With all the numerous costs associated with starting a new business, it’s understandable that you may question whether you can afford to pay yourself a salary. The truth is that you have to, you deserve it.
Figuring out exactly how much can be confusing-especially if it’s your first time running a business. Don’t worry, it’s not super complicated, basically, there are no right or wrong answers when it comes to setting your salary but there are several things that you need to consider. Let’s have a look at some of the main things:
What YOU need to earn:
You need to have a good idea how much you have coming in AND going out as a first step in coming to an amount. As dedicated as you are to getting your new business off the ground, your bills still need paying, such as your mortgage or rent, food, and household bills.
Add up the total costs of all your essential monthly outgoings to help realistically work out a starting salary you’ll need to take out of the business to meet these needs. Include essentials such as food, utilities, travel, clothing, and bills. Be honest with yourself and include expenses that may not be essential but are monthly costs you are not willing to forego, such as a subscription to streaming TV services.
By not paying yourself you may actually be lessinging your chances of growth:
Investing everything into your new business and not taking a salary for yourself may seem like it shows dedication to your venture on the surface, but this is a common misconception.
As the key person in your enterprise, potentially leaving yourself financially vulnerable may prove detrimental to your business plan and harm your new venture’s prospects in the long run.
If you’re not earning anything from the company, investors may question its commercial viability if it cannot support its founder.
Without a regular salary, everyday financial pressures, such as paying bills, can mount – it could even tempt you to take on an unsuitable, high-interest personal loan or overuse credit cards.As important as taking a regular salary for yourself, getting the balance right and considering not taking too much out of the business in its early days is important.
Tax:
Generally speaking, the more you earn, the more tax you’ll pay so you may want to consider this when setting your salary. For reference, here are the different income tax thresholds.
We have tax resources on our website as well as numerous blogs all there to help you on your entrepreneurial journey. You can find them here.
Rainy day cushion :
Whether personal or business, having a little extra to allow for the unexpected is a good idea.
Paying yourself – even when you’re just starting out is important. When you compensate yourself you’re not only demonstrating your commitment to your enterprise, you’re also (and rightly!) rewarding yourself for the time and effort that you are putting in.
We have a website full of resources as well as courses and workshops that can help you to figure all of this out- Why not book an appointment with one of our business coaches who are EXPERTS at this! All the family at Tree Shepherd are here and happy to help, just reach out!