Why Paying Yourself a Proper Salary Is a Smart Business Move

The Reality of Small Business Owners and Salaries

Did you know that 45% of small business owners either don't pay themselves a proper salary, or indeed any salary at all? This startling statistic is a reflection of the mindset prevalent among many business owners.

As small business owners, we often tell ourselves that we need to "invest" our time working in the business, and that every business owner does this in the startup phase. And even once we get past that stage and revenue increases, often we still only pay ourselves a modest salary. 

Often, as entrepreneurs we withdraw cash from our businesses throughout the year as and when it's available. And then, when cash flow gets tight (as it invariably does), they willingly put money back into the operation.

There seems to be an unwritten rule that everyone else has to get paid first. The owner’s time and effort are viewed not as something that deserves compensation but rather an "investment" in the business - a perspective that needs rethinking.

Paying Yourself: More Than Just Compensation

Why should small business owners pay themselves a proper salary? Simple – because we earn it; because we do the work! When you're working long hours each day on your venture, those aren't just abstract numbers - they're real hours with tangible value attached to them. Paying yourself a proper wage helps acknowledge this very fact. It underlines how much you value your own time - an important step towards ensuring others respect your work too.

Your business should allow you to pay yourself enough to support the lifestyle that you want. Buy a house, pay off the mortgage, go on holiday and support our families. After all, isn't that why we go into business in the first place? 

Is your business sustainable?

Beyond being fair compensation for your labour, paying yourself also provides vital insights about whether or not your business is sustainable in its current form. By drawing out regular wages like any other employee, you can see whether the business is actually profitable, and where you may need to increase prices or reduce expenses if you're not making as much money as you need. 

A Proper Salary: Your Key To Future Opportunities

Taking home a salary doesn't just benefit you now - it can open doors for future opportunities as well. Understanding what it would cost to pay someone who does what we do in the business allows us to calculate what replacing ourselves could potentially cost - something that's crucial if you ever want to step back or sell the business.

Business owners should pay themselves a salary that reflects their value, because it actually adds to the value of your business. Contrary to what one might think, businesses that appear profitable but rely heavily on the owner as a source of free labour are not truly profitable, as any accountant will tell you. When it's time to sell your venture and move onto new challenges, you want the business valuation to be accurate and fair - something that's impossible if you've been working essentially for free!

While it may seem selfless or even sensible in short term financial management not to pay yourself a proper wage when running your small business, this practice is far from healthy or sustainable. You deserve compensation for your hard work; don't undervalue yourself. Plus, ensuring regular earnings will provide a more accurate picture of where your company stands financially—allowing adjustments as necessary that can lead towards sustainability and growth.

How can business owners ensure they're getting paid? 

Profit First is one of the best ways to ensure that your business is profitable and that you pay yourself as a business owner. When you set aside money for profit, owner pay, and tax first, you're ensuring that your business is both profitable and sustainable. Having a separate bank account for owner pay, even if you're on payroll, helps you to prioritise your financial wellbeing and pay yourself a regular salary. 

Want to learn more about how you can reverse engineer your business so that you can pay yourself based on what you're truly worth, and make a profit? Check out our