Running your own business can be exciting, but figuring out how and how much, to pay yourself is often tough, especially when you’re just starting out.
It’s important to find the right balance between rewarding yourself and making sure your business stays strong. The first step is knowing the minimum amount required for you as an owner to meet your living expenses. This is vital because if the business is the only form of income, you are receiving you need to be able to ensure business revenues that support this.
Usually, the road to being fully self – employed is begins with a side hustle that becomes your main hustle. When the side hustle makes the money, you would earn as a salary consistently. Take the owner of an events company, for example. Landing your first big job is a great feeling, and it might be tempting to take a large payout. But if you stick to a modest salary and leave most of the money in the business, you’ll be ready when something big comes up. If you’ve saved up some money in the business, you can jump on opportunities and put on a great event without worrying about where the cash will come from.
Savings in a business, help you pay the bills and keep the business going. Banks and investors also like to see that you’re saving for the future, not just spending everything right away. Reinvesting in the business, showing commitment.
Having money set aside means you can:
- Navigate low and peak business cycles more proactively.
- Take advantage of opportunities like investing in new systems, software, or tools.
- Being able to raise funding for your business because banks and investors see a business with consistent cashflows and healthy balance sheet.
It’s also important to keep your business and personal money separate. Buying a van to move equipment and deliver stock makes sense for the business. Using company money for a holiday doesn’t. Pay yourself enough for your needs, but don’t dip into business funds for personal treats.
A lot of business owners don’t pay themselves at first, relying on savings or help from family. As things pick up, a good rule is to pay yourself somewhere between 2% and 20% of what the business brings in, depending on your type of business and if there is debt in the business. You may need to prioritise debt repayment instead of paying yourself more.
Whether you take a regular salary or pay yourself from profits, make sure you understand how it affects your taxes. If you have business partners, agree on pay upfront and put it in writing.
Finally, plan how you pay yourself as part of your business strategy – not just whatever’s left at the end of the month. If you pay yourself too little, you could burn out. If you take too much, you could hurt the business. The best approach is to pay yourself what you really need, while saving enough to be ready for the next big opportunity.
Palesa Mabasa, Business Development Head at FNB. She writes in her personal capacity.
