Tips to Pay Yourself When You are an Entrepreneur

by Ben Stokes Freelance Blogger

If you are an entrepreneur, you may be confused about your pay. Whether you are a sole proprietor, self-employed, or running a partnership firm, you often do not have an idea of how much money you should pay yourself as your salary.

When you are running a partnership firm, you know how much share you have in profits that your form makes, but you do not know how much you can own it – of course, some of the portions of your profits belong to your partnership firm.

Further, whatever the type of business you own, you will have to decide on your salary based on your personal and business expenses. Though it may seem a bit easier to decide on salary, it is not that easy.

You cannot just pick a random figure because it seems quite impressive to you. You will have to carefully analyze how your business works and how much money you need to keep the ball rolling.

Before you get to know how to decide on your salary if you are an entrepreneur, you should know why you should pay yourself a salary.

Why should you pay your salary yourself?

First off, you can say that you have put in a lot of effort to run your business, so your salary will be an award for your accomplishments. However, this is not just the reason why you need to pay yourself if you are an entrepreneur.

You should define the boundaries between what belongs to you that you can use for your personal expenses and what belongs to your business so you can easily meet your business expenses out of those funds.

Not paying yourself can disrupt your business earnings, and eventually, you will suffer from a lot of complications. This is why it is necessary for you to pay yourself even though you are self-employed or running a company.

Tips to pay yourself when you are an entrepreneur

Here are tips to pay yourself when you are an entrepreneur:

· Separate your personal and business expenses

It can be easy to mix through personal and business finances. If you do not define a boundary between both types of expenses, you will likely fall short on cash for your business expenses. The best way to manage these expenses separately is to have a separate bank account for both of them.

For instance, your business account must be different from that you will need for your personal expenses. In this way, you will clearly have an idea of how much money you have to pay for your personal expenses and how much you have to pay for your business expenses. You should have all your debit cards, credit cards, and other accounts separate for both personal and business expenses.

· Figure out how to pay yourself

This is the most complicated part. You can maintain your accounts separately, but again, you need to know first much money you should transfer to your personal account as salary. You have to decide on the amount of money that does not affect your business running.

For instance, you will need to estimate the amount of money you need for your business operations like inventory cost, payroll, and other liabilities, including debt payments. Further, you need to find out your tax liability.

Since it is calculated based on the gross income, ensure that you have left with sufficient net income to pay for your business expenses. You should get the record of your bank statement for the previous couple of months to see how much money you usually need for your business expenses.

Find out the average figure, so you know how much approximately you need to run for your business expenses, and then you should see how much you are left that you can look upon as your salary.

· Do not compromise with business cash reservoir

You cannot have your right over a portion of money left in your net profit account as your salary. This is because sometimes, business comes up with an emergency. You may have to pay some unexpected expenses that can be in the form of additional inventory, for instance.

Make sure that you leave some money as a cash reservoir in your business account. This will help you avoid running out of money. In case you still need some money, you can take out a quick loan in Ireland.

However, at the same time, it is essential to determine whether you will be able to pay off your debt. Do not forget that you are to cover these expenses from your business funds. Your salary cannot be held responsible for the payment of your business debts. This is why you should be careful at the time of taking on debt to meet your business expenses.

· Do not forget planned expenses

Business is all about planning, which means you should be careful about those expenses as well to find out how much money you will need to run your business, so you do not have to dip into your salary.

For instance, you know that you will need a car in the coming years of your business, whether to provide your employees with pick and drop facility or transport inventory. You will have to arrange a down payment so you can use car finance for the unemployed in Ireland. When deciding your salary, it is a must that you know that this will not hamper setting aside your money for your car.

The bottom line

Deciding on salary can be quite tricky, but at the same time, it is essential that you do not run out of money to meet your business expenses.

In the beginning, you should opt for a low salary to see if you can manage to run your business operations and if you see there is a significant improvement in your business revenues, you can increase your salary too. The tips mentioned above can truly help you decide on the right amount of salary for you.