Are You Robbing Your Own Business Of Growth Money? Here’s How To Pay Yourself Properly…

Good profit management isn’t as clean cut as ‘what money is made is yours’. I get that you’re doing all the ‘hard yards’ and trust me, I want you to enjoy as much of your business profits as possible. But, the money you make in your business needs to be managed like a precious commodity. Here’s why…

Overindulging in your business profits can seriously hinder business growth. The profits of your business not only act as financial padding for unexpected business costs but can also be used as investments in future business growth. If you end up in debt because you didn’t leave enough of a monetary buffer or if you miss out on growth opportunities because you didn’t have money to invest, then you are essentially prohibiting the scalability of your business.

It’s important to remember that when you withdraw money from your business as personal income you will be taxed (like we all are). Expenses paid out from your business account (obviously for business purposes) are often tax deductible.

So, the question that remains is, what income options do you have? You’re the one running the business, where is your cut?

As an “employee” of your business you should allocate yourself a salary for the year and pay it out weekly/fortnightly/monthly etc. as you would any of your employees. Why should you miss out on the ongoing benefits of future wealth building with superannuation simply because you are the owner of the business?

Your salary is simply considered a cost of the business. Without you there, you would have had to pay someone else to do your job, right? 

The salary you pay yourself should be enough to live (do a personal budget to figure this out). If you can afford to do so, align this figure with the salary someone else would earn if they were employed in your role.

It’s best not to rapidly increase your salary because this could eat into the money that should be kept aside for the business investment and security purposes I described earlier.

Instead, continue your salary as normal and talk to your account about the possibility of paying yourself a ‘director bonus’ at the end of the year. This all depends on your personal situation as to whether this is a good idea based on the business performance in that particular year.

Alternatively, you can reassess your salary figure at the end of a year and increase it by the same margin that your profits have increased. For example, a 5% increase in profits will give you a 5% raise in salary.

Obviously the salary you pay yourself is completely dependent on your individual situation. The key is to understand your business finances (check out The Tradie Show Episode 4) as well as your personal finance! Finding a balance between the two is vital so that you can live comfortably and run your business in the most effective way possible!

The critical part about this is to ensure you, as the business owner, protect the business to be able to take advantage of growth opportunities by keeping profits within the business, and in addition to that you are looked after as an ‘employee’ of the business by being paid a salary and continue to accrue superannuation for future wealth creation.

Don’t cut yourself or the business short by failing to manage your money correctly. You’ll regret it in the long run…

What’s next?

  1. Join our Kick-Ass Tradies Facebook Group, for access to trade business specific conversations, tips and resources, plus a like-minded community of tradies.
  2. Book a 15-minute Game Plan Call with Andy, owner of Dr. DRiP plumbing and co-founder of Lifestyle Tradie, to clarify your priorities and get clear action steps.