How much should I pay myself in my business?

pay myself business owner

how much should I pay myself as the business owner

Why it matters what you pay yourself as the business owner.

Business owners often don’t pay themselves at all, but just draw money out of the business account when they need it. At the end of the year, the accountant adds up all the “draws” and books it to something appropriate in the balance sheet to make the Tax Department happy and it’s all good. Sp why does it matter how much you pay yourself, why should you pay yourself at all and how much should you get paid?

Clearly, a big factor in how much profit your business makes and whether or not the business has the cash to pay it’s bills is how much money you draw out of the business at any one time. If your business turns over half a million dollars and you have 4 employees and an office and you pull out $200K yourself every year there may not be enough money left to pay for Cost of Sales, staff wages and overheads (or tax, for that matter), and if you pull out nothing at all, it might look like your business is enormously profitable. Your wages, drawings or dividends are a significant factor influencing the health of the company.

So wat’s wrong with letting your drawings depend on whether there’s enough money in the bank to pull some out?

As I’ve said many times elsewhere:

If your business doesn’t make profit, it’s a hobby.

A healthy small business ought to make somewhere north of 5% net profit before tax, every year. I generally advise my clients to aim around 10% as a guideline. (10% of revenue… so for every $100 in sales, the business ends up with $10 of net profit). There is no golden rule about this number, but it’s a useful guideline in most cases.

Net profit is the money that’s left after all costs of the business have been paid, and you, the owner of the business are absolutely one of the business’ costs, a major one at that. And you rightly should be a cost to the business, just like the electricity and the rent and the mobile phone bills and the staff. Without you the business can’t function. You are the CEO and general manager, the head sales person, the chief cook as well as the bottle washer. In any other business, all those people would need to be paid and probably quite highly, and so should you. If you do not pay yourself a proper wage, you’re not professional and nor is your business.

Dribs and Drabs for the boss

I recently started working with a client in an architecture business. The client has 4 staff plus himself and he pays his staff and all his other costs, but he only gets paid in dribs and drabs when there’s money available. He showed me his P&L and proudly pointed to the net profit his business made last year. But when I asked him how much the business was paying him, it turned out that he just drew out some money every now and then and that his drawings didn’t show up in the P&L. In effect, if he were to pay himself as much as his lowest paid staff member, he would have made a loss last year. In other words:

My client wasn’t running a business at all, he was running a hobby.

My client has now implemented a weekly minimal wage for himself, run through the books as a wage, showing as a wage in the overheads and we’ve updated his business targets to be in line with the new reality. The business is not out of the woods yet, but there is a new air of professionality in the practice and my clients is learning to think like a business owner rather than a hobbyist.

How much then?

The second question therefore is: How much should I pay myself?

Again, it may seem that there is a certain arbitrariness to this question. But the answer is actually quite straightforward:

You should pay yourself as much as it would cost you to pay someone else to take over from you.

Assume you want to go on sabbatical for a year and bring in a CEO to run the business for you… Doing everything you do for the business now… What would that cost? $80K, $100K, $120K? Whatever the answer to that question is, that’s what you ought to pay yourself.

This may well be unachievable right now, (it is for my client… He can only manage about $60K right now), but it’s certainly something you should work towards over the next year or so. It will put the business on an entirely different footing and every time I introduce this discipline with my clients, the business starts to change completely… guaranteed.

Would you like to download my free 12 Question Cheat-sheet to help you find your next Coach? Click here.

AY YOU, The Small Business Owner

Who are you?

How will you know if you and I are the right fit to build your unique Beautiful Business and Life together?

Good question, Glad you asked

Watch this quick video in which I explain a bit more about the kind of people who enjoy working with me and who get most benefit from from engaging me.

There are many common challenges all of us business owners face from time when developing our small businesses. You can read about some of those common challenges below and you can read and watch a series of real life stories from my clients in their own words here. But there are also many issues I see, that are unique to specific industries and professions. If you are in one of the industries or professions below, you might like to read more about the things that bedevil you in your business on a daily basis.

“Having a coach like Roland who actually cares about you and your business is a great experience. I am well on my way to building a Beautiful Business and Life!”

