Why did you start your business?
It can sometimes seem like a taboo subject, but when we get down to it, we all started our businesses to make money, right?
It’s fine to be in business doing something that you’re truly passionate about, or a cause that you support strongly, but unless you’re running a non-profit – you started your biz to make money.
It’s a cliche, true, but money really DOES make the world go round, and if your business isn’t bringing in that dollar, it doesn’t make sense! Having said that, there’s bringing in REVENUE and bringing in PROFIT. And if you want to make sure you’re benefiting from all that income, you need to consider how to give yourself a raise (my free Profit Plan tool will totally help you with knowing your numbers!)
How to pay yourself more
Very few business owners I know are paying themselves consistently from their business. Even fewer know how to go about giving themselves a raise.
I have great news – it is really simple to work out how to give yourself a raise from your business. You just need to make sure you’ve got all your ducks in a row first so you don’t end up with an income you can’t sustain.
I’ve set out my roadmap of steps to follow below to make sure you’re totally ready to start paying yourself more – and enjoying it!
Step 1: Know Your Profits!
Unless you know exactly what your business numbers are doing, you’re not going to be able to start paying yourself more. It’s a simple fact.
You need to make sure you have a clear understanding of the profits your business is bringing in before you can make any decisions.
I talked about in my previous post. Your revenue (all the money coming into your business) minus your expenses (everything you’re having to pay out) equals your profits.
My free Profit Plan tool will make it super simple to calculate this so make sure you download it to help figure this step out. Before you can go any further in looking at increasing your pay, you need to be completely clear on your average monthly profits!
Step 2: Set a Personal Budget
This is something I am seeing A LOT of entrepreneurs let slide! It’s completely understandable – when you’re running a business, sometimes your personal and business finances are going to get a little merged.
You need to make sure you have a very clear picture of what is happening in your business AND personal checking accounts!
Sit down, go through your personal finances and get really clear on exactly how much it costs to sustain your current lifestyle. What are your mortgage and car payments? Credit card repayments? Utilities, groceries, insurance? Having concrete figures for your monthly personal spend is vital to calculating how to give yourself a raise.
Budget Planners – some apps I personally like to help set yourself a budget are
- You Need A Budget
But you can also get the data you need from a simple Google Spreadsheet. Just make sure you know your exact personal spending figures!
The WIN Method
Once you know how much money you need to sustain your current lifestyle, you also need to think about how much money you want, and what impact you want to make before you can give yourself a raise.
I call this the WIN method. You might decide that you want to be walking away with $1000 every month in your pocket, that the impact you want to make is $1000 in charitable donations each month, and you calculated that you need $5000 each month to cover your expenses.
Those are pretty clear numbers for what you are aiming to pay yourself each month.
Bear in mind that these figures aren’t set in stone! You might currently have a $2000 mortgage, but you want to move to an area with better schools – which will cost an extra $1500 a month.
You can work out how to give yourself a raise that meets your CURRENT requirements and still know what you want to aim towards in the future!
Quick note – your impact doesn’t have to be financial! A lot of people don’t have spare income yet to make financial contributions to a cause that is near and dear to their heart and that’s ok. You can still have an impact on your community if you don’t have money to give. Instead you can donate your time which is of course as valuable a resource as money and will still have a tremendous impact on the cause that is important to you.
Gross vs Net pay
This is a crucial step when you’re working out how to give yourself a raise, and one that I find a lot of entrepreneurs skip.
The extra money you pay yourself won’t all go into your pocket! You have to remember that some of it will be going to Uncle Sam!
If you decide you want to take home an extra $500 a month, that means you need to actually pay yourself MORE than that extra $500, because you need to account for your taxes! It’s a good idea to reach out to your tax preparer and tell them how much you want to give yourself as a (take-home) raise. They will help you calculate the actual amount you will need to increase your monthly pay by.
I usually recommend accounting for 30% of your gross pay as taxes, although this can vary from one situation to the next.
Is it sustainable?
It’s great to decide on a figure that you can give yourself as a raise, but you need to make sure you can sustain that extra amount from one month to the next.
So much has happened over the last year and a half that we should all have learned how quickly things can change. A lot of businesses didn’t survive COVID because they didn’t have enough cash reserves to prepare for the unexpected.
I recommend having a healthy 3-6 months worth of operational expenses saved before you think about giving yourself a raise.
The final thing I want you to think about before deciding on giving yourself a raise is how you’re going to spend that extra money.
One of the most common things I see in the entrepreneurial community is money not being spent sensibly!
If you’ve calculated your profits correctly, you have a personal budget set and you’ve got your nest egg in place, you should be in a position to give yourself that raise. Enjoy it! If you’ve calculated that you can sustainably increase your monthly pay from $4000 to $6000 that’s amazing! Just think about how you can be SMART with that extra money!
It is so tempting to blow all that extra on fancy dinners, a new closet and your dream car. I am absolutely not saying you shouldn’t enjoy yourself – I believe in Work Hard Play Hard!
However, I strongly urge you to consider how that extra money can set you up for your future. Think about how you can set up a retirement account. How can you strategize your money, how can you start building generational wealth alongside upgrading your lifestyle and getting those goals??
Are you going to do it?
I hope my roadmap has outlined the exact steps you need to take before making this decision. If you want to see me discussing these in more detail, please check out my video on Youtube about How To Give Yourself A Raise.
Don’t forget to download my free Profit Plan resource to help with your calculations too!
If you work through all this and decide you’re able to give yourself a raise, let me know in the comments! I would love to hear how you all get on!
Check out my website to learn more!