As an entrepreneur and the owner of your own business, you have the privilege of doing what you love and being in charge. This also means you’re in charge of all major decisions, such as how much to pay yourself (enough to ensure you survive but not too much that you put the business under pressure). You can also decide when to give yourself a raise.
Whatever you do (and however much you pay yourself), you need to give yourself a monthly salary so that you can live and to remind yourself that you value yourself and your contribution to your business. This means considering whether to give yourself a raise when the time is right, for example, at year end.
If you’ve decided that you can afford, physically and emotionally, to give yourself a raise, here are some key ways to go about it:
1. Pay yourself from your profits and when they increase, so can your salary.
When paying yourself, it’s important to remember that what comes into your business is not the same as what you can afford in salaries. Much of the revenue you generate will go to fees, suppliers, and sundry or unexpected charges. Carefully evaluate all your expenses before deciding to raise your salary.
2. Invest excess cash into your business and benefit from it.
Instead of taking a full salary or increasing what you draw out of the business, consider keeping excess cash in your business account and using it to fund the growth of your business. Write it off as an increase you’re giving yourself in the form of helping your business grow. Most people quickly grow into their increases, leaving not much of value behind. Rather, use your business as your investment vehicle and reap the benefits with increased wealth in the long term.
3. Give yourself a raise in benefits.
One of the great things about running your own business is that the business can pay for some of your expenses such as petrol, phone, and client lunches. If your business is doing well, it can carry these expenses for you, leaving you free to use your take-home salary for other things. If you manage this process correctly, you will feel the results in your daily life rather than having a cash raise in hand. There are tax benefits too – talk to a professional financial adviser to understand how this and other wealth management tools can work for your business.
When not to give yourself that raise? When the business is struggling financially, if your employees are suffering alongside you and have not received a bonus or raise, or if you have large debts that need to be repaid.
Need help managing the financial side of your business?