s not too late to start paying yourself, and paying yourself what you deserve! Let’s talk about how to pull it off.
Value Your Contributions
Like many entrepreneurs, you embarked on this journey with a specific goal or dream. Perhaps you wanted the flexibility to spend more time with your family, the freedom to travel, or the opportunity to make a meaningful impact with your product or service. Whatever your motivation, it was strong enough to push you to take the leap and start your business, hoping that your dedication would yield both personal and financial rewards.
However, in the whirlwind of running a business, it’s easy to put yourself last. There’s a common misconception that in the early stages of a business, every penny should be reinvested for growth. This approach, though, isn’t sustainable in the long run.
Emphasize Profit First
Neglecting to pay yourself adequately can lead to frustration and resentment towards your business. We pour countless hours and energy into our ventures, and if the financial returns are insufficient, it’s natural to question the effort. This is where the Profit First
methodology becomes crucial, prioritizing your Owner Pay among the top financial allocations.
The Profit First system recommends dividing your income into specific accounts in this order: Inventory, Profit, Owner Pay, Taxes, and Operating Expenses. This structure ensures that your compensation as a business owner is prioritized, coming right after Inventory and Profit.
Determining Your Cost of Living
Figuring out the appropriate Owner Pay for your business is straightforward. Start by calculating the amount you need to support your personal and family lifestyle. Then, use Profit First benchmarks to identify the revenue your business needs to generate to meet these personal financial goals. We offer a useful “calculator” to help you through this process. You can find it here. This tool will help you determine your target Owner Pay and reveal any gaps between your current compensation and your ideal amount. Use this information to set financial goals and work towards achieving them.
If you’re not currently paying yourself what you deserve, it’s time to make a change. Develop a plan to increase your pay and move towards a fulfilling and rewarding celebration of your hard work.
Why It’s Important
Paying yourself isn’t just about taking a salary; it’s about recognizing and valuing your time, effort, and expertise. Proper compensation helps prevent burnout and ensures your business remains a source of joy and satisfaction. By prioritizing your pay, you set a foundation for your business’s financial health and sustainability.
It’s Easy to Start
Implementing the Profit First system might seem challenging, but you don’t have to do it overnight. Start by creating separate bank accounts for Inventory, Profit, Owner Pay, Taxes, and Operating Expenses. Allocate your revenue accordingly, ensuring your Owner Pay is prioritized early in the process.
Taking these steps will ensure your hard work is rewarded, providing you with the financial stability you need to continue pursuing your entrepreneurial dreams.
If you need to set a financial plan for your business, there’s no better investment than a SmartCFO Advisor, and bookskeep can help! Reach out to the bookskeep Team today!
If your ecommerce business isn’t where you’d like it to be in terms of profitability, check out my book, Profit First for Ecommerce Sellers. It answers important questions about how to implement Profit First in an ecommerce business. Take control of your money and your business, and put Profit First to work for you!
You can also sign up for the Profit First for Ecommerce Sellers Online Course. As a Mastery Level, Certified Profit First Professional, I will teach you why Profit First works so well for ecommerce businesses and the particular challenges for businesses that have physical products requiring inventory management. You will learn how your behavior drives your money management habits for your business and how you can set up your business bank accounts to work with your habits.
Check out all our ecommerce accounting and profit advising services here!
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