Prioritising Owner Pay: Taking Care of Yourself and Your Business

As self-employed Mamas, we often prioritise everything else in our businesses over paying ourselves. However, it's crucial to recognise that paying yourself as an owner is essential for creating a sustainable and financially stable business. In this blog post, we'll discuss why paying yourself matters and provide a step-by-step guide to help you develop an intentional owner pay schedule that meets your financial needs.

Why Paying Yourself Matters:

Many self-employed individuals neglect paying themselves due to various reasons, such as being overwhelmed with business tasks, not knowing how to establish an owner pay schedule, or believing there isn't enough money available. However, paying yourself sets the foundation for your business to take care of you and reinforces the habit of including yourself in the financial equation.

Step 1: Determine Your Available Income To develop an owner pay schedule, start by figuring out how much money you have available to pay yourself. Remember, not all the revenue your business generates is disposable income. Differentiate between gross income (total revenue) and net income (revenue minus expenses) to understand the actual amount available to you.

If you use a digital accounting program, review your Profit & Loss statement to find your net income. If you don't have a tracking system, you can manually calculate your net income using bank statements, pen, paper, and a calculator. Gain clarity on your net income to proceed with establishing your owner pay schedule.

Step 2: Set Aside Money for Taxes Before allocating any funds for your personal use, it's crucial to prioritise setting aside a portion of your income for taxes. Remember, everyone's tax situation is unique, and factors like personal deductions, dependents, and filing status can impact your taxes. Consider the following tips to determine how much you should save for taxes:

• Consult your CPA for guidance on the percentage of income to save.
• Review your previous year's tax return and use the quarterly slips as a savings guide.
• Save around 30% of your net income monthly.
• Utilise online tax calculators, ensuring you input your projected annual net income, then divide the result by 12 to determine the monthly tax savings.

Step 3: Calculate Debt Repayment Goals If you have business or credit card debt, it's important to allocate a portion of your income toward repayment. Separating your personal and business finances allows your business to take care of its own debt and ensures its long-term sustainability. Determine how much you can comfortably put toward debt repayment each month to start chipping away at it.

Step 4: Establish Business Savings Goals Consider your business goals and the investments you need to make to achieve them. Saving for these goals within your business is crucial to support growth and prepare for unexpected expenses. Break down your savings targets for specific items, such as equipment, training, or building an emergency fund, and determine how much you need to save monthly.

Step 5: Determine Your Personal Needs After considering taxes, debt repayment, and business savings, you'll have a clearer picture of the income available for personal use. This figure, your owner access number, should align with your personal needs. Create a personal budget if you haven't already, and determine the exact amount you require from your business on a weekly or monthly basis.

Adjustment Time: When Personal Needs Exceed Owner Access If your personal needs exceed the available income, it's time to make adjustments. Consider the following steps:

• Review your business expenses and identify areas to cut back, increasing your net income.
• Adjust your debt repayment goals if necessary, allowing for a slightly lower payment to maintain personal financial stability.
• Modify your savings goals, either by saving less over a more extended period or exploring more cost-effective alternatives.
• Evaluate your personal budget and identify areas where you can reduce spending, enabling your business to better support you.

Note: Do not adjust your tax savings as it's essential to maintain your tax obligations.

Paying yourself as an owner is a vital aspect of building a successful business. By following these steps and prioritising your owner pay, you'll establish a sustainable financial framework that takes care of both yourself and your business. Remember, you deserve to be rewarded for your hard work and dedication.