No one goes into business to work for free, and most business owners plan to take a salary, but it is easy to prioritize your compensation last. While paying yourself is essential, it’s a concept that many need to practice. Business owners will put everything back into their business and don’t track how much money they actually take out of the company for their compensation. Often, people who put all the money they can back into their business believe it will result in a more significant ROI than taking a salary. Today we want to talk about why business owners should pay themselves first, for long term success.
As the founder of your business, you are the primary investor! While you might not be dumping a ton of money in, you are putting your knowledge, talents, and sweat equity, which deserves payment. Also, as an investor, you should expect a return on your investment. Even if you are at the beginning stages of business, ensure you pay yourself something! As your business grows, you can increase compensation.
We like to think of this as putting your mask on first. Your business can only thrive if you can continue doing your work! So, take care of your needs to allow you and your business to keep moving forward.
Business Owners Often Have Financial Priorities Backwards
There is a common practice by business owners to work as hard as possible for little or nothing. While this can be necessary to get your business off the ground, it must be VERY temporary. It is often surprising to learn how many CEOs continue to pay themselves well below their actual value or nothing at all! Instead of taking care of themselves first, they take care of everything else, and if there is anything left, they pay themselves something.
By shifting the practice to paying yourself before anything else, you will figure out how to take care of everything else. If your personal finances are at the bottom of the list, you will accept the scraps, but if the bottom of your list is a bill that must be paid, you will make it happen. Remember, where your focus goes, your energy flows. This is true for business finances.
Prioritizing your Finances is Planning for Success
As mentioned above, your business can only be successful if you can survive financially in your personal life. When you consider your personal and business finances, you are planning for future success. Making finances a priority helps:
Builds Discipline
Paying yourself first by withdrawing a fixed amount of money builds financial discipline. This practice will become a habit that reinforces valuing your time and contribution to your business. As with all habits, paying yourself becomes easier over time. Not only because you rely on a paycheck but because it becomes a bookkeeping practice that happens at least once a month.
Creates a Work/Reward Cycle
Paying yourself first creates a work/reward cycle reinforcing that your hard work results in a reward. Anyone you hire is working for the reward of a paycheck, and you should also consider that a reward!
Consider paying yourself a form of self-care! Even though you own your business and likely started it because you love what you do, going without a paycheck can quickly turn your passion into resentment.
Your Business Cannot Survive Unless You Do
If you are not paying yourself, you are working for free. Not only is this not a long-term plan for your personal finances, but it will also lead to burnout. While it is understandable that you might be bootstrapping to get your business off the ground initially, you should be paying yourself as quickly as possible. Working for free leads to resentment, high levels of stress, and, ultimately, a lack of motivation to keep going.
Unless you started your business with an enormous safety net of savings, it is not sustainable to go without a paycheck. It costs money to exist, and if you want your business to be around for the long haul, you have to be able to support yourself outside of your business. Your business will go through various stages, such as startup, growth, maturity, and sometimes a decline. Each stage of business will determine how much you can pay yourself. If you would like to dive deep into how to create a regular payday, get in touch! Our VIP days are perfect for going deep with your business finances and coming away with a clear path forward.
