MBA2110 Q&A Wednesday: Am I paying myself enough?

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Hey oh. Welcome to the $100 MBA show. No fluff, just the good stuff. Every single day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my co founder back in 2014 and today's episode is Q and A Wednesday. On Q and A Wednesdays, I answer a question from one of you. One of if you got a question you want to ask, just go ahead and email me over at Omar MBA Net and today's question is from Randy and Randy asks, hey Omar, I have a very simple question. Am I paying myself enough? My business is finally growing and it's not massive growth, but I'm making more sales each month. Up to this point I've been paying myself the absolute minimum around $4,000 and this is just enough for me to pay my rent, my bills and just to get by. I have no extra cash for going on holidays, savings or even emergencies. I've been reinvesting the money to keep the business growing, but now that I'm making a little bit more each month, should I pay myself more? How much should I be paying myself or will the growth of my business suffer? Would love your take on this thanks so much. Love the podcast, Randy. I love this question, Randy, because this hits home. I've had to make this decision several times in many businesses I've grown over the years, and this is not an easy decision. Because you've sacrificed so much to this point to make your business happen, it doesn't really feel like a sacrifice anymore. It just feels like the normal thing to do. But having said that, doing this is risky. When you're running a small business, paying yourself is something you really need to take seriously because it's going to allow you to be sustainable. It's allowing you to be able to grow in ways that you probably don't see right now. But also, this is an opportunity for you to revisit why you started this business in the first place. And of course, I'm going to discuss if Randy should be paying himself more or not. If you've been wondering about how much to pay yourself, if you're being too generous, too stingy, not reinvesting enough in your business, you're going to love this episode. Let's get into it. Let's get down to business, guys.

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The topic of paying yourself as a business owner is one of those topics that not a lot of people talk about. But it's a real problem because everybody on your team, if you have staff, if you have freelancers, they're getting paid, right? They're getting their salary. But often in a business, the last person that gets paid or the one that sacrifices their pay are the business owners. I've run businesses where the first few years I didn't get a salary, there were some rough months in my businesses where I didn't take a salary because I needed to pay other bills to take care of some unexpected expense. And of course I did what Randy did, where I'm on the razor's edge, where I'm paying myself just enough to get by. All these situations are a disaster, I'm telling you, because they lead to bad habits. They lead to bad decisions, they lead to really bad business ownership. The whole point of you starting an independent business is so that you could be financially independent, so that you can be able to sustain your livelihood in a comfortable way. Otherwise you should just get a job and get paid a salary and know you have a bit of security. You've already taken a massive risk by betting on yourself and betting on your business idea. And now that you're making money, now that you're making profits and you have the chance to pay yourself more, this is the time to do it. I'm a firm believer of this because if you don't know if you're going to pay rent or if you're going to make your bills or something comes short, you have an emergency one day and you don't have the money to pay for it. That kind of pressure is not going to allow you to be the best business owner. That kind of worry is not going to allow you to be creative to solve problems creatively. As the leader of your business, you need to take care of all non business related stress as much as possible. And that includes your own personal finance. You need to make sure that that is taken care of so you don't have to worry about that so you can focus on solving all your other business related issues. This is why I recommend that if you can give yourself a raise now, do it now so you at least have a bit of buffer. This doesn't mean now you go crazy and you start spending outside your means. You can continue to spend what you're spending now and being frugal and making sure that you're keeping your expenses down. But at least now you have a bit of a buffer that at the end of the month you have some money left over if there's an emergency, you have some savings, maybe you want to go on a short holiday. You're not on the razor's edge of reality and poverty. This is why I say it's so important when you start a business is to have a business bank account to separate your personal and your business bank finances. Because you want to make sure that what you have as cash is separated from your business and you don't dip back and forth into it too much. Sometimes we give our businesses loans to pay some bills. I've done that several times. But it's not a good habit to have. Because we are emotional about our businesses, we will bail out our business when we have to. But if it happens a little bit too often, then your business is taking advantage of you. And the reality is that you need to cut some costs somewhere in your business so you don't have to do that constantly. So you do have buffer in your business's budget as well. So you mentioned you pay yourself $4,000 and right now it pays for all your expenses just about. My recommendation is to bump that maybe about 25%. So you're making five grand and that way you can put away $1,000 each month. What I like to do is kind of separate any extra cash or savings into buckets. You can have a bucket for maybe a rainy day fund, a bucket for maybe a holiday you're planning for, and maybe just a bucket for just pure savings. Everybody's asset allocation is going to be different. But I like 25, 25, 50. So like 25 to the vacation fund, 25 to the emergency fund, and 50 to the savings. And of course, I'm talking about just the extra cash after your expenses. Now, obviously, if your business continues to grow, you may want to revisit your salary again six months a year down the line. Now, one of Randy's concerns is a valid one. And he said, well, I'm afraid if I don't reinvest each month, the extra cash it will not continue to grow. Well, you need to verify that. A lot of us are just running on hunches. Find out how your reinvestment is actually doing that. Maybe you're getting sales in other ways than you're investing. Maybe it's coming from organic traffic, maybe you're getting from word of mouth traffic. Maybe your referral program is starting to pick up. Maybe one of your products are becoming really popular and being shared on social. Maybe it has nothing to do with what you're reinvesting in. Find out where your extra revenue is coming from. A lot of us, we try to track things to see what's going wrong. But it's just as important, if not more important, to track what's going right. How is this affecting your business? So you can continue to do it, double down on it, and know that maybe what you're investing your money in, maybe it's in marketing or sales or whatever it is. It's not really moving the needle. And you think it is just because overall you're making more sales. Those sales could be coming from somewhere else. So verify first. Second, when you give yourself a raise for a month or two, you're going to find out if it's really making a difference. And it's not like the money is being thrown in the garbage. It's going to you, the business owner who used your own money to start this business, most likely. Now this is not legal or financial advice, but I would recommend speaking to an accountant, your accountant that maybe does your taxes or runs your payroll or whatever and take a look at the finances of your business in relation to what you have contributed to the business. A lot of us don't account for this, but in the beginning you most likely spent your own personal capital to get your business going, to start your website, to invest in inventory, whatever it is. And in many cases this is seen as like a director's loan and that's an amount of capital that you eventually should be paying back to yourself. I know that sounds like you're two different people, but yeah, you as the director or as the owner of the company is separate from the company itself. So if you've used your own cash that that cash should be paid back to you in some form. So you should definitely talk to an accountant about this because there might be some tax incentives and where you live there may not. But it's good to ask because this is not straight up a salary increase. This could just be a payback of a loan. A lot of people worry about increasing their salary because they're going to have to pay more in their own personal income tax. Don't run on hunches. Ask an accountant. Ask a cpa. Get financial advice from the experts.

