Starting a Small Business – Should You Pay Yourself?
Category: Business Advice
When the decision on starting a small business comes down, most entrepreneurs do it for the financial freedom or to simply be independent and not have to worry about their job. But as a small business owner, you still have to get paid – which means that you probably have to work just as hard if not harder than you would at your job just to get paid.
But should you pay yourself when starting a small business?
It seems like everyone has a different opinion on this. But before we get into that, lets look at a few factors.
Your Personal Life
Looking at your personal life is very important when deciding on how much to get paid from your startup, or if you should get paid at all in the initial stages. If you are still employed and making an income from your job, and are starting your “side business” part-time, it is probably a good idea to keep the money you make and re-invest it back into the business. Simply because you don’t need it as much and it is better spent back on the business. However, if you are unemployed and this is the only way to make money, do pay yourself in order to ensure business goes on.
Funding?
When deciding on the application for funding to help move your small business along, that funding can be used to help you hire staff, train employees, conduct market research, assist in paying for your equipment, land and even for marketing and advertising. However, if you have enough, consider paying yourself a salary.
If when starting a small business you were employed with a salary of $100,000 per year, don’t expect to pay yourself the same right away – even if you can. Instead, the recommended pay for startup entrepreneurs is to take 15 to 30% of their market value for the initial stages. This way cash stays in the company. Again this is just a figure and needs to be adjusted as business moves along.
The Vibe
It is important to set the stage for your small business early on, especially if you have employees. If you decide to take all of the profits for yourself and cash out the employees will notice. Especially in a small business setting. Sure you can do it, you are the business owner. But be sure to also consider how this will look down the road and how the employees who are working for you, trying to make your business dreams come true will feel.
A portion of the profits is better spent by investing back in the business. Getting your employees help, purchasing the tools and equipment they need to do their jobs better is worth more.
The Early Mistakes
Mistakes that are made early on usually follow through to the company demise. Be sure to avoid these mistakes.
If as the owner of the small business you need to pay off debt, do it. Pay your debt first and think about paying yourself second. Not paying debt will result in interest charges which eventually will add to more debt for your company.
Mistakes can be made by paying yourself, and by not paying yourself. You have to be the judge of that with your own small business by looking at a number of factors. Do you make enough to cover all of your bills and expenses? Is there any money left over? Is there things you need to invest in to improve your business? Do you need to have some backup money saved?
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