Cutting yourself a wage
Paying yourself for your work is SO important. Many shop owners do this last, after they’ve paid for their expenses and reinvested a bit of money in their business. That’s not a good way to look at it. You have to look at your wage as an monthly expense and pay it as if you were employing someone.
You wouldn’t pay them last would you? Then, there’s no reason to do that to yourself 😉
“Mmh.. ok so how am I going to pay myself then?” – you’re wondering.
Well, your labor costs are part of your pricing formula (and so are your fixed monthly costs, and your variables costs). The price for each of your item will therefore incorporate your labor cost. At the end of the month you will have:
Step 1 // Sales x Price = Revenue
Step 2 // Revenue – Expenses = Profit
You should use your profit to set money aside for tax, re-invest in your business, and… pay yourself!
Decide on a percentage of profit you want to allocate for each and do the math – here’s an example:
If your profit (after paying your expenses from your revenue) is $1500, you could
- Put 25% of it away for taxes: $375
- Write yourself a check for 55% of it (as a business owner): $825
- Put 20% aside for re-investing in your business, upgrading your equipment, etc: $300.
In our example, that means you pay yourself $825 from your share of the profits 🙂
You have to find an allocation of the profit that works for you of course, starting with figuring out how much you need to be putting aside for tax – but do yourself and your business a big favor and write yourself a check consistently. Pay it into your personal account to keep things separate and organized.
This is the foundation of an healthy business – and life!