“I am the business and the business is me.” This was Maria’s response when I asked her how much she pays herself every month. Maria, a timber trader, was one of several business owners at a workshop I facilitated last week.
Maria and many other participants simply did not see the need to earn a salary from their businesses. Whenever Maria needs spending money, she takes the desired amount from her timber sale earnings.
Do you like Maria consider all the money your business makes to be your spending money? Or is the business unable to pay you a salary because it cannot afford to?
Below are some of the reasons that convinced Maria and others to begin paying themselves a salary with immediate effect.
Understand business performance better
Every Shilling of your business earnings that is spent must be recorded. Some business owners do not record their spending at all.
Others record the amounts of money spent on the purchase of business inputs but neglect to record the business earnings spent on personal needs.
I informed Maria that she was free to spend on her personal needs, she just needed to record the funds used in that fashion as part of her salary.
Because Maria already has a rough idea of what her timber business earns every month, it was easy for her to name a figure for her monthly salary.
By recording that figure every month and restricting her personal expenditure within those boundaries, Maria will be developing financial discipline as she gains a better understanding of her business performance.
Within six months, we shall be able to tell exactly how profitable (or not) her business is. Until that workshop, Maria had imagined her business to be profitable because she always had money to spend in her pocket.
If the business does not generate enough money to pay salaries to employees including you the business owner, that is a signal that all may not be well. Further investigation is required.
Reward your efforts
It is not uncommon for business owners to take their contribution to the business for granted. Our labour is a business input and should be rewarded just like the labour of all the other business employees.
Employees expect to be paid a salary for their efforts and so should you, the business owner. Paying yourself a salary will attach value to your contributions to the business.
Commit to paying yourself a salary no matter how small, even when your business is in its early days.
Your salary is a legitimate business expense.
A salary might also be a form of motivation that prods you into thinking of creative ways to grow your business in order to increase its earnings and thus raise your salary.
Start paying yourself a salary today. It will help you understand how your business is really performing and will be a welcome monthly reward for your hard work.
SOURCE: Daily Monitor