Life as an entrepreneur can be financially and personally rewarding, but at times, it can also be downright frustrating, especially during the start-up phase. If you feel you are working harder than ever and not sure if your hard work is paying off, you’re not alone.
When it comes to your salary, there is one thing to remember: Businesses take time to develop. One of the most important qualities of an entrepreneur is patience. As your business grows, so will your compensation and your ability to move toward a debt-free life. But you have to wait for the right time to give yourself a raise, because paying yourself too much too soon could lead to a business disaster.
No matter how hard it is, at the beginning of your business venture, your salary should not be the priority. Establishing your business should be at the top of the list. In time, once your business is going strong, your salary can become more of a priority. In the meantime, you may want to consider starting your business as a part-time venture while maintaining your current job, until your business gains some momentum.
Factors to Consider Before Paying Yourself
There are a few things you may want to consider before dipping into your business’s profits.
Decide on a payment plan, and stick to it. There are a number of ways to determine how you are to divvy up your profits, including:
1. Market-based wages, where you compare salaries of similar entrepreneurs in your area to help you determine what you should pay yourself. You may not be able to pay yourself a comparable salary right away, but it will give you an idea and help you set a reasonable goal for the future.
2. The monthly budget approach, which is based on your personal cost of living, to help you determine the minimum amount you need.
3. The percentage above employees (if applicable), is where you would take into account what you pay your employees and pay yourself a percentage above that number.
Know that you may not receive a salary you are happy with for the first six to 12 months you’re in business
It’s OK to pay yourself. The key is to not take too much too early.
Don’t give yourself a raise just because your business is having a good month or several months. Use that extra cash for expansion purposes or for when your business is having a not-so-good month. If you don’t, you could get into the habit of taking the available extra cash, and you could be left with no way to fix a serious problem later down the road.
The key to getting paid as an entrepreneur is to remember that slow and steady wins the race. Be patient. It’s easy to get excited over your new business venture and even more so when it starts to take off, but make sure you have enough money set aside for those slow months.
Debby McGrew writes for Debt.org, America’s Debt Help Organization. She hopes her contributions will help consumers make smart financial decisions.