(Brad Chapman BIC Construction)

Besides the specific industry groups below I also specialise in Husband and Wife operated businesses. Family business such as those can be enormously rewarding in many ways but they present their own set of special challenges. Read about when couples become business partners here and take the “Beyoncé and Jay-Z Family Business Survey” on the same page.

Skip ahead to the special industry pages:

Does this look like you?

overwhelm and stress in business Nearly all of my clients have the following things in common:

  • You started the business, because you are great at what you do… You decided some time ago that you are simply too good at your trade, profession or skill to spend the rest of your life doing it for someone else.
  • You’ve been going for a little while, probably 2 years or more.
  • You’ve developed the business to somewhere between 2 to 20 employees.
  • You are passionate about your business and you are proud of what you’ve achieved so far.

“Roland helped me manage my business so that it flows and I’m no longer a slave to it.”

(Geoff Anderson, Sonic Sight)

Click here to download my Free Guide to finding the perfect coach or mentor for you.

And do you recognise this picture?

confused stressed overwhelmed lost And most of my clients would recognise much of this picture:

  • Business growth and development has slowed down or stopped altogether, and that frustrates you.
  • You have started to feel that running your business is a lot like playing a game of “Whack the Mole” you never what is going to come up next and where, and you simply don’t get around to the stuff you know you should focus on.
  • You feel overwhelmed a lot because there are simply too many business development priorities screaming for you attention every day (Marketing, Staff, Planning, Systems, Finances, KPIs, Leadership, Innovation, etc) and you don’t have the time, you don’t know where to focus next and you don’t feel all that confident in those business development areas anyway.
  • You seem to spend more time managing crises and extinguishing brush fires than anything else in your business.
  • You’re the first one in the door in the morning, the last one out the door at night and you have to catch up on emails and admin after you’ve put the kids to bed.
  • Business just isn’t as much fun as it used to be.

Five Steps to Discovery

If you recognise some of those statements above and you’d like to explore how I can help you overcome some of those everyday struggles, click here to book in a free Discovery Coaching Session now as part of my Five Steps to Discovery Process, designed to help you discover and build your own Beautiful Business and Life.

More reading, books, surveys, webinars

Click here to download my Free Guide to finding the perfect coach or mentor for you.

AR Why New Perspectives: My Beliefs, Aims and Principles

Why New Perspectives?

Why Business / Life Coaching?

Click here to download my Free Guide to finding the perfect coach or mentor for you.

My Beliefs:

  • I believe most small business owners operate in a state of Overwhelm.
  • I believe each small business is as unique as its owner and hence building your own beautiful business is a process of unique discovery.
  • I believe that profit can not be the ultimate Purpose of business.
  • I believe business is the vehicle with which to create a beautiful life and hence the vehicle must be in a good state, and well maintained. It needs fuel (profit is the fuel of the business vehicle) and the driver (the business owner) must learn how to drive the vehicle well.
  • I believe that the opposite of Scarcity is not Abundance, but rather “Enough”.

Why does New Perspectives Coaching exist?

To help small business owners Feel Great about Themselves and about their Business.

How do I do that?

Through a mixture of Coaching, Counselling, Mentoring, Guidance, Advice, Support and Accountability

What do I offer?

Aims of The New Perspectives Fun in Business Intensive™

  • To help people Discover their own Beautiful Business and Life and then to help them Build it
  • To support Small Business Owners to have Fun in Business
  • To put small business owners back in control of their life and their business
  • To be a vehicle for change, challenge, excitement, growth and learning.

The New Perspectives Business / Life Coaching” Tagline:

Would you like to discover your own Beautiful Business and Life?

The “Core” or “Guiding Principles” of New Perspectives Business Coaching

  • I act in accordance with the International Coach Federation code of Ethics..
  • I have “Unconditional Positive Regard” for my clients.
  • I have a “Solutions Focus”.
  • Find the smallest difference that makes a difference
  • Do more of what works and less of what doesn’t.
  • My structures are based on delivering common projects.
  • I keep things as simple as possible, and no simpler.
  • I pursue all opportunities with passion and enthusiasm or not at all.
  • My time, knowledge, experience and energy are valuable and I charge for them appropriately.

Further reading about business life coaching and finding the right support for you

Click here to download my Free Guide to finding the perfect coach or mentor for you.