How to Pay Yourself as a Business Owner
SBOBO (Sad, Burned Out Business Owners)
When a business owner says they’re burned out, when their face is worn and ragged, when they’re stressed out… I always ask this one question:
“Are you paying yourself?”
Usually they say “no.” There are many variations of this, but often it’s “not for the last year,” or sometimes “not enough.” Occasionally the business owner is even pouring more money into their business.
It’s time for this to stop. Keep reading, and I’ll tell you how to make it end.
Paying Yourself
There are two possible ways to read this question:
- I have money in my business. How do I get it?
- How do I get money into my business?
The first answer is easy: Transfer it from your business account to your personal account. It could be a bank transfer or a check. Whatever works. Have fun.
Now, how do we get extra money into the business account?
Business owners are paid with profit. Profit is good. It is necessary. If you don’t have it, your business is not a business—at best, it’s a hobby. At worst, it’s an anchor, dragging you down.
If you don’t have money to pay yourself it’s because you don’t have profit. One way to calculate profit is:
- Total your income
- Subtract your expenses
- What’s left is profit
How do you get more profit? Some say boost your income. Some say decrease your expenses. These are good.
But in the book Profit First, by Mike Michalowicz, he points out that this formula is BACKWARDS!
It puts profits LAST.
If your todo list is like mine, the stuff last on the list may not get done for a while. And this is why business owners don’t have profit. They put it last, and they never get around to making it.
I think you should read the book or the audio book. And, if you have Spotify Premium, you can get the audio book for free. Here’s the link – no, I make nothing from this. You can also get it at the library or Amazon.
But in short, he says to do this:
- Create a separate bank account and call it profit
- When you get money in your main bank account, transfer 5-10% of that money into the profit account
- Don’t transfer it back to cover your expenses
The principal is that psychologically, if you see your bank account look a little lean, it will motivate you to turn on the hustle to make more money or save more money.
And, more importantly, it puts profits at the top of the list rather than at the bottom.
Why This Matters
About half of businesses survive five years. The number one reason they fail is money problems.
You need healthy finances and, super importantly, healthy profits. I don’t want to see your business fail, I want it to succeed.
