‘For Many Entrepreneurs There Is NO Payday!’
Your business should be able to pay you. However little. This ensures that you get something out of your efforts even if the business were to go under and gives a sense of satisfaction.
Also, you would not work for someone else for nothing so treat your self as an employee in the organizations that should be paid. Below are some ways to ensure you get to pay your self.
a. When and How To Pay Yourself
Even though your business structure determines how you pay yourself, the details of how and when you do it is another thing altogether. Understand the value of your time – don’t just come up with a figure, or cost it based on the market rates. If you cannot afford it in the beginning start from a lower amount and increase your pay with time. When there is the availability of funds, there are four ways entrepreneurs can handle their payment, these are detailed below.
i) No Compensation: in this situation, you do not pay yourself but reinvest the profits into the company. This increases your valuation. The risk is that when you are in the habit of not paying yourself when times are hard you may end up not paying your own personal bills and this could accumulate over time which can strain you and your personal resources.
Even a little payment can help you cumulatively over time. It also gives you a sense of reward for your efforts should things not work out later as you would have benefited from having the business.
ii) Percentage of Profits: with this option you take a percentage of the profits periodically. This can be your judgment call as a sole proprietor or you can agree with your partners and shareholders.
iii) Leftover Approach: this happens when you pay all your bills and employee salaries before you pay yourself from whatever is leftover.
iv) Pre-determined Salary: with this, you handle your salary the same way you would your employees’ salaries. you get the market rate for what employees who do what you are doing are paid and set that as your salary. You could also take a percentage above employee salaries. Either way, this is predetermined and not worked out periodically based on the performance of the company.
b. Pay-outs
Pay-outs refer to the withdrawal of significant amounts from the company to either pay dividends or investors. As with paying yourself you really should have your numbers right before making any significant payments. This is important because you will be drawing much more than your salary.
You may want to pay out high-interest loans, credit cards, and other expensive debt when you have funds available. These may be scheduled payments or one-off payments. Make pay-outs only when scheduled and when you have finances to pay off significant amounts.
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