How to Pay Yourself a Salary as a Small Business Owner & NOT Feel Guilty About It!
Many accuse business owners of dipping into the company’s purse but I can safely tell you it is the business that actually takes from you. I put every dime I had into my business. If I wanted to be strict, I would say other sources should go to me directly not into my business. It does not work that way. Those who say they never touched a dime probably had people footing other bills for them.
This is what I tell people and my students who ask me for advice.
1. Every business income must go straight into the account. For that reason, I hardly take cash and ask people to pay directly into the account.
2. The truth is, you can never really pay yourself salary until you get to a point because you will only end up using it for a business expense.
3. Determine how much salary you think you deserve and then also give yourself a realistic nominal value based on what your business can afford. Eg. You are a CEO so maybe your salary should be n750k per month BUT your business can only afford N50k. That extra 700k should be recorded in the books as what your company is owing you which will help give a basis for the valuation of your business should you want to go limited and sell some shares.
4. With that 50k, you will probably still use some of it for the business so it is a tall order so this is what I do.
I don’t spend much on myself so it is easy for me to track my finances. I have a book I record it in.
If I ask my assistant to get some petty cash for the office and say I ask him to buy me something to eat on the way back, I will record that expense as a personal one in my book.
At the end of the month, I will compute all personal expenses and if it exceeds that 50k, I know next month, I must take out that extra. Simply put, if I have overspent by say 20k the previous month, this means I can only do say 30k personal expense this month and vice versa. If I have not spent up to 50k, it means the office owes me but rather than take it as cash, I add to that 700k.
It takes a lot of discipline but it does work. That way you do not feel guilty when your salary pays for a sausage roll or a movie ticket. After all, why am I working if the business cannot meet my needs.
I am not talking about 250k Gucci bag needs o. I used to be a Jewellery person before but I don’t do much Jewellery anymore because I am running a lean means approach to everything.
If I need something that I cannot afford, I ask for it. I will pray about it and put it on social media and funny enough, a friend obliges. That’s how I got my iPad mini as a wedding gift and so many other things I use in my business – things I would not have bought for myself. I am never shy to ask if I need something. Worst case scenario, I will get a NO.
But I am allowed to enjoy the fruits of my hard labour. I feel if your business cannot meet your basic personal needs, then you are not running a business!”
Please whatever the case, don't forget to:
- engage an accountant to help you properly qualify these expenses in your financial accounts; and
- factor in the tax elements of these payments and remit when due.
I also did 2 podcasts on this topic. Click on these links to access them:
Why You Should Pay Yourself a Salary as a Small Business Owner
How You Can Pay Yourself a Salary as a Small Business Owner