OK, I have to be honest... I love talking about money, especially about paying yourself first. 🤑
There was a time back in 2017 or 2018 (I can't remember exactly) when I paid myself NOTHING. I was working over 60 hours a week and barely took a penny out of my business. Sales had dropped, but my overhead was still high, matching my previous sales pace. The problem...I wasn't prepared to deal with the recession we were in. Prior to this time, I had never had issues with paying myself.
I get it... when money is tight, not paying yourself seems like an easy way to "get by." Many business owners fall into the trap of reinvesting all profits back into the business, dealing with high overhead expenses, or struggling with cash flow management, leaving themselves underpaid or unpaid. This can lead to burnout and financial stress.
Here are five steps I started using to pay myself again:
1. Open Separate Bank Accounts
Create different accounts for profit, owner’s pay, taxes, and operating expenses. This separation helps manage cash flow and ensures each area gets its due share. The Profit First model uses an additional bank account, but this framework worked for me.
2. Determine Your Allocations
Assess your current financial situation and set percentages for each account. For example, allocate a certain percentage of your income to profit, another to owner’s pay, and so on. Adjust these percentages based on your business needs. Start at even 1%.
3. Transfer Funds Regularly
Consistently transfer funds from your income account to the other accounts based on your predetermined percentages. This discipline ensures you are consistently setting aside money for profit and owner’s pay. I chose to do this weekly, but each business will be different!
4. Pay Yourself First
Prioritize your owner’s pay account. This step ensures you are compensating yourself adequately for your hard work and not just covering business expenses.
5. Review and Adjust Regularly
Regularly review your financial situation and adjust your allocations as needed. This flexibility allows you to adapt to changing business conditions while still prioritizing your compensation.
I know this is easier said than done when money is tight. It's imperative to also look at your expenses (that's another blog post 😉). I remember hovering my finger over the "transfer funds" button on my online banking more than once. But once I got into the routine of moving money regularly and paying myself first, the shift was incredible!
Not only did I finally feel like my hard work was paying off, but I also experienced a sense of financial security and motivation that I had previously known, but lost. Knowing that I was consistently setting aside money for myself (and for the future of my business) gave me peace of mind and allowed me to focus more on growing my business rather than just surviving. It changed my personal and professional life. 🖤
