How to Pay Yourself As a Business Owner

by Jessi Burg

We’ve all heard the jokes about how hard it is to be a small business owner. At your family barbeque, someone will say to you, “Why would I start a business? I like free time.” Or you’ll mention how you’re thinking about working for yourself, and someone will respond “Why would you start a business? So you can work more hours and get paid less?”  

Here at Outgrow Your Garage, we’re working to dismantle the myths that firstly, you can’t pay yourself as a business owner, and secondly, that working for yourself means a never-ending hustle. (Spoiler – creating a work-life balance at any stage of your business is next week’s blog). Today’s blog post focuses on a different ways of ensuring that you can pay yourself – regardless of the size of your business.

Let’s start with WHY you need to pay yourself. It’s easy to decide to reinvest all of your money back into the business because you want it to be successful, but if you don’t start paying yourself, it’s easy to continue not paying yourself. Even when we’re able to give ourselves a regular paycheck, we often underpay ourselves. 

Ultimately, underpaying yourself does both you and your business a disservice. It’s hard to hire when you aren’t paying the full cost of production, and it’s hard to expand when you feel like you’re always choosing between your personal expenses and your business expenses. It’s even harder to manage a work-life balance when your business doesn’t work well without your unpaid extra hours. 

Let’s talk about some of the ways you can build a paycheck into your business from the very start. Most of these methods rely on a single premise: that you treat yourself like an employee. This way, when you need to expand, you already know how those wages will impact your revenue. 

Hourly Pay

For every hour that you work, pay yourself a set hourly wage – ideally at least minimum wage, but your business may not be there yet. Even if you can only pay yourself $3 an hour, do it. Paying yourself an hourly wage sets you up for success because it gives you a clear idea for how many hours you’re working, and it means you’re already setting up a method for paying a potential future employee. 

This method works especially well if you have a retail establishment or a non service-based business. As your revenue becomes more stable, increase your wage until you reach the market rate for your industry. In this case, you want to pay yourself for ALL of the hours you work. Track your time, and pay yourself accordingly. This is the easiest way to ensure that you’re accounting for all of your labor. 

Per Job Percentage

This method works great if you run a service-based business. Take a certain amount of your profits and pay yourself for each job you do. You want it to be the same every time, and you can use whatever is left to reinvest in your business. 

By giving yourself a percentage of each job, you’re setting the expectation that every job earns a profit. If you plan on hiring sales people later, you already have a commission structure built in. If you want to hire an hourly employee, those wages can come out of the percentage you reinvest into the business. As your business grows, you may find that you want to lower the percentage you take from each job. Since there are more jobs, you can make the same amount of money with a smaller percentage.

Salary

Pay yourself a salary every one or two weeks. You can start small and work your way up – the important thing is practicing paying yourself regularly. As your business grows, you can increase your pay, hire additional staff, or invest in software or technologies to increase efficiency.

Remember, you can’t afford to hire someone until you’re paying yourself at least what you would pay someone else. This method is a great starting point if you’re planning to hire an administrative or overhead position as your first hire. It’s also a good method for anyone who operates on a subscription model, where you have reliable income each month. 

Billable hours

If you’re a service provider who charges clients by the hour, paying yourself by the hour is a great start. Ultimately, you want to be able to hire additional people to work on job sites. The easiest way to build that into your budget is to pay yourself whatever you would pay another person. As a bonus, when you train a new person into the position, you’ve already set up a method to pay both of you. 

For example, say you charge clients $50 per hour, and you pay yourself $25 per hour. When you bring another person on, you’ll still charge clients $50 per hour, but now it’s per person per hour. For every hour you work, the client is billed $50, and you make $25. Every hour your new hire works, the client is billed $50 and your new employee also makes $25. 

Overhead Hours

Another option is to pay yourself for your administrative time and your billable hours separately. This works great if you charge clients by the job, and you can use it in conjunction with paying yourself a percentage of your job revenue or an hourly rate for billable hours.

For example, maybe you pay yourself $15 per hour for office work, plus 30% of your project revenue. When you want to hire someone, you have already budgeted for both an entry level office worker and another person to work on projects. 

Regardless of how you pay yourself, make sure that you’re consistent. In some cases, entrepreneurs choose not to pay themselves because they’re starting the business with their savings. If this sounds like you, start paying yourself back as soon as you get any revenue at all – even if it’s a small amount, and even if your business isn’t profitable.

The earlier you start paying yourself, the easier it will be for you to hire effectively when the time comes. If you aren’t planning to hire, it’ll still teach you the habit of paying yourself first – which also means you’ll have a better handle on how much it costs to run your business and maintain a life outside of it. 


Want more from Outgrow Your Garage?

-If you’re looking for business support, stop by our co-working sessions! Twice a week, we virtually bring business owners together from a variety of industries to work on their businesses, share insights, and troubleshoot issues.

-Check out our full online business course catalog for all of your operational needs! Select a course based on what area of your business you need help in, and pay a one time fee for unlimited access to its content, activities, and resources.

One thought on “How to Pay Yourself As a Business Owner

  1. Cate

    There are so many ways to pay yourself that I hadn’t even considered before! Super list of ideas and I’ve just shared it with one of my clients that needs the advice. Thanks OYG!

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