Small Business Finances: Paying Yourself

January 6, 2015
Small Business Finances Paying Yourself

So many people just jump head first into starting a small business with their only thought being about making money. They don’t put any time into how they will manage the money once it starts rolling in, especially not when it comes to managing how they pay themselves. Clients always ask how do I manage my income. Here’s my answer.

All Income Is Not Profit

One critical thought to understanding your money is knowing that all of the money that you make is not profit. This is a huge misconception; people who are starting out soon realize. Profit is a financial gain; the amount earned and the amount spent in buying, operating, and by producing something are very different. Don’t confuse what your dashboard says with what you actually made. 

Managing Your Money with Tools

In the last couple of years Outright bookkeeping has been the best thing that has happened to my business. I can see my income and expenses all in one place. It also saves me time and money when it comes to my taxes. This is still one of my favorite programs to recommend to new business owners. Last year the system had a couple of glitches with clients not receiving invoices so I went back to using WaveApp for invoices. Which is really good. The staff over there is pretty amazing and they are always answering my emails and tweets. A great tip to help you better understand your money would be to sit down for 2 hours a week managing it. Don’t be the person who doesn’t know where their money is going. Are you accruing fees and not realizing it? Small Business Finances Paying Yourself

Paying Yourself

My personal and business accounts all have a minimum amount in them. Having $2000 or more in your personal checking will keep you from having to transfer money every time you need money for something personal. This is how you build wealth and establish a good relationship with your money. I saw a very popular business owner tweet how her account had zero dollars in it and was waiting for her next paycheck. I was in shock because her company is super successful, unfortunately, her money management is poor.

small business finances and how to manage them

Graphic from Jaymee of JayAdores – image belongs to her and was created for her site. Using for illustration purposes.

You receive money from customers or clients. All that money is deposited into your business checking account. Roughly 70% off of that income stays in the account. You will transfer 30% to your business savings account. The purpose of having a business savings account is to cover taxes, unexpected expenses, or other business concerns. Now you will take a percentage of 30% or less from your business checking account and deposit that monthly, weekly, or bi-weekly as your paycheck. You can pay yourself monthly, weekly, or bi-weekly. It truly depends on your management of finances.

I am fine with paying myself every other week because there is a base amount of money always in my account that I can live on. Just like any other paycheck you receive, my check from my business covers the same thing. The income that stays in my business account is for business expenses such as: paying freelancers I contract, hosting fees, dues, and other expenses I have. In 2014, my goal was to keep my expenses under $1200 a month for business. Which I did great at. You can never really know what to expect with expenses. Your business could grow over night and what was once $89 a year for hosting turns into $89 a day.

Tools To Help

WaveApp, Go Daddy Bookkeeping and Small Business Finance Budget Worksheet – Paypal Option on Etsy.

To really succeed in business you need to learn how to manage your money not the other way around. Too many people are working hard to just live an average life; tragically they don’t manage their money well. How can you take a hold of your finances today?

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  • Denice Pigott

    Great article Tasha. This answered a question I have had for awhile.

    • imperfctconcept

      Super glad I could answer the question for you!

  • T

    Wonderful article! Very informative

    • imperfctconcept

      Thank you so much!

  • http://www.armcandycrush.com/ Kateria

    You mentioned outright a while back and it has definitely been a life saver!! Thanks for explaining what percentage should go into checking and what should go into savings and what you should take home as your pay.

    • imperfctconcept

      Yes, Outright is a huge life saver that I love using daily. I am glad that it can give a break down that you can understand it

  • http://www.thelimericklane.com/ Toya | The Limerick Lane

    I have been following you since I joined Twitter. Had no idea you had a blog. I just knew about your online store.

    • imperfctconcept

      Been blogging for almost 3 years. Online store closed last year. I consult small business owners and write the content for this site full time.

  • Cortnie Elizabeth

    Good post! Money management is crucial! Love the point about paying yourself weekly or biweekly, etc.

    • imperfctconcept

      Thank you. Yes, money management is crucial part of business. Once your company is profitable paying yourself weekly or bi weekly is great.

  • Cameon

    Something else to think about while paying yourself and saving are what taxes you’ll owe at the end of the year. This is where SO many business owners get in trouble!

    • imperfctconcept

      Yes, so many do not think about taxes. That is why it is important to set aside that 20-30% every check. In addition, to paying your estimated taxes quarterly.

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