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To wrap up today's Q and A Wednesday's question from Randy if you're able to give yourself a bump in pay, do it. Because being that close to the edge to just paying your bill, it's not a fun place to be. You have to start rewarding yourself for the hard work and achievements that you have given yourself. It doesn't mean you have to go all out and ball out. I'm saying at least give yourself a little bit of buffer so that hey, you can treat yourself to an ice cream one day or a small long weekend to relax and recharge and remind yourself, hey, why did you start this business in the first place? So you can have a better life. So you can be independent. So they'll be able to build great things, but also to be in a better financial situation. It's okay to do that and it's okay to take baby steps towards a higher salary. You can't be ramen profitable forever, right? That's not a sustainable model. You can't just do the bare minimum and be so close to your financial edge year after year. You're asking for trouble. Because as we know, life will serve as curveballs. Emergencies. Our car can break down. A medical emergency where bills will crop up. And if we're not prepared, this is going to not only bother us on a personal level, but because we run our business, it's going to affect the business if we don't have that taken care of. So see this as more of an insurance policy and a way for you to make sure you're ready for the unexpected. Thanks Randy for asking today's Q and A Wednesday's question. If you got a question you want to ask, just go ahead and email me over@omar mba.net and I'll make sure to answer right here on Q and A Wednesday. Right here on the show, guys and gals. I apologize if my voice is a little bit off. I'm in under the weather for the last few days, but I've been avoiding recording for a while. But I thought let me jump on the mic and let me keep on going because you know, these symptoms are lingering. So I got to keep on going. The show must go on, as they say. Thanks so much for putting up with maybe a bit of an easily sound today. I hope the content kind of made it worth it. Don't forget to hit subscribe and share the show on social. You can tell people on social to subscribe over@100nba.net there's some great subscribe buttons right on our website. It's the best way to pay it forward. Before I go, I want to leave you with this. As your business starts to grow, as your team starts to grow and you have more and more people to pay, your salary becomes more of a concern, meaning it has more vulnerability to take a backseat in terms of how much you get paid, if you get paid at all sometimes. So it's important for you to build good habits in the beginning before you start having, you know, 5, 10, 20, 30, 50 employees, you are the first employee. Make sure you treat your first employee properly and pay them properly. Thanks so much for listening, and I'll check you in tomorrow's episode. I'll see you then. Take care.